1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- ------------------------
Commission file number 0-10849
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SOUTHSIDE BANCSHARES CORP.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1262037
------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3606 GRAVOIS AVENUE, ST. LOUIS, MISSOURI 63116
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 776-7000
----------------
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 X No
------- -------
At AUGUST 13, 2001, the number of shares outstanding of the registrant's
common stock was 8,444,528.
2
SOUTHSIDE BANCSHARES CORP.
TABLE OF CONTENTS
PAGE
----
Part I. FINANCIAL INFORMATION (unaudited)
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 2001 and
December 31, 2000 3
Condensed Consolidated Statements of Income for the six and three months ended
June 30, 2001 and June 30, 2000 4
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive
Income for the six months ended June 30, 2001
and the year ended December 31, 2000 5
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and June 30, 2000 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk 21
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
3
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2001 and December 31, 2000
(dollars in thousands except per share data)
(unaudited)
JUNE 30, DECEMBER 31,
2001 2000
--------- ------------
ASSETS
Cash and due from banks $ 18,929 $ 17,102
Interest-bearing deposits in banks 2,623 896
--------- ---------
Cash and cash equivalents 21,552 17,998
--------- ---------
Federal funds sold 31,979 16,383
Investments in debt and equity securities:
Available for sale, at fair value 174,912 158,028
Held to maturity, at amortized cost (fair value of $26,947
in 2001, and $36,660 in 2000) 26,437 36,417
--------- ---------
Total investments in debt and equity securities 201,349 194,445
--------- ---------
Loans, net of unearned discount 477,491 463,406
Less allowance for loan losses 5,402 5,179
--------- ---------
Loans, net 472,089 458,227
--------- ---------
Premises and equipment 16,835 17,206
Other assets 31,916 33,168
--------- ---------
Total assets $ 775,720 $ 737,427
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 74,258 $ 77,196
Interest-bearing demand and savings 225,179 214,326
Time deposits 313,742 282,672
--------- ---------
Total deposits 613,179 574,194
Federal funds purchased 2,000 5,750
Securities sold under agreements to repurchase 7,470 7,952
FHLB borrowings 70,861 70,947
Other borrowings 1,600 1,900
Debt of Employee Stock Ownership Plan 791 988
Other liabilities 6,786 6,295
--------- ---------
Total liabilities 702,687 668,026
--------- ---------
Commitments and contingent liabilities
Shareholders' equity:
Cumulative preferred stock, no par value, 1,000,000 shares authorized and
unissued -- --
Common stock, $1 par value, 15,000,000 shares authorized, 8,985,378 shares
issued 8,985 8,985
Surplus 5,419 5,516
Retained earnings 64,011 62,592
Unearned Employee Stock Ownership Plan shares (692) (791)
Treasury stock, at cost, 540,850 shares in 2001 and 591,850 shares in 2000 (5,843) (6,394)
Accumulated other comprehensive income (loss) 1,153 (507)
--------- ---------
Total shareholders' equity 73,033 69,401
--------- ---------
Total liabilities and shareholders' equity $ 775,720 $ 737,427
========= =========
See accompanying notes to condensed consolidated financial statements.
3
4
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
Six and three months ended June 30, 2001 and June 30, 2000
(dollars in thousands except per share data)
(unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED
-------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Interest income:
Interest and fees on loans $ 19,564 $ 17,055 $ 9,816 $ 8,771
Interest on investments in debt and equity securities:
Taxable 5,147 5,925 2,505 2,952
Exempt from Federal income taxes 703 766 354 373
Interest on short-term investments 735 211 393 101
---------- ---------- ---------- ----------
Total interest income 26,149 23,957 13,068 12,197
Interest expense:
Interest on interest-bearing demand and savings 3,194 3,642 1,515 1,869
deposits
Interest on time deposits 8,976 5,773 4,553 2,975
Interest on Federal funds purchased 55 224 3 193
Interest on securities sold under agreements to 146 148 68 73
repurchase
Interest on FHLB borrowings 1,923 2,387 965 1,216
Interest on other borrowings 70 -- 31 --
Interest on debt of Employee Stock Ownership Plan 33 41 15 19
---------- ---------- ---------- ----------
Total interest expense 14,397 12,215 7,150 6,345
---------- ---------- ---------- ----------
Net interest income 11,752 11,742 5,918 5,852
Provision for loan losses 321 178 162 97
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 11,431 11,564 5,756 5,755
Noninterest income:
Trust fees 577 636 290 348
Service charges on deposit accounts 824 791 426 413
Gains on sales of loans 187 5 111 3
Other 785 744 384 370
---------- ---------- ---------- ----------
Total noninterest income 2,373 2,176 1,211 1,134
Noninterest expense:
Salaries and employee benefits 5,062 4,637 2,570 2,362
Net occupancy and equipment expense 1,394 1,352 711 673
Data processing 408 370 197 180
Other 3,060 2,824 1,771 1,462
---------- ---------- ---------- ----------
Total noninterest expense 9,924 9,183 5,249 4,677
---------- ---------- ---------- ----------
Income before income tax expense 3,880 4,557 1,718 2,212
Income tax expense 1,136 1,224 527 553
---------- ---------- ---------- ----------
Net income $ 2,744 $ 3,333 $ 1,191 $ 1,659
========== ========== ========== ==========
Share data:
Earnings per common share - basic $ .33 $ .40 $ .14 $ .20
Earnings per common share - diluted $ .32 $ .39 $ .14 $ .19
Dividends paid per common share $ .16 $ .16 $ .08 $ .08
Average common shares outstanding 8,278,457 8,412,951 8,293,634 8,417,584
Average common shares outstanding, including
potentially dilutive shares 8,482,200 8,490,416 8,525,980 8,477,439
See accompanying notes to condensed consolidated financial statements.
