SOUTHSIDE BANCSHARES, INC.
(Exact name
of registrant as specified in its charter)
|
|
TEXAS
|
75-1848732
|
(State or
other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
1201 S. Beckham, Tyler,
Texas
|
75701
|
(Address of
principal executive offices)
|
(Zip
Code)
|
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Small
reporting company o
|
TABLE OF CONTENTS
|
|
March
31,
|
December
31,
|
|||||||
ASSETS
|
2008
|
2007
|
||||||
Cash and due
from banks
|
$ | 52,318 | $ | 74,040 | ||||
Interest
earning deposits
|
725 | 1,414 | ||||||
Federal funds
sold
|
9,325 | 550 | ||||||
Total cash
and cash equivalents
|
62,368 | 76,004 | ||||||
Investment
securities:
|
||||||||
Available for
sale, at estimated fair value
|
179,430 | 109,928 | ||||||
Held to
maturity, at cost
|
476 | 475 | ||||||
Mortgage-backed
and related securities:
|
||||||||
Available for
sale, at estimated fair value
|
702,928 | 727,553 | ||||||
Held to
maturity, at cost
|
183,555 | 189,965 | ||||||
Federal Home
Loan Bank and FRB stock, at cost
|
26,175 | 19,850 | ||||||
Other
investments, at cost
|
2,069 | 2,069 | ||||||
Loans held
for sale
|
3,416 | 3,361 | ||||||
Loans:
|
||||||||
Loans
|
980,879 | 961,230 | ||||||
Less: allowance
for loan losses
|
(10,611 | ) | (9,753 | ) | ||||
Net
Loans
|
970,268 | 951,477 | ||||||
Premises and
equipment, net
|
39,937 | 40,249 | ||||||
Goodwill
|
22,034 | 21,639 | ||||||
Other
intangible assets, net
|
1,808 | 1,925 | ||||||
Interest
receivable
|
12,369 | 11,784 | ||||||
Deferred tax
asset
|
1,305 | 4,320 | ||||||
Other
assets
|
54,733 | 35,723 | ||||||
TOTAL
ASSETS
|
$ | 2,262,871 | $ | 2,196,322 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Deposits:
|
||||||||
Noninterest
bearing
|
$ | 367,835 | $ | 357,083 | ||||
Interest
bearing
|
1,074,834 | 1,173,408 | ||||||
Total
Deposits
|
1,442,669 | 1,530,491 | ||||||
Short-term
obligations:
|
||||||||
Federal funds
purchased and repurchase agreements
|
9,020 | 7,023 | ||||||
FHLB
advances
|
325,404 | 353,792 | ||||||
Other
obligations
|
1,240 | 2,500 | ||||||
Total
Short-term obligations
|
335,664 | 363,315 | ||||||
Long-term
obligations:
|
||||||||
FHLB advances
|
255,562 | 86,247 | ||||||
Long-term
debt
|
60,311 | 60,311 | ||||||
Total
Long-term obligations
|
315,873 | 146,558 | ||||||
Other
liabilities
|
26,258 | 23,132 | ||||||
TOTAL
LIABILITIES
|
2,120,464 | 2,063,496 | ||||||
Off-Balance-Sheet
Arrangements, Commitments and Contingencies (Note 12)
|
||||||||
Minority
interest in Southside Financial Group
|
260 | 498 | ||||||
Shareholders'
equity:
|
||||||||
Common stock
- $1.25 par, 20,000,000 shares authorized, 15,543,029
shares
|
||||||||
issued
in 2008 (including 659,261 shares issued on April 28, 2008 as a
stock
dividend)
and 14,865,134 shares issued in 2007
|
19,428 | 18,581 | ||||||
Paid-in
capital
|
128,934 | 115,250 | ||||||
Retained
earnings
|
15,559 | 26,187 | ||||||
Treasury
stock (1,724,857 shares at cost)
|
(22,983 | ) | (22,983 | ) | ||||
Accumulated
other comprehensive income (loss)
|
1,209 | (4,707 | ) | |||||
TOTAL
SHAREHOLDERS' EQUITY
|
142,147 | 132,328 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 2,262,871 | $ | 2,196,322 |
Three
Months
|
||||||||
