UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-12247
SOUTHSIDE BANCSHARES, INC.
| TEXAS (State or other jurisdiction of incorporation or organization) |
75-1848732 (I.R.S. Employer Identification No.) |
|
| 1201 S. Beckham, Tyler, Texas (Address of principal executive offices) |
75701 (Zip Code) |
903-531-7111
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ. No o.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes þ. No
o.
The number of shares outstanding of each of the issuer’s classes of capital stock as of April 27, 2005 was 11,397,026 shares of Common Stock, par value $1.25.
PART I. FINANCIAL INFORMATION
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| March 31, | December 31, | |||||||
| (in thousands, except share amounts) | 2005 | 2004 | ||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 42,370 | $ | 49,282 | ||||
Interest earning deposits |
693 | 550 | ||||||
Federal funds sold |
3,300 | — | ||||||
Investment securities: |
||||||||
Available for sale |
128,778 | 133,535 | ||||||
Mortgage-backed and related securities: |
||||||||
Available for sale |
497,740 | 479,475 | ||||||
Held to maturity |
239,865 | 241,058 | ||||||
Marketable equity securities: |
||||||||
Available for sale |
27,466 | 26,819 | ||||||
Loans held for sale |
4,633 | 3,764 | ||||||
Loans: |
||||||||
Loans, net of unearned discount |
636,831 | 624,019 | ||||||
Less: allowance for loan losses |
(6,884 | ) | (6,942 | ) | ||||
Net Loans |
629,947 | 617,077 | ||||||
Premises and equipment, net |
30,352 | 30,325 | ||||||
Interest receivable |
8,415 | 8,550 | ||||||
Deferred tax asset |
4,688 | 2,357 | ||||||
Other assets |
43,704 | 26,851 | ||||||
TOTAL ASSETS |
$ | 1,661,951 | $ | 1,619,643 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Deposits: |
||||||||
Noninterest bearing |
$ | 270,455 | $ | 263,898 | ||||
Interest bearing |
700,982 | 677,088 | ||||||
Total Deposits |
971,437 | 940,986 | ||||||
Short-term obligations: |
||||||||
Federal funds purchased |
— | 8,500 | ||||||
FHLB Dallas advances |
225,692 | 198,901 | ||||||
Other obligations |
1,222 | 2,500 | ||||||
Total Short-term obligations |
226,914 | 209,901 | ||||||
Long-term obligations: |
||||||||
FHLB Dallas advances |
314,586 | 330,668 | ||||||
Long-term debt |
20,619 | 20,619 | ||||||
Total Long-term obligations |
335,205 | 351,287 | ||||||
Other liabilities |
30,190 | 12,772 | ||||||
TOTAL LIABILITIES |
1,563,746 | 1,514,946 | ||||||
Commitments and Contingencies (Note 7) |
||||||||
Shareholders’ equity: |
||||||||
Common stock: ($1.25 par, 20,000,000 shares authorized,
13,107,048 and 12,486,717 shares issued) |
16,384 | 15,608 | ||||||
Paid-in capital |
86,229 | 75,268 | ||||||
Retained earnings |
25,061 | 33,718 | ||||||
Treasury stock (1,718,737 and 1,485,187 shares at cost) |
(22,850 | ) | (17,853 | ) | ||||
Accumulated other comprehensive loss |
(6,619 | ) | (2,044 | ) | ||||
TOTAL SHAREHOLDERS’ EQUITY |
98,205 | 104,697 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 1,661,951 | $ | 1,619,643 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
1
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (in thousands, except per share data) | 2005 | 2004 | ||||||
Interest income |
||||||||
Loans |
$ | 8,989 | $ | 8,503 | ||||
Investment securities – taxable |
508 | 230 | ||||||
Investment securities – tax-exempt |
913 | 1,030 | ||||||
Mortgage-backed and related securities |
8,241 | 6,054 | ||||||
Marketable equity securities |
216 | 106 | ||||||
Other interest earning assets |
9 | 22 | ||||||
Total interest income |
18,876 | 15,945 | ||||||
Interest expense |
||||||||
Deposits |
3,413 | 2,382 | ||||||
Short-term obligations |
1,940 | 1,545 | ||||||
Long-term obligations |
3,144 | 2,497 | ||||||
Total interest expense |
8,497 | 6,424 | ||||||
Net interest income |
10,379 | 9,521 | ||||||
Provision for loan losses |