4
5
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders' Equity
and Comprehensive Income
Six months ended June 30, 2001 and year ended December 31, 2000
(dollars in thousands except per share data)
(unaudited)
ACCUMULATED
OTHER
UNEARNED COMPREHENSIVE
COMMON RETAINED ESOP TREASURY INCOME
STOCK SURPLUS EARNINGS SHARES STOCK (LOSS) TOTAL
------- ------- ------- -------- -------- ------------- -------
Balance at December 31, 1999 $ 8,985 5,431 58,765 (988) (4,335) (3,450) 64,408
Comprehensive income:
Net income -- -- 6,487 -- -- -- 6,487
Change in net unrealized
gain (loss) on available
for sale securities, net of
tax effect -- -- -- -- -- 2,943 2,943
------- ------- ------- ------- ------- ------- -------
Total comprehensive
income -- -- 6,487 -- -- 2,943 9,430
Cash dividends paid ($.32
per share) -- -- (2,660) -- -- -- (2,660)
Allocation of 37,062 shares
to ESOP participants -- 85 -- 197 -- -- 282
Purchase of 200,100 common
shares for treasury -- -- -- -- (2,059) -- (2,059)
------- ------- ------- ------- ------- ------- -------
Balance at December 31, 2000 8,985 5,516 62,592 (791) (6,394) (507) 69,401
Comprehensive income:
Net income -- -- 2,744 -- -- -- 2,744
Change in net unrealized
gain (loss) on available
for sale securities, net of
tax effect -- -- -- -- -- 1,660(1) 1,660
------- ------- ------- ------- ------- ------- -------
Total comprehensive
income -- -- 2,744 -- -- 1,660 4,404
Cash dividends paid ($.16
per share) -- -- (1,325) -- -- -- (1,325)
Allocation of 18,531 shares
to ESOP participants -- 139 -- 99 -- -- 238
Exercise of 51,000 stock
options -- (236) -- -- 551 -- 315
------- ------- ------- ------- ------- ------- -------
Balance at June 30, 2001 $ 8,985 5,419 64,011 (692) (5,843) 1,153 73,033
======= ======= ======= ======= ======= ======= =======
(1) Includes changes in net unrealized gain (loss) on available-for-sale
securities, net of tax effect of $1,590,000 and $70,000 in the first and
second quarters of 2001, respectively.
See accompanying notes to condensed consolidated financial statements.
5
6
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2001 and June 30, 2000
(dollars in thousands)
(unaudited)
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 2,744 $ 3,333
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 930 1,049
Provision for loan losses 321 178
Gains on sales of loans (187) (5)
Other operating activities, net 994 884
Originations of loans for sale (14,184) (520)
Proceeds from sale of loans 13,991 525
-------- --------
Net cash provided by operating activities 4,609 5,444
-------- --------
Cash flows from investing activities:
Net increase in Federal funds sold (15,596) (687)
Proceeds from maturities of and principal payments on debt securities 37,968 27,850
Purchases of debt securities (42,600) (13,903)
Net increase in loans (13,877) (46,779)
Recoveries of loans previously charged off 74 224
Purchases of premises and equipment (184) (715)
Proceeds from sales of other real estate owned and other
foreclosed property -- 106
-------- --------
Net cash used in investing activities (34,215) (33,904)
-------- --------
Cash flows from financing activities:
Net increase in demand and savings deposits 7,915 8,713
Net increase in time deposits 31,070 2,860
Net (decrease) increase in federal funds purchased (3,750) 19,650
Net decrease in securities sold under agreements to repurchase (482) (2,304)
Proceeds from FHLB borrowings -- 20,914
Repayments of FHLB borrowings (86) (20,000)
Repayments of other borrowings (300) --
Repayment of ESOP debt (197) (198)
Stock options exercised 315 --
Cash dividends paid (1,325) (1,345)
-------- --------
Net cash provided by financing activities 33,160 28,290
-------- --------
Net increase (decrease) in cash and cash equivalents 3,554 (170)
Cash and cash equivalents, beginning of period 17,998 19,470
-------- --------
Cash and cash equivalents, end of period $ 21,552 $ 19,300
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 14,588 $ 12,328
Income taxes 1,465 715
Noncash transactions -
Transfers to other real estate owned in settlement of loans -- 150
======== ========
See accompanying notes to condensed consolidated financial statements.
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SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
(unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not
include all information and footnotes required by accounting principles
generally accepted in the United States of America for complete
consolidated financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary
for a fair presentation have been included. For further information, refer
to Southside Bancshares Corp.'s (the Company or Southside) Annual Report on
Form 10-K for the year ended December 31, 2000. Operating results for the
three months ended June 30, 2001 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001.
(2) SEGMENT INFORMATION
The responsibility for management of the subsidiary banks remains with the
officers and directors of the respective banks. The financial performance
of the Company is measured internally by subsidiary bank results and key
performance measures. The following tables show the financial information
of the Company's subsidiary banks, South Side National Bank in St. Louis
(SSNB), State Bank of Jefferson County (SBJC), Bank of Ste. Genevieve
County (BSG), and The Bank of St. Charles County (BSCC) for the six and
three months ended June 30, 2001 and 2000, respectively. The "Other" column
includes the parent Company and all intercompany elimination entries.