Ended March
31,
|
||||||||
2008
|
2007
|
|||||||
Interest
income
|
||||||||
Loans
|
$ | 18,296 | $ | 12,514 | ||||
Investment
securities – taxable
|
680 | 836 | ||||||
Investment
securities – tax-exempt
|
818 | 507 | ||||||
Mortgage-backed
and related securities
|
11,973 | 10,934 | ||||||
Federal Home
Loan Bank stock and other investments
|
262 | 370 | ||||||
Other
interest earning assets
|
67 | 36 | ||||||
Total
interest income
|
32,096 | 25,197 | ||||||
Interest
expense
|
||||||||
Deposits
|
10,755 | 9,565 | ||||||
Short-term
obligations
|
3,300 | 3,946 | ||||||
Long-term
obligations
|
2,671 | 1,660 | ||||||
Total
interest expense
|
16,726 | 15,171 | ||||||
Net interest
income
|
15,370 | 10,026 | ||||||
Provision for
loan losses
|
2,239 | 117 | ||||||
Net interest
income after provision for loan losses
|
13,131 | 9,909 | ||||||
Noninterest
income
|
||||||||
Deposit
services
|
4,417 | 3,928 | ||||||
Gain on
securities available for sale
|
2,092 | 429 | ||||||
Gain on sale
of loans
|
465 | 345 | ||||||
Trust
income
|
593 | 464 | ||||||
Bank owned
life insurance income
|
310 | 264 | ||||||
Other
|
825 | 708 | ||||||
Total
noninterest income
|
8,702 | 6,138 | ||||||
Noninterest
expense
|
||||||||
Salaries and
employee benefits
|
8,713 | 7,104 | ||||||
Occupancy
expense
|
1,388 | 1,168 | ||||||
Equipment
expense
|
312 | 228 | ||||||
Advertising,
travel & entertainment
|
464 | 421 | ||||||
ATM and debit
card expense
|
288 | 254 | ||||||
Director
fees
|
144 | 127 | ||||||
Supplies
|
177 | 148 | ||||||
Professional
fees
|
434 | 311 | ||||||
Postage
|
184 | 148 | ||||||
Telephone and
communications
|
258 | 191 | ||||||
Other
|
1,989 | 1,136 | ||||||
Total
noninterest expense
|
14,351 | 11,236 | ||||||
Income before
income tax expense
|
7,482 | 4,811 | ||||||
Provision for
income tax expense
|
1,936 | 1,048 | ||||||
Net
Income
|
$ | 5,546 | $ | 3,763 | ||||
Earnings per
common share –basic
|
$ | 0.40 | $ | 0.28 | ||||
Earnings per
common share –diluted
|
$ | 0.39 | $ | 0.27 | ||||
Dividends
declared per common share
|
$ | 0.12 | $ | 0.11 |
Comprehensive
Income
|
Common
Stock
|
Paid-in
Capital
|
Retained
Earnings
|
Treasury
Stock
|
Accu-mulated
Other
Compre-
hensive
Income
(Loss)
|
Total
Share-holders
Equity
|
||||||||||||||||||||||
Balance at
December 31, 2006
|
$ | 17,594 | $ | 100,736 | $ | 29,648 | $ | (22,850 | ) | $ | (14,524 | ) | $ | 110,604 | ||||||||||||||
Net
Income
|
$ | 3,763 | 3,763 | 3,763 | ||||||||||||||||||||||||
Other
comprehensive income, net of tax
|
||||||||||||||||||||||||||||
Unrealized
gains on securities, net of
|
||||||||||||||||||||||||||||
reclassification
adjustment (see Note 3)
|
2,138 | 2,138 | 2,138 | |||||||||||||||||||||||||
Adjustment
to net periodic
|
||||||||||||||||||||||||||||
benefit
cost (see Note 3)
|
104 | 104 | 104 | |||||||||||||||||||||||||
Comprehensive
income
|
$ | 6,005 | ||||||||||||||||||||||||||
Common stock
issued (25,813 shares)
|
32 | 267 | 299 | |||||||||||||||||||||||||
Stock
compensation expense
|
7 | 7 | ||||||||||||||||||||||||||
Tax benefit
of incentive stock options
|
2 | 2 | ||||||||||||||||||||||||||
Dividends
paid on common stock
|
(1,361 | ) | (1,361 | ) | ||||||||||||||||||||||||