235 | 225 | ||||||
Net interest income after provision for loan losses |
10,144 | 9,296 | ||||||
Noninterest income |
||||||||
Deposit services |
3,387 | 3,389 | ||||||
(Loss) gain on sale of securities available for sale |
(216 | ) | 1,817 | |||||
Gain on sale of loans |
370 | 434 | ||||||
Trust income |
329 | 277 | ||||||
Bank owned life insurance income |
189 | 197 | ||||||
Other |
698 | 358 | ||||||
Total noninterest income |
4,757 | 6,472 | ||||||
Noninterest expense |
||||||||
Salaries and employee benefits |
6,858 | 6,498 | ||||||
Net occupancy expense |
1,041 | 1,006 | ||||||
Equipment expense |
207 | 173 | ||||||
Advertising, travel and entertainment |
546 | 503 | ||||||
ATM expense |
140 | 172 | ||||||
Director fees |
159 | 144 | ||||||
Supplies |
146 | 145 | ||||||
Professional fees |
198 | 244 | ||||||
Postage |
135 | 138 | ||||||
Other |
1,125 | 1,044 | ||||||
Total noninterest expense |
10,555 | 10,067 | ||||||
Income before federal tax expense |
4,346 | 5,701 | ||||||
Provision for federal tax expense |
771 | 1,206 | ||||||
Net Income |
$ | 3,575 | $ | 4,495 | ||||
Earnings per
common share - basic |
$ | 0.31 | $ | 0.39 | ||||
Earnings per
common share - diluted |
$ | 0.30 | $ | 0.37 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
2
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
| Accumulated | ||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||
| Compre- | Total | |||||||||||||||||||||||||||
| Compre- | hensive | Share- | ||||||||||||||||||||||||||
| hensive | Common | Paid-in | Retained | Treasury | Income | holders’ | ||||||||||||||||||||||
| (in thousands, except share amounts) | Income | Stock | Capital | Earnings | Stock | (Loss) | Equity | |||||||||||||||||||||
Balance at December 31, 2003 |
$ | 14,724 | $ | 63,144 | $ | 32,979 | $ | (16,544 | ) | $ | 6,083 | $ | 100,386 | |||||||||||||||
Net Income |
$ | 4,495 | 4,495 | 4,495 | ||||||||||||||||||||||||
Other comprehensive income, net of tax
Unrealized gains on securities, net of
reclassification adjustment (see Note 3) |
1,627 | 1,627 | 1,627 | |||||||||||||||||||||||||
Comprehensive income |
$ | 6,122 | ||||||||||||||||||||||||||
Common stock issued (56,276 shares) |
71 | 399 | 470 | |||||||||||||||||||||||||
Tax benefit of incentive stock options |
136 | 136 | ||||||||||||||||||||||||||
Dividends paid on common stock |
(1,040 | ) | (1,040 | ) | ||||||||||||||||||||||||
Balance at March 31, 2004 |
$ | 14,795 | $ | 63,679 | $ | 36,434 | $ | (16,544 | ) | $ | 7,710 | $ | 106,074 | |||||||||||||||
Balance at December 31, 2004 |
$ | 15,608 | $ | 75,268 | $ | 33,718 | $ | (17,853 | ) | $ | (2,044 | ) | $ | 104,697 | ||||||||||||||
Net Income |
$ | 3,575 | 3,575 | 3,575 | ||||||||||||||||||||||||
Other comprehensive loss, net of tax
Unrealized losses on securities, net of
reclassification adjustment (see Note 3) |
(4,575 | ) | (4,575 | ) | (4,575 | ) | ||||||||||||||||||||||
Comprehensive loss |
$ | (1,000 | ) | |||||||||||||||||||||||||
Common stock issued (76,637 shares) |
96 | 421 | 517 | |||||||||||||||||||||||||
Tax benefit of incentive stock options |
182 | 182 | ||||||||||||||||||||||||||
Dividends paid on common stock |
(1,194 | ) | (1,194 | ) | ||||||||||||||||||||||||
Purchase of 233,550 shares of
common stock |
(4,997 | ) | (4,997 | ) | ||||||||||||||||||||||||
Stock dividend |
680 | 10,358 | (11,038 | ) | ||||||||||||||||||||||||
Balance at March 31, 2005 |
$ | 16,384 | $ | 86,229 | $ | 25,061 | $ | (22,850 | ) | $ | (6,619 | ) | $ | 98,205 | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (in thousands) | 2005 | 2004 | ||||||
OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 3,575 | $ | 4,495 | ||||
Adjustments to reconcile net income to net cash provided by operations: |
||||||||
Depreciation |
516 | 578 | ||||||
Amortization of premium |
2,150 | 2,568 | ||||||