SIX MONTHS ENDED JUNE 30, 2001
-------------------------------------------------------------------------------
SSNB SBJC BSG BSCC OTHER CONSOLIDATED
-------- -------- -------- ------- ------- ------------
(dollars in thousands)
Results of Operations:
Net interest income $ 7,553 $ 1,391 $ 1,795 $ 1,116 $ (103) $ 11,752
Provision for loan losses 300 21 -- -- -- 321
Noninterest income 1,566 189 252 206 160 2,373
Noninterest expense 5,897 981 854 732 1,460 9,924
Income tax expense (benefit) 699 185 391 183 (322) 1,136
Net income (loss) 2,223 393 802 407 (1,081) 2,744
Average Balances:
Loans $314,689 $ 55,591 $ 59,578 $ 43,013 $ -- $472,871
Assets 512,769 78,225 100,659 65,605 6,772 764,030
Deposits 387,308 68,990 87,722 59,428 -- 603,448
Financial Ratios:
Return on assets .87% 1.00% 1.59% 1.24% -- .72%
Return on equity 9.64 11.97 15.14 14.03 -- 7.63
Net interest margin 3.35 3.99 3.90 3.75 -- 3.47
======== ======== ======== ======== ======== ========
SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------------------------
SSNB SBJC BSG BSCC OTHER CONSOLIDATED
-------- -------- -------- ------- ------- ------------
(dollars in thousands)
Results of Operations:
Net interest income $ 7,424 $ 1,325 $ 1,867 $ 1,167 $ (41) $ 11,742
Provision for loan losses 150 6 -- 22 -- 178
Noninterest income 1,416 186 222 196 156 2,176
Noninterest expense 5,664 960 911 747 901 9,183
Income tax expense (benefit) 758 168 377 191 (270) 1,224
Net income (loss) 2,268 377 801 403 (516) 3,333
Average Balances:
Loans $258,963 $ 50,259 $ 56,817 $ 42,499 $ -- $408,538
Assets 459,905 70,710 93,374 62,453 5,986 692,428
Deposits 324,302 60,985 81,388 56,743 (174) 523,244
Financial Ratios:
Return on assets .99% 1.07% 1.72% 1.29% -- .96%
Return on equity 11.23 12.37 16.66 15.32 -- 10.17
Net interest margin 3.72 4.25 4.39 4.02 -- 3.87
======== ======== ======== ======== ======== ========
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8
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
(unaudited)
THREE MONTHS ENDED JUNE 30, 2001
-------------------------------------------------------------------------------
SSNB SBJC BSG BSCC OTHER CONSOLIDATED
-------- -------- -------- ------- ------- ------------
(dollars in thousands)
Results of Operations:
Net interest income $ 3,800 $ 702 $ 893 $ 569 $ (46) $ 5,918
Provision for loan losses 150 12 -- -- -- 162
Noninterest income 815 97 116 105 78 1,211
Noninterest expense 2,983 496 431 366 973 5,249
Income tax expense (benefit) 315 93 189 96 (166) 527
Net income (loss) 1,167 198 389 212 (775) 1,191
Average Balances:
Loans $319,012 $56,236 $ 60,798 $ 42,623 $ -- $478,669
Assets 522,754 79,878 101,745 65,521 6,787 776,685
Deposits 397,690 70,638 88,879 59,316 -- 616,523
Financial Ratios:
Return on assets .89% .9% 1.5% 1.2% -- .61%
Return on equity 9.95 12.03 14.50 14.43 -- 6.46
Net interest margin 3.30 3.92 3.81 3.59 -- 3.43
======== ======= ======== ======== ======== ========
THREE MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------------------------
SSNB SBJC BSG BSCC OTHER CONSOLIDATED
-------- -------- -------- ------- ------- ------------
(dollars in thousands)
Results of Operations:
Net interest income $ 3,681 $ 689 $ 921 $ 580 $ (19) $ 5,852
Provision for loan losses 75 6 -- 16 -- 97
Noninterest income 747 98 103 101 85 1,134
Noninterest expense 2,882 496 467 376 456 4,677
Income tax expense (benefit) 326 89 179 93 (134) 553
Net income (loss) 1,145 196 378 196 (256) 1,659
Average Balances:
Loans $269,648 $ 52,209 $ 57,112 $ 42,482 $ -- $421,451
Assets 467,069 73,278 93,410 62,585 6,418 702,760
Deposits 326,913 63,158 81,488 56,824 (269) 528,114
Financial Ratios:
Return on assets .99 % 1.0% 1.6% 1.2% -- .94%
Return on equity 11.28 12.85 15.67 14.84 -- 10.00
Net interest margin 3.66 4.30 4.32 3.86 -- 3.80
======== ======== ======== ======== ======== ========
(3) MERGER
On April 30, 2001, the Company and Allegiant Bancorp, Inc., a Missouri
corporation ("Allegiant"), entered into an Agreement and Plan of Merger
(the "Merger Agreement"), pursuant to which Allegiant will acquire the
Company. The acquisition is structured as the merger (the "Merger") of
Allegiant with and into the Company, with the Company as the surviving
corporation (the "Surviving Corporation") in the Merger. Although the
Merger is expected to close late in the third quarter of 2001, the Merger
is subject to several conditions described below, and there can be no
assurance as to whether the Merger will be completed and, if so, when.
In accordance with the terms of the Merger Agreement in connection with the
Merger:
-- each share of the Company's common stock, par value $1.00 per share,
and the associated preferred share purchase rights under the Company's
Rights Agreement, dated May 27, 1993, (together, the "Southside Common
Stock"), issued and outstanding immediately prior to the effective
time of the Merger (the "Effective Time") will be converted into the
right to receive either: (i) $14.00 in cash; (ii) 1.39 shares of
common stock in the Surviving Corporation, par value $0.01 per share
("Surviving Corporation Common Stock"); or (iii) a combination of cash
and shares of Surviving Corporation Common Stock calculated in
accordance with the formula set forth in the Merger Agreement
(collectively, the "Southside Merger Consideration"); and
8
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SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 and 2000
(unaudited)
-- each share of Allegiant common stock, par value $0.01 per share (the
"Allegiant Common Stock"), issued and outstanding immediately prior to
the Effective Time will be converted into one share of Surviving
Corporation Common Stock.
Pursuant to the terms of the Merger Agreement, each shareholder of the
Company will elect what proportion of cash and Surviving Corporation Common
Stock such shareholder desires to receive in exchange for such
shareholder's shares of Company Common Stock (the "Shareholder Election");
provided that each such Shareholder Election is subject to reallocation in
accordance with the formula set forth in the Merger Agreement to ensure
that the aggregate Southside Merger Consideration payable to the Company's
shareholders will be comprised of 50% cash and 50% stock.
Consummation of the Merger is subject to various conditions, including: (i)
approval of the Merger Agreement and the Merger by the shareholders of the
Company and Allegiant; (ii) receipt of requisite regulatory approvals from
the Board of Governors of the Federal Reserve System and other federal and
state regulatory authorities as necessary; (iii) receipt of an opinion of
counsel in reasonably satisfactory form as to the tax treatment of certain
aspects of the Merger; and (iv) satisfaction of other customary conditions
included in the Merger Agreement.
The Merger Agreement and the transactions contemplated thereby will be
submitted for approval at meetings of the shareholders of the Company and
Allegiant, respectively, each to be held on September 12, 2001. The Company
has filed a registration statement with the Securities and Exchange
Commission registering under the Security Act of 1933 the shares of
Surviving Corporation Common Stock to be issued in the Merger. The shares
of Surviving Corporation Common Stock will be offered to the Company's
shareholders pursuant to a prospectus that will also serve as a proxy
statement for the shareholders' meetings.
As a result of the Company and Allegiant entering into the Merger
Agreement, all of the conditions to the Company's previously announced
tender offer to purchase 1,100,000 shares of its common stock, which
commenced on January 9, 2001, were not satisfied, and, therefore, the
Company determined to terminate the tender offer on May 1, 2001. The
Company instructed its exchange agent for the tender offer to promptly
return all shares of its common stock tendered pursuant to the tender offer
and not withdrawn.