Balance at
March 31, 2007
|
$ | 17,626 | $ | 101,012 | $ | 32,050 | $ | (22,850 | ) | $ | (12,282 | ) | $ | 115,556 | ||||||||||||||
Balance at
December 31, 2007
|
$ | 18,581 | $ | 115,250 | $ | 26,187 | $ | (22,983 | ) | $ | (4,707 | ) | $ | 132,328 | ||||||||||||||
Net
Income
|
$ | 5,546 | 5,546 | 5,546 | ||||||||||||||||||||||||
Other
comprehensive income, net of tax
|
||||||||||||||||||||||||||||
Unrealized
gains on securities, net of
|
||||||||||||||||||||||||||||
reclassification
adjustment (see Note 3)
|
5,723 | 5,723 | 5,723 | |||||||||||||||||||||||||
Adjustment
to net periodic
|
||||||||||||||||||||||||||||
benefit
cost (see Note 3)
|
193 | 193 | 193 | |||||||||||||||||||||||||
Comprehensive
Income
|
$ | 11,462 | ||||||||||||||||||||||||||
Common stock
issued (18,634 shares)
|
23 | 241 | 264 | |||||||||||||||||||||||||
Stock
compensation expense
|
7 | 7 | ||||||||||||||||||||||||||
Tax benefit
of incentive stock options
|
14 | 14 | ||||||||||||||||||||||||||
Cumulative
effect of adoption of a new accounting principle on January 1, 2008 (see
Note 11)
|
(351 | ) | (351 | ) | ||||||||||||||||||||||||
Dividends
paid on common stock
|
(1,577 | ) | (1,577 | ) | ||||||||||||||||||||||||
Stock
dividend
|
824 | 13,422 | (14,246 | ) | - | |||||||||||||||||||||||
Balance at
March 31, 2008
|
$ | 19,428 | $ | 128,934 | $ | 15,559 | $ | (22,983 | ) | $ | 1,209 | $ | 142,147 |
Three Months
Ended
March
31,
|
||||||||
2008
|
2007
|
|||||||
OPERATING
ACTIVITIES:
|
||||||||
Net
income
|
$ | 5,546 | $ | 3,763 | ||||
Adjustments
to reconcile net income to net cash provided
by operations:
|
||||||||
Depreciation
|
604 | 540 | ||||||
Amortization
of premium
|
1,914 | 1,253 | ||||||
Accretion of
discount and loan fees
|
(1,114 | ) | (808 | ) | ||||
Provision for
loan losses
|
2,239 | 117 | ||||||
Stock
compensation expense
|
7 | 7 | ||||||
(Increase) decrease
in interest receivable
|
(585 | ) | 642 | |||||
Decrease in
other assets
|
396 | 1,677 | ||||||
Net change in
deferred taxes
|
(61 | ) | (408 | ) | ||||
Decrease in
interest payable
|
(367 | ) | (242 | ) | ||||
Increase in
other liabilities
|
1,245 | 1,400 | ||||||
(Increase)
decrease in loans held for sale
|
(55 | ) | 1,100 | |||||
Gain on
securities available-for-sale
|
(2,092 | ) | (429 | ) | ||||
Loss on sale
of assets
|
2 | - | ||||||
Loss on sale
of other real estate owned
|
6 | 1 | ||||||
Earnings
allocated to minority interest
|
48 | - | ||||||
Net cash
provided by operating activities
|
7,733 | 8,613 | ||||||
INVESTING
ACTIVITIES:
|
||||||||
Proceeds from
sales of investment securities available for sale
|
9,341 | 4,953 | ||||||
Proceeds from
sales of mortgage-backed securities available for sale
|
95,755 | 50,684 | ||||||
Proceeds from
maturities of investment securities available for sale
|
31,114 | 54,601 | ||||||
Proceeds from
maturities of mortgage-backed securities available for
sale
|
28,394 | 25,305 | ||||||
Proceeds from
maturities of mortgage-backed securities held to maturity
|
7,877 | 10,066 | ||||||
Proceeds from
redemption of Federal Home Loan Bank stock
|
- | 5,501 | ||||||
Purchases of
investment securities available for sale
|
(100,812 | ) | (51,789 | ) | ||||
Purchases of