Accretion of discount and loan fees |
(316 | ) | (109 | ) | ||||
Provision for loan losses |
235 | 225 | ||||||
Tax benefit of incentive stock options |
182 | 136 | ||||||
Decrease in interest receivable |
135 | 610 | ||||||
(Increase) decrease in other assets |
(16,623 | ) | 940 | |||||
Decrease (increase) in deferred taxes |
26 | (250 | ) | |||||
Increase (decrease) in interest payable |
254 | (23 | ) | |||||
Increase in other liabilities |
15,886 | 7,890 | ||||||
Increase in loans held for sale |
(869 | ) | (1,515 | ) | ||||
Loss (gain) on sale of available for sale securities |
216 | (1,817 | ) | |||||
Gain on sale of assets |
(22 | ) | (6 | ) | ||||
Gain on sale of other real estate owned |
— | (19 | ) | |||||
Net cash provided by operating activities |
5,345 | 13,703 | ||||||
INVESTING ACTIVITIES: |
||||||||
Net increase in federal funds sold |
(3,300 | ) | (8,600 | ) | ||||
Proceeds from sales of investment securities available for sale |
16,397 | 30,592 | ||||||
Proceeds from sales of mortgage-backed securities available for sale |
25,754 | 76,858 | ||||||
Proceeds from maturities of investment securities available for sale |
52,774 | 12,115 | ||||||
Proceeds from maturities of mortgage-backed securities available for sale |
30,481 | 34,960 | ||||||
Proceeds from maturities of mortgage-backed securities held to maturity |
5,914 | 876 | ||||||
Purchases of investment securities available for sale |
(65,653 | ) | (16,398 | ) | ||||
Purchases of mortgage-backed securities available for sale |
(81,868 | ) | (152,540 | ) | ||||
Purchases of mortgage-backed securities held to maturity |
(5,096 | ) | — | |||||
Purchases of marketable equity securities available for sale |
(647 | ) | (87 | ) | ||||
Net increase in loans |
(13,607 | ) | (5,665 | ) | ||||
Purchases of premises and equipment |
(543 | ) | (552 | ) | ||||
Proceeds from sale of premises and equipment |
22 | 12 | ||||||
Proceeds from sale of other real estate owned |
153 | 136 | ||||||
Proceeds from sale of repossessed assets |
119 | 103 | ||||||
Net cash used in investing activities |
(39,100 | ) | (28,190 | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
(UNAUDITED)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (in thousands) | 2005 | 2004 | ||||||
FINANCING ACTIVITIES: |
||||||||
Net increase in demand and savings accounts |
$ | 7,774 | $ | 17,374 | ||||
Net increase (decrease) in certificates of deposit |
22,677 | (4,030 | ) | |||||
Net decrease in federal funds purchased |
(8,500 | ) | (3,525 | ) | ||||
Net increase (decrease) in FHLB Dallas advances |
10,709 | (2,834 | ) | |||||
Proceeds from the issuance of common stock |
517 | 470 | ||||||
Purchase of common stock |
(4,997 | ) | — | |||||
Dividends paid |
(1,194 | ) | (1,040 | ) | ||||
Net cash provided by financing activities |
26,986 | 6,415 | ||||||
Net decrease in cash and cash equivalents |
(6,769 | ) | (8,072 | ) | ||||
Cash and cash equivalents at beginning of period |
49,832 | 47,223 | ||||||
Cash and cash equivalents at end of period |
$ | 43,063 | $ | 39,151 | ||||
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION: |
||||||||
Interest paid |
$ | 8,243 | $ | 6,447 | ||||
Income taxes paid |
500 | 550 | ||||||
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: |
||||||||
Acquisition of other repossessed assets and real estate through foreclosure |
$ | 502 | $ | 303 | ||||
Transfer of available for sale securities to held to maturity securities |
— | 44,352 | ||||||
Payment of 5% stock dividend |
11,038 | — | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The term “Company” is used throughout this report to refer to Southside Bancshares, Inc. and its subsidiaries. The term “Bank” is used to refer to Southside Bank wherever a distinction between Southside Bancshares, Inc. and Southside Bank aids in the understanding of this report.