9
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
This discussion is presented to provide an understanding of Southside
Bancshares Corp. and subsidiaries (the "Company" or "Registrant") consolidated
financial condition and the results of operations for six and three months ended
June 30, 2001 and 2000.
The Company's net income is derived primarily from the net interest income
of its subsidiary banks. Net interest income is the difference (or spread)
between the interest income the subsidiary banks receive from their loan and
investment portfolios and their cost of funds, consisting primarily of the
interest paid on deposits and borrowings. Net income is also affected by the
levels of provisions for loan losses, noninterest income, and noninterest
expense.
Statements contained in this Report and in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases and
in oral statements made with the approval of an authorized executive officer
which are not historical or current facts are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 (Section 27A of the Securities Act of 1993, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended). Such statements
are based on management's beliefs, and assumptions made by and information
currently available to management, and are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those currently anticipated or projected. When used in
the Company's documents or oral presentations, the words "anticipates,"
"believes," "estimates," "expects," "intends," "forecasts," "plan," "projects,"
and similar expressions are intended to identify such forward-looking
statements. There can be no assurance that such forward-looking statements will
in fact transpire. The following important factors, risks and uncertainties,
among others, could cause actual results to differ materially from such
forward-looking statements: (1) credit risk, (2) interest rate risk, (3)
competition, (4) changes in the regulatory environment and (5) changes in
general business and economic trends. The foregoing list should not be construed
as exhaustive and the Company disclaims any obligation to subsequently update or
revise any forward-looking statements after the date of this Report.
10
11
Item 2. (continued)
FINANCIAL HIGHLIGHTS
COMPARISON OF SELECTED FINANCIAL DATA
(dollars in thousands except per share data)
SIX MONTHS TWELVE MONTHS SIX MONTHS
ENDED ENDED ENDED
JUNE 30, 2001 DECEMBER 31, 2000 JUNE 30, 2000
------------- ----------------- -------------
Earnings:
Total interest income $ 26,149 $ 49,827 $ 23,957
Total interest expense 14,397 26,482 12,215
---------- ---------- ----------
Net interest income 11,752 23,345 11,742
Provision for loan losses 321 361 178
---------- ---------- ----------
Net interest income after provision for loan losses $ 11,431 $ 22,984 $ 11,564
========== ========== ==========
Net income $ 2,744 $ 6,487 $ 3,333
========== ========== ==========
Share Data:
Earnings per common share:
Basic $ .33 $ .78 $ .40
Diluted .32 .77 .39
Dividends paid per common share .16 .32 .16
Book value(1) 8.78 8.42 7.91
Tangible book value(1) 8.39 8.01 7.49
Shares outstanding (period-end)(1) 8,444,528 8,393,528 8,593,628
Average shares outstanding 8,278,457 8,363,828 8,412,951
Average shares outstanding, including potentially dilutive shares 8,482,200 8,437,139 8,490,416
========== ========== ==========
Financial Position:
Total assets $ 775,720 $ 737,427 $ 710,992
Total deposits 613,179 574,194 527,383
Total loans, net of unearned discount 477,491 463,406 437,687
Allowance for loan losses 5,402 5,179 4,853
Short-term borrowings 9,470 13,702 25,949
FHLB borrowings 70,861 70,947 84,835
Other borrowings 1,600 1,900 988
Debt of Employee Stock Ownership Plan 791 988 66,686
Total shareholders' equity 73,033 69,401 --
========== ========== ==========
SELECTED RATIOS
The table below summarizes various selected ratios as of the end and for the
periods indicated.
SIX MONTHS TWELVE MONTHS SIX MONTHS
ENDED ENDED ENDED
JUNE 30, 2001(2) DECEMBER 31, 2000 JUNE 30, 2000(2)
---------------- ----------------- ----------------
Loan-to-deposit ratio 77.87% 80.71% 82.99%
Allowance for loan losses to total loans 1.13 1.12 1.11
Dividend payout ratio 48.48 41.03 40.00
Return on average assets .72 .92 .96
Return on average shareholders' equity 7.63 9.76 10.17
Net interest margin on average interest-earning assets 3.47 3.76 3.87
Average shareholders' equity to average total assets 9.41 9.37 9.47
Tier I leverage capital to adjusted total consolidated assets 8.87 9.15 9.64
less intangibles
Tier I capital to risk-weighted assets 12.99 13.66 14.39
Total capital to risk-weighted assets 14.01 14.72 15.44
===== ===== =====
(1) Shares outstanding at June 30, 2001, December 31, 2000 and June 30, 2000
include 129,717, 148,248, 166,779 shares, respectively, held by the ESOP
which have not been allocated to participants' accounts and thus are not
considered outstanding for purposes of computing book value and tangible
book value per share. These unallocated shares are also excluded from the
average shares outstanding used to compute earnings per common share.
(2) Statistical information is annualized where applicable.
11
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Item 2. (continued)
FINANCIAL POSITION
Total consolidated assets of the Company have increased $38,293,000 during
the first six months of 2001 to $775,720,000 at June 30, 2001 compared to
$737,427,000 at December 31, 2000. In addition, total assets of the Company have
increased $64,728,000, or 9%, over the past twelve months. The Company's
strategic business plan includes growth as one of the Company's priorities, and
over the past several quarters, the Company has experienced significant growth
in loans, deposits and total assets.
LOAN PORTFOLIO
The Company's loan portfolio consists of business loans to small and
medium size companies, commercial, construction and residential real estate
loans, and consumer loans. Traditionally, the majority of the loan portfolio has
focused on real estate as an integral component of a credit's underlying source
of collateral. The following table is a breakdown of the Company's loan
portfolio as of the end of the periods indicated.