mortgage-backed securities available for sale
|
(116,652 | ) | (21,650 | ) | ||||
Purchases of
mortgage-backed securities held to maturity
|
(1,664 | ) | - | |||||
Purchases of
Federal Home Loan Bank stock and other investments
|
(6,325 | ) | (338 | ) | ||||
Net increase
in loans
|
(21,614 | ) | (7,434 | ) | ||||
Purchases of
premises and equipment
|
(652 | ) | (2,994 | ) | ||||
Proceeds from
sales of premises and equipment
|
358 | - | ||||||
Proceeds from
sales of other real estate owned
|
75 | 322 | ||||||
Proceeds from
sales of repossessed assets
|
860 | 125 | ||||||
Net cash
(used in) provided by investing activities
|
(73,945 | ) | 67,352 |
Three Months
Ended
|
||||||||
March
31,
|
||||||||
2008
|
2007
|
|||||||
FINANCING
ACTIVITIES:
|
||||||||
Net
(decrease) increase in demand and savings accounts
|
(2,084
|
)
|
10,327
|
|||||
Net
(decrease) increase in certificates of deposit
|
(86,679
|
)
|
16,462
|
|||||
Net
increase (decrease) in federal funds purchased and repurchase
agreements
|
1,997
|
(5,675
|
)
|
|||||
Proceeds
from FHLB Advances
|
4,012,699
|
1,793,395
|
||||||
Repayment
of FHLB Advances
|
(3,871,772
|
)
|
(1,891,312
|
)
|
||||
Net
capital distributions from minority interest investment in consolidated
entities
|
(286
|
)
|
-
|
|||||
Tax
benefit of incentive stock options
|
14
|
2
|
||||||
Proceeds
from the issuance of common stock
|
264
|
299
|
||||||
Dividends
paid
|
(1,577
|
)
|
(1,361
|
)
|
||||
Net
cash provided by (used in) financing activities
|
52,576
|
(77,863
|
)
|
|||||
Net decrease
in cash and cash equivalents
|
(13,636
|
)
|
(1,898
|
)
|
||||
Cash and cash
equivalents at beginning of period
|
76,004
|
55,012
|
||||||
Cash and cash
equivalents at end of period
|
$
|
62,368
|
$
|
53,114
|
||||
SUPPLEMENTAL
DISCLOSURES FOR CASH FLOW INFORMATION:
|
||||||||
Interest
paid
|
$
|
17,093
|
$
|
15,413
|
||||
Income
taxes paid
|
500
|
500
|
||||||
SUPPLEMENTAL
DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Acquisition
of other repossessed assets and real estate through
foreclosure
|
$
|
1,240
|
$
|
109
|
||||
Declaration
of 5% stock dividend
|
14,246
|
-
|
||||||
Adjustment
to pension liability
|
(121
|
)
|
(158
|
)
|
||||
Unsettled
trades to purchase securities
|
(6,899
|
)
|
-
|
|||||
Unsettled
trades to sell securities
|
19,287
|
-
|
Three
Months
|
||||||||
Ended March
31,
|
||||||||
2008
|
2007
|
|||||||
Basic
Earnings and Shares:
|
||||||||
Net
Income
|
$
|
5,546
|
$
|
3,763
|
||||
Weighted-average
basic shares outstanding
|
13,805
|
13,631
|
||||||
Basic
Earnings Per Share:
|
||||||||
Net
Income
|
$
|
0.40
|
$
|
0.28
|
||||
Diluted
Earnings and Shares:
|
||||||||
Net
Income
|
$
|
5,546
|
$
|
3,763
|
||||
Weighted-average
basic shares outstanding
|
13,805
|
13,631
|
||||||
Add: Stock
options
|
354
|
464
|
||||||
Weighted-average
diluted shares outstanding
|
14,159
|
14,095
|
||||||
Diluted
Earnings Per Share:
|
||||||||
Net
Income
|
$
|
0.39
|
$
|
0.27
|
Three Months
Ended March 31, 2008
|
||||||||||||
Before-Tax
|
Tax
(Expense)
|
Net-of-Tax
|
||||||||||
Amount
|
Benefit
|
Amount
|
||||||||||
Unrealized
gains on securities:
|
||||||||||||
Unrealized
holding gains arising during period
|
$ | 10,963 | $ | (3,880 | ) | $ | 7,083 | |||||