The consolidated balance sheet as of March 31, 2005, and the related consolidated statements of income, shareholders’ equity and cash flow and notes to the financial statements for the three month periods ended March 31, 2005 and 2004 are unaudited; in the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the financial statements and notes thereto in the Company’s latest annual report on Form 10-K. All share data has been adjusted to give retroactive recognition to stock splits and stock dividends. For a description of the Company’s significant accounting and reporting policies, refer to Note 1 of the Notes to Financial Statements in the 2004 Annual Report to Shareholders.
2. Earnings Per Share
Earnings per share on a basic and diluted basis has been adjusted to give retroactive recognition to stock splits and stock dividends and is calculated as follows (in thousands, except per share amounts):
| Three Months Ended March 31, | ||||||||
| 2005 | 2004 | |||||||
Basic Earnings and Shares: |
||||||||
Net income |
$ | 3,575 | $ | 4,495 | ||||
Weighted-average basic shares outstanding |
11,466 | 11,455 | ||||||
Basic Earnings Per Share: |
||||||||
Net income |
$ | 0.31 | $ | 0.39 | ||||
Diluted Earnings and Shares: |
||||||||
Net income |
$ | 3,575 | $ | 4,495 | ||||
Weighted-average basic shares outstanding |
11,466 | 11,455 | ||||||
Add: Stock options |
642 | 691 | ||||||
Weighted-average diluted shares outstanding |
12,108 | 12,146 | ||||||
Diluted Earnings Per Share: |
||||||||
Net income |
$ | 0.30 | $ | 0.37 | ||||
For the quarters ended March 31, 2005 and 2004, there were no antidilutive shares.
6
3. Comprehensive Income (Loss)
The components of other comprehensive income (loss) are as follows (in thousands):
| Three Months Ended March 31, 2005 | ||||||||||||
| Before-Tax | Tax (Expense) | Net-of-Tax | ||||||||||
| Amount | Benefit | Amount | ||||||||||
Unrealized losses on securities: |
||||||||||||
Unrealized holding losses arising during period |
$ | (7,148 | ) | $ | 2,430 | $ | (4,718 | ) | ||||
Less: reclassification adjustment for losses
included in net income |
(216 | ) | 73 | (143 | ) | |||||||
Net unrealized losses on securities |
(6,932 | ) | 2,357 | (4,575 | ) | |||||||
Other comprehensive loss |
$ | (6,932 | ) | $ | 2,357 | $ | (4,575 | ) | ||||
| Three Months Ended March 31, 2004 | ||||||||||||
| Before-Tax | Tax (Expense) | Net-of-Tax | ||||||||||
| Amount | Benefit | Amount | ||||||||||
Unrealized gains on securities: |
||||||||||||
Unrealized holding gains arising during period |
$ | 4,282 | $ | (1,456 | ) | $ | 2,826 | |||||
Less: reclassification adjustment for gains
included in net income |
1,817 | (618 | ) | 1,199 | ||||||||
Net unrealized gains on securities |
2,465 | (838 | ) | 1,627 | ||||||||