JUNE 30, 2001 DECEMBER 31, 2000 JUNE 30, 2000
------------- ----------------- -------------
(in thousands)
Commercial, financial and agricultural $ 83,188 78,586 76,386
Real estate-commercial 172,966 157,771 153,274
Real estate-construction 33,788 28,808 19,134
Real estate-residential 152,641 161,252 152,878
Consumer 26,313 27,189 25,390
Other loans 8,595 9,800 10,625
-------- -------- --------
$477,491 463,406 437,687
======== ======== ========
The Company's loan portfolio totaled $477,491,000 at June 30, 2001, which
represents an increase of $14,085,000, or 3.04%, since December 31, 2000, and an
increase of $39,804,000, or 9.09%, over the past twelve months. These increases
in the loan portfolio were the result of the Company continuing to execute
elements of its strategic business plan, as the Company's banking subsidiaries
continue to attract customers who are dissatisfied with the service level of the
area's larger financial institutions. The decrease in residential real estate
loans can be attributed to the drop in interest rates during 2001, which
resulted in an increase in loans being refinanced and sold into the secondary
market. In contrast to 2000 when the majority of the residential real estate
loan customers were opting for adjustable rate mortgage products, some of those
same customers are now refinancing their adjustable rate mortgages into longer
term fixed rate mortgage products, which are sold into the secondary market.
SUMMARY OF ALLOWANCE FOR LOAN LOSSES
SIX MONTHS TWELVE MONTHS SIX MONTHS
ENDED ENDED ENDED
JUNE 30, 2001 DECEMBER 31, 2000 JUNE 30, 2000
------------- ----------------- -------------
(in thousands)
Balance at beginning of period $ 5,179 5,830 5,830
Provision charged to expense 321 361 178
Loans charged off (172) (1,487) (1,379)
Recoveries 74 475 224
------- ------- -------
Balance at end of period $ 5,402 5,179 4,853
======= ======= =======
12
13
Item 2. (continued)
The balance of the allowance for loan losses increased by $223,000 during
the first six months of 2001. The increase in the allowance was due to the fact
that net charge-offs for the first six months of 2001 were $98,000, and the
Company recorded a provision for loan losses of $321,000. The decrease in
charged-off loans during 2001, as compared to the prior year, was due to a $1.1
million commercial credit, which was charged off in the previous year. The
Company has experienced no such significant charge-offs in the current year.
Based upon the Company's internal analysis of the adequacy of the allowance for
loan losses, management of the Company believes the level is adequate to cover
probable losses inherent in the loan portfolio under current conditions. The
ratio of allowance for loan losses as a percentage of total loans was 1.13% as
of June 30, 2001 compared to 1.12% and 1.11% at December 31, 2000 and June 30,
2000, respectively.
NONPERFORMING ASSETS
JUNE 30, 2001 DECEMBER 31, 2000 JUNE 30, 2000
------------- ----------------- -------------
(dollars in thousands)
Nonaccrual loans $5,147 4,200 4,096
Loans past due 90 days or more and still
accruing interest 138 339 93
------ ------ ------
Total nonperforming loans 5,285 4,539 4,189
Other real estate owned 1,574 1,597 870
------ ------ ------
Total nonperforming assets $6,859 6,136 5,059
====== ====== ======
Ratios:
Total nonperforming loans as % of total loans 1.11% .98% .96%
Nonperforming assets as % of total loans and
other real estate owned 1.43 1.32 1.15
Nonperforming assets as % of total assets .88 .83 .71
Allowance for loan losses as a % of
nonperforming loans 102.21 114.10 115.85
====== ====== ======
Nonperforming assets totaled $6,859,000, or .88%, of total assets at June
30, 2001 compared to $6,136,000, or .83%, and $5,059,000, or .71%, at December
31, 2000 and June 30, 2000, respectively. Nonaccrual loans increased $947,000
during the first six months of 2001 and accounted for the majority of the
increase in nonperforming assets. The increase in nonaccrual loans resulted from
the addition of several smaller commercial and residential real estate credits
to this category.
A loan is reported as impaired when it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. The Company's loan policy generally requires that a credit meeting
the above criteria be placed on nonaccrual status. Additionally, loans which are
past due more than 90 days as to payment of principal or interest are also
considered to be impaired. These loans are included in the total of
nonperforming assets.
Loans past due less than 90 days are generally not considered impaired;
however, a loan which is current as to payments may be determined by management
to demonstrate some of the characteristics of an impaired loan. In these cases,
the loan is classified as impaired while management evaluates the appropriate
course of action. The Company's primary basis for measurements of impaired loans
is the collateral underlying the identified loan.
13
14
Item 2. (continued)
Any loans classified for regulatory purposes, but not included above in
nonperforming loans, do not represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the borrower's ability to comply with the loan repayment terms or which
management reasonably expects will materially impact future operating results or
capital resources. As of June 30, 2001, there were no concentrations of loans
exceeding 10% of total loans, which were not disclosed as a category of loans,
detailed on page 12.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Investments in debt and equity securities have increased $6,904,000 since
December 31, 2000, due in large part to the deposit growth experienced during
the year. With certificate of deposit runoff expected during the remainder of
2001, management anticipates the investment portfolio may decline through
investment security maturities and paydowns on mortgage-backed securities.
DEPOSITS
Total deposits increased $38,985,000 during the first six months of 2001,
due largely to a decision made during 2000 to replace short-term borrowed funds,
used to fund loan growth, with certificates of deposit. The increase in time
deposits during the first half of 2001 was $31,070,000. Management continues to
monitor the rates being offered, the impact of the deposits on rate sensitivity
and the extent to which the Company is able to cross-sell additional products
and services to new time deposit customers. In addition, interest-bearing demand
and savings accounts also increased during the first half of 2001 by
$10,853,000. Much of this increase can be attributed to the volatility in the
stock market during 2001 and customers' desire to increase their cash positions.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase (REPOs) decreased $482,000
during 2001. The majority of the Company's REPOs are used by larger commercial
customers as a daily cash management tool, therefore, depending on their
individual liquidity positions, the balances in these accounts can vary
considerably.
FEDERAL HOME LOAN BANK (FHLB) BORROWINGS
FHLB borrowings are used by the Company for a variety of purposes.
Approximately $48,000,000 of the borrowings has been used to fund leveraged
strategies, whereby the Company borrowed funds and used the proceeds to purchase
investment securities. The yield on the investments exceeds the borrowing cost
and provides the Company with additional net interest income. Approximately
$1,750,000 of the borrowings has been used by one of the Company's subsidiary
banks to fund longer-term fixed rate residential real estate loans. The
remaining $21,000,000 is used by the Company to meet short-term liquidity needs.
OTHER BORROWINGS
The $300,000 decrease in other borrowings was due to a principal
payment made on this debt during the second quarter of 2001. This borrowing from
an unaffiliated financial institution under a $5 million line of credit was
established to provide the resources necessary to fund the Company's stock
repurchase plan announced during the third quarter of 2000. The plan authorized
the Company to repurchase a total of 430,000 common shares or 5% of the
Company's outstanding shares. Under the Plan, the Company repurchased 200,100
common shares at an average cost of $10.29 per common share. Because of the
Company's pending merger with Allegiant, there will be no further repurchases
under this Plan.
14
15
Item 2. (continued)
DEBT OF EMPLOYEE STOCK OWNERSHIP PLAN
The decrease in the debt of the Employee Stock Ownership Plan was due to
the annual principal reduction on the loan, which is paid in March each year.
ASSET/LIABILITY MANAGEMENT
As reflected on the Repricing and Interest Rate Sensitivity Analysis on
the following page, the Company has a reasonably well-balanced interest rate
sensitivity position. The Company's current one-year cumulative gap is 0.93x.
Management believes a one-year cumulative gap ratio in a range of 0.80x - 1.20x
indicates an entity is not subject to undue interest rate risk. A one-year
cumulative gap ratio of 1.00x indicates that an institution has an equal amount
of assets and liabilities repricing within twelve months. A ratio in excess of
1.00x indicates more assets than liabilities will be repriced during the period
indicated, and a ratio less than 1.00x indicates more liabilities than assets
will be repriced during the period indicated. However, actual experience may
differ because of the assumptions used in the allocation of deposits and other
factors, which are beyond management's control. Among the significant
assumptions used in preparing the Repricing and Interest Rate Sensitivity
Analysis is that interest-bearing demand and savings deposits are not 100% rate
sensitive within the period of three months or less. As a result, these deposits
are allocated between the repricing categories based on historical analyses
performed by the Company's subsidiary banks. In addition, FHLB borrowings are
categorized based on the first available call date of the individual borrowings
versus their final maturity.
LIQUIDITY
During the second half of 2000, the Company began a short-term
certificate of deposit promotion priced near the upper end of deposit pricing in
its local markets. The program was initiated to reduce the Company's reliance on
short-term borrowings and to provide liquidity to fund future loan growth.
During the second quarter of 2001, in response to a slow-down in new loan
generation and a significantly improved liquidity position, Company management
ended the short-term certificate of deposit promotion. It is anticipated that as
some of these deposits mature during the next several quarters, they will not be
renewed by the depositors. Management will continue to monitor the impact of
this certificate of deposit runoff on the Company's liquidity position and make
adjustments to deposit pricing as appropriate to properly manage the Company's
overall liquidity position.
15
16
Item 2. (continued)
Additionally, the following analysis includes the available-for-sale
securities spread throughout their respective repricing and/or maturity
horizons, even though such securities are available for immediate liquidity
should the need arise in any particular time horizon.
REPRICING AND INTEREST RATE SENSITIVITY ANALYSIS
JUNE 30, 2001
-----------------------------------------------------------------
OVER OVER
3 MONTHS 1 YEAR
3 MONTHS THROUGH THROUGH OVER
OR LESS 12 MONTHS 5 YEARS 5 YEARS TOTAL
-------- --------- -------- -------- --------
(dollars in thousands)
Interest-earning assets:
Interest-bearing deposits in banks $ 2,623 -- -- -- 2,623
Federal funds sold 31,979 -- -- -- 31,979
Investments available-for-sale 23,783 28,545 80,810 41,774 174,912
Investments held-to-maturity 3,128 5,488 7,122 10,699 26,437
Loans, net of unearned discount(1) 300,244 41,964 119,369 15,914 477,491
-------- -------- -------- -------- --------
Total interest-earning assets 361,757 75,997 207,301 68,387 713,442
-------- -------- -------- -------- --------
Cumulative interest-earning assets 361,757 437,754 645,055 713,442 713,442
-------- -------- -------- -------- --------
Interest-bearing liabilities:
Interest-bearing demand deposits 67,462 57,910 39,352 -- 164,724
Savings deposits 16,983 25,897 17,575 -- 60,455
Time deposits under $100,000 87,973 114,823 54,879 304 257,979
Time deposits $100,000 and over 19,259 31,186 5,318 -- 55,763
Securities sold under agreements to
repurchase and Federal funds Purchased 9,470 -- -- -- 9,470
FHLB borrowings 30,000 8,000 31,132 1,729 70,861
Other borrowings 1,600 -- -- -- 1,600
Debt of Employee Stock Ownership
Plan -- -- 791 -- 791
-------- -------- -------- -------- --------
Total interest-bearing liabilities 232,747 237,816 149,047 2,033 621,643
-------- -------- -------- -------- --------
Cumulative interest-bearing liabilities 232,747 470,563 619,610 621,643 621,643
-------- -------- -------- -------- --------
Gap analysis:
Interest sensitivity gap $129,010 (161,819) 58,254 66,354 91,799
======== ======== ======== ======== ========
Cumulative interest sensitivity gap $129,010 (32,809) 25,445 91,799 91,799
======== ======== ======== ======== ========
Cumulative gap ratio of interest- earning
assets to interest-bearing 1.55x 0.93x 1.04x 1.15x 1.15x
======== ======== ======== ======== ========
(1) Nonaccrual loans are reported in the "Over 1 year through 5 years" column.
16
17
Item 2. (continued)
CAPITAL RESOURCES
The regulatory capital guidelines require banking organizations to
maintain a minimum total capital ratio of 8% of risk-weighted assets (of which
at least 4% must be Tier I capital). The Company's total capital ratios under
the risk-weighted guidelines were 14.01%, 14.72% and 15.44% as of June 30, 2001,
December 31, 2000, and June 30, 2000, respectively, which included Tier I
capital ratios of 12.99%, 13.66%, and 14.39%, respectively. These ratios are
well above the minimum risk-weighted capital requirements.
In addition, the Company and its subsidiary banks must maintain a minimum
Tier I leverage ratio (Tier I capital to total adjusted consolidated assets) of
at least 3%. Capital, as defined under these guidelines, is total shareholders'
equity less goodwill and excluding unrealized gains and losses on
available-for-sale securities of the Company. The Company's Tier I leverage
ratios were 8.87%, 9.15%, and 9.64% at June 30, 2001, December 31, 2000, and
June 30, 2000, respectively. As of June 30, 2001, all of the Company's
subsidiary banks were well capitalized under the regulatory framework for prompt
corrective action.
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income was $2,744,000 for the six months ended June 30, 2001 compared
to $3,333,000 for six months ended June 30, 2000, which represents a $589,000 or
a 18% decrease over the prior year. Net income for the second quarter of 2001
was $1,191,000 compared with $1,659,000 in the second quarter of the prior year,
which represents a decrease of $468,000 or 28%. Both the first half and second
quarter decline in earnings were largely the result of expenses related to the
Company's pending merger with Allegiant Bancorp, Inc. These expenses resulted in
a $460,000 reduction in both the first half and the second quarter net income.
Excluding the effects of the merger related expenses, net income for the six
months and quarter ended June 30, 2001 would have been $3,204,000 and
$1,651,000, respectively.
Basic and diluted earnings per common share were $.33 and $.32,
respectively, for the first six months of 2001, compared to $.40 and $.39 for
the first six months of 2000, respectively, and $.14 and $.14, respectively, for
the second quarter of 2001 compared to $.20 and $.19, respectively, for the
second quarter of 2000. Net income for the first six months of 2001 resulted in
an annualized return on average assets (ROA) of .72% compared to .96% in the
first half of 2000, and an annualized return on average shareholders' equity
(ROE) of 7.63% in 2001 compared to 10.17% in 2000.
NET INTEREST INCOME
As reflected in the Condensed Consolidated Average Balance Sheets and
Average Interest Rates table on the following page, net interest income on a
tax-equivalent basis decreased by $4,000 in the first half of 2001 when compared
to the first six months of 2000. Net interest income decreased because the yield
on average earnings assets decreased 17 basis points to 7.56% and the Company's
cost of funds increased 27 basis points to 4.71 percent. This increase in the
cost of funds and the decrease in the asset yield more than offset the
additional interest income generated by a $71,720,000 increase in
average-earning assets. Much of the asset growth over the past several quarters
was funded through an 11-month certificate of deposit promotion. When the
prime-lending rate dropped 275 basis points during the first half of 2001, it
caused a very narrow interest margin when matched against the rates offered
during the promotion. The deposits will begin to mature during the third quarter
of this year. As these deposits reprice in the current interest rate
environment, it is expected to provide the Company with some relief from the
downward pressure on the net interest margin.
17
18
Item 2. (continued)
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
CONDENSED CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE INTEREST RATES
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------
2001 2000
--------------------------------- --------------------------------
AVERAGE AVERAGE
INTEREST RATES INTEREST RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID(3) BALANCE EXPENSE PAID(3)
--------- -------- --------- --------- -------- ---------
(dollars in thousands)
Loans, net of unearned discount(1)(2)(3) $ 472,871 19,659 8.31% 408,538 17,131 8.39%
Investments in debt securities:
Taxable(4) 169,937 5,147 6.06 185,463 5,925 6.39
Exempt from Federal income tax(3)(4) 28,879 1,065 7.38 30,883 1,161 7.52
Short-term investments 31,714 735 4.64 6,797 211 6.21
--------- ------ ------- ------
Total interest-earning assets/interest
income/overall yield(3) 703,401 26,606 7.56% 631,681 24,428 7.73%
====== ===== ====== =====
Allowance for loan losses (5,284) (5,325)
Cash and due from banks 16,825 16,546
Other assets 49,088 49,526
--------- ----------
Total assets $ 764,030 692,428
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand and savings deposits $ 225,581 3,194 2.83% 228,880 3,642 3.18%
Time deposits 304,017 8,976 5.90 222,203 5,773 5.20
Short-term borrowings 8,314 201 4.84 14,121 372 5.27
FHLB borrowings 70,912 1,923 5.42 83,641 2,387 5.71
Other borrowings 1,825 70 7.67 -- -- --
Debt of Employees Stock Ownership Plan 880 33 7.50 1,087 41 7.54
--------- ------ ------- ------
Total interest-bearing liabilities/
interest - expense/overall rate 611,529 14,397 4.71% 549,932 12,215 4.44%
====== ===== ====== =====
Non-interest-bearing demand deposits 73,850 72,161
Other liabilities 6,759 4,788
Shareholders' equity 71,892 65,547
--------- ----------
Total liabilities and shareholders' equity $ 764,030 692,428
========= ==========
Net interest income 12,209 12,213
====== ======
Net interest margin on average
interest-earning assets 3.47% 3.87%
===== =====
(1) Interest income includes amortization of loan origination fees.
(2) Average balance includes nonaccrual loans.
(3) Interest yields are presented on a tax-equivalent basis. Nontaxable income
has been upwardly adjusted by the amount of Federal income tax that would
have been paid if the income had been taxable at a rate of 34%.
(4) Includes investments available-for-sale.
18
19
Item 2. (continued)
PROVISION FOR LOAN LOSSES
The provision for loan losses increased to $321,000 and $162,000 during
the first half and second quarter of 2001, respectively, from $178,000 and
$97,000, respectively, in 2000. The increase in the provision for loan losses
was largely due to the significant loan growth achieved over the past several
quarters resulting in increased risk. With additional loan growth projected in
2001, management anticipates that a larger provision for loan losses, as
compared to the prior year, will continue throughout the year. Based on the
Company's analysis of the adequacy of the allowance for loan losses, management
determined it was appropriate to increase the provisions for loan losses in
2001.
NONINTEREST INCOME
Noninterest income increased $197,000 during the first six months of 2001
in comparison to the same period in the prior year. The increase was due in
large part to a $182,000 increase in the gains on sales of loans. As mentioned
previously, with the decrease in interest rates during the first half of 2001,
the Company experienced a shift in customer preference from adjustable rate loan
products to fixed rate mortgage loan products, which are sold into the secondary
market. The increase in these gains is directly the result of a significant
increase in the volume of loans being sold into the secondary market. Increases
in service charge and other revenue were partially offset by a decline in trust
revenue. The decrease in trust fees was largely due to poor performance in many
segments of the stock market over the past several quarters. Because trust fees
are tied to the asset value of the accounts being managed, stock market
performance has a direct impact on trust revenue. Noninterest income during the
second quarter of 2001 was $77,000 higher than the comparable period in 2000
because of the same factors, which affected noninterest income during the first
half of the year.
NONINTEREST EXPENSE
Noninterest expense increased $741,000 and $572,000 during the first half
and second quarter of 2001 in comparison to the first half and second quarter of
2000, respectively. Both the second quarter and first half increases were due
mainly to increased personnel costs and attorney and professional fees
associated with the Company's pending merger with Allegiant Bancorp. The
increase in personnel costs are attributable to a combination of several
factors: normal salary increases, increased health insurance cost, higher
personnel costs resulting from a tight labor market, and increased employee
benefit plan expense caused by the recent surge in the Company's stock price.
Expenses relating to both the Employee Stock Ownership Plan as well as certain
other deferred compensation plans are tied to the performance of the Company's
common stock. In conjunction with the pending merger, the Company has incurred
approximately $500,000 in attorney and other professional fees, some of which
are nondeductible for federal income tax purposes. Excluding these expenses,
other expense would be down for both the second quarter and the first half of
the year due to a reduction in several categories of operating expenses.
INCOME TAXES
Income tax expense for the first half and second quarter of 2001 was
$1,136,000 and $527,000, respectively, compared to $1,224,000 and $553,000,
respectively, in the first half and second quarter of 2000. The Company's
combined federal and state effective tax rate increased to 29.28% in 2001,
compared to 26.86% in 2000. The increase in the effective tax rate was the
result of the aforementioned merger related expenses, which are not deductible
for income tax purposes.
EFFECT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) 133, Accounting for
Derivative Instruments and Hedging Activities, which was issued in June 1998,
establishes accounting and reporting standards for derivative instruments and
hedging activities. Under SFAS 133, derivatives are recognized on the balance
sheet at fair value as an asset or liability. Changes in the fair value of
derivatives are reported as a component of other comprehensive income or
recognized as earnings through the income statement
19
20
Item 2. (continued)
depending on the nature of the instrument. In June 1999, the FASB issued SFAS
137 - Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No.
133, which defers the effective date of SFAS 133 from fiscal years beginning
after June 15, 1999 to fiscal years beginning after June 15, 2000. Initial
application should be as of the beginning of an entity's fiscal quarter; on that
date, hedging relationships must be designated and documented pursuant to the
provisions of SFAS 133, as amended. Earlier application of all of the provisions
is encouraged but is permitted only as of the beginning of any fiscal quarter
that begins after the issuance date of SFAS 133, as amended. Additionally, SFAS
133, as amended should not be applied retroactively to financial statements of
prior periods. In June 2000, the FASB issued SFAS No. 138 - Accounting for
Derivative Instruments and Hedging Activities, an Amendment of FASB Statement
No. 133, which addresses a limited number of issues causing implementation
difficulties for numerous entities that apply SFAS 133, as amended. SFAS 138
amends the accounting and reporting standards of SFAS 133, as amended, for
certain derivative instruments, certain hedging activities and for decisions
made by the FASB relating to the Derivatives Implementation Group (DIG) process.
The adoption of SFAS 133 did not have a material impact on the financial
condition and results of operations of the Company. The Company generally does
not utilize derivative instruments in its interest rate management process.
In July 2001, the FASB issued SFAS 141, Business Combinations, and SFAS
142, Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase
method of accounting be used for all business combinations occurring after June
30, 2001. Statement 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill, noting that any purchase price allocable to an assembled
workforce may not be accounted for separately. SFAS 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS 142. SFAS 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. The Company is required to adopt the
provisions of SFAS 141 immediately and SFAS 142 effective January 1, 2002.
Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001 will continue to be amortized prior to the adoption of SFAS
142. As of the date of adoption, the Company had intangible assets, consisting
primarily of goodwill, included in other assets in the consolidated balance
sheets. Gross intangible assets totaled $5,190,000 at June 30, 2001 with
accumulated amortization of $1,942,000, which will be subject to the transition
provisions of SFAS 141 and SFAS 142.
COMMON STOCK - MARKET PRICE AND DIVIDENDS
The table below sets forth the high, low and closing bid prices of the
Company's common stock for the periods presented. The Company's common stock is
traded on the National Association of Securities Dealers Automated Quotation
System/Small-Cap Market System ("NASDAQ/SCM") under the symbol SBCO.
Accordingly, information included below represents the high and low bid prices
of the common stock reported on NASDAQ/SCM.
DIVIDENDS
PAID PER
BOOK MARKET/ COMMON
HIGH BID LOW BID CLOSE VALUE BOOK SHARE
-------- --------- ------- ------ ------- ---------
2nd Quarter - 2001 $ 15.00 $ 10.87 $14.86 $ 8.78 169.25% $ .08
1st Quarter - 2001 11.50 7.375 10.875 8.71 124.86 .08
4th Quarter - 2000 8.50 6.875 7.375 8.42 87.59 .08
3rd Quarter - 2000 10.00 7.375 8.00 8.08 99.01 .08
2nd Quarter - 2000 9.25 6.50 7.438 7.91 94.03 .08
1st Quarter - 2000 10.00 7.50 7.625 7.75 95.39 .08
20
21
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK
There have been no material changes from the information provided in the
December 31, 2000 Annual Report on Form 10-K.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, the Company had certain routine lawsuits
pending at June 30, 2001. In the opinion of management, after consultation with
legal counsel, none of these lawsuits will have a material adverse effect on the
consolidated financial condition of the Company.
ITEM 5. OTHER INFORMATION
The Company has changed its previously announced anticipated date of its
Annual Meeting of Shareholders from April 26, 2001 to September 12, 2001.
Southside shareholders will not be entitled to submit proposals for
consideration at the Annual Meeting, except to the extent the proposals relate
directly to the matters to come before the Annual Meeting, as set forth in joint
proxy statement/prospectus delivered to the Company's shareholders in
conjunction with the Annual Meeting. Southside's by-laws provide that
shareholder proposals, which do not appear in the proxy statement, may be
considered at a meeting of shareholders only if written notice of the proposal
is received by the Secretary of the Company not less than 75 days prior to the
date of any annual meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Agreement and Plan of Merger between Southside Bancshares Corp. And
Allegiant Bancshares, Inc. dated as of April 30, 2001, as amended as of July 31,
2001, included in the Company's Registration Statement on Form S-4 (File No.
333-63212) is incorporated by reference.
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22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHSIDE BANCSHARES CORP.
August 13, 2001 /s/ Thomas M. Teschner
--------------- --------------------------------------
Thomas M. Teschner
President and Chief Executive Officer
(Principal Executive Officer)
August 13, 2001 /s/ Joseph W. Pope
--------------- --------------------------------------
Joseph W. Pope
Senior Vice President and Chief
Financial Officer (Principal Financial
Officer, Controller, and Principal
Accounting Officer)
22