Less: reclassification
adjustment for gains
|
||||||||||||
included
in net income
|
2,092 | (732 | ) | 1,360 | ||||||||
Net
unrealized gains on securities
|
8,871 | (3,148 | ) | 5,723 | ||||||||
Change
in pension plans
|
121 | 72 | 193 | |||||||||
Other
comprehensive income
|
$ | 8,992 | $ | (3,076 | ) | $ | 5,916 |
Three Months
Ended March 31, 2007
|
||||||||||||
Before-Tax
|
Tax
(Expense)
|
Net-of-Tax
|
||||||||||
Amount
|
Benefit
|
Amount
|
||||||||||
Unrealized
gains on securities:
|
||||||||||||
Unrealized
holding gains arising during period
|
$ | 3,668 | $ | (1,247 | ) | $ | 2,421 | |||||
Less: reclassification
adjustment for gains
|
||||||||||||
included
in net income
|
429 | (146 | ) | 283 | ||||||||
Net
unrealized gains on securities
|
3,239 | (1,101 | ) | 2,138 | ||||||||
Change in
pension plans
|
158 | (54 | ) | 104 | ||||||||
Other
comprehensive income
|
$ | 3,397 | $ | (1,155 | ) | $ | 2,242 |
March 31,
2008
|
||||||||||||||||
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Losses
|
Estimated
Market Value
|
|||||||||||||
Investment
Securities:
|
||||||||||||||||
U.S.
Treasury
|
$ | 4,890 | $ | 8 | $ | 36 | $ | 4,862 | ||||||||
Government
Sponsored Enterprise Debentures
|
23,251 | 22 | - | 23,273 | ||||||||||||
State
and Political Subdivisions
|
140,817 | 3,817 | 117 | 144,517 | ||||||||||||
Other
Stocks and Bonds
|
7,586 | - | 809 | 6,777 | ||||||||||||
Mortgage-backed
Securities:
|
||||||||||||||||
U.S.
Government Agencies
|
87,623 | 1,740 | 33 | 89,330 | ||||||||||||
Government
Sponsored Enterprises
|
603,534 | 10,614 | 549 | 613,599 | ||||||||||||
Total
|
$ | 867,701 | $ | 16,201 | $ | 1,544 | $ | 882,358 |
March 31,
2008
|
||||||||||||||||
HELD TO
MATURITY:
|
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Gains
|
Estimated
Market Value
|
||||||||||||
Investment
Securities:
|
||||||||||||||||
Other
Stocks and Bonds
|
$ | 476 | $ | 24 | $ | - | $ | 500 | ||||||||
Mortgage-backed
Securities:
|
||||||||||||||||
U.S.
Government Agencies
|
25,074 | 294 | 9 | 25,359 | ||||||||||||
Government
Sponsored Enterprises
|
158,481 | 2,105 | 47 | 160,539 | ||||||||||||
Total
|
$ | 184,031 | $ | 2,423 | $ | 56 | $ | 186,398 |
December 31,
2007
|
||||||||||||||||
AVAILABLE FOR
SALE:
|
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Gains
|
Estimated
Market Value
|
||||||||||||
Investment
Securities:
|
||||||||||||||||
U.S.
Treasury
|
$ | 4,880 | $ | 8 | $ | 2 | $ | 4,886 | ||||||||
Government
Sponsored Enterprise Debentures
|
31,764 | 3 | 8 | 31,759 | ||||||||||||
State
and Political Subdivisions
|
64,868 | 1,599 | 223 | 66,244 | ||||||||||||
Other
Stocks and Bonds
|
7,586 | - | 547 | 7,039 | ||||||||||||
Mortgage-backed
Securities:
|
||||||||||||||||
U.S.
Government Agencies
|
88,937 | 1,234 | 451 | 89,720 | ||||||||||||
Government
Sponsored Enterprises
|
628,768 | 5,847 | 1,555 | 633,060 | ||||||||||||
Other
Private Issues
|
4,773 | - | - | 4,773 | ||||||||||||
Total
|
$ | 831,576 | $ | 8,691 | $ | 2,786 | $ | 837,481 |
December 31, 2007 | ||||||||||||||||
HELD TO
MATURITY:
|
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Gains
|
Estimated Market Value | ||||||||||||
Investment
Securities:
|
||||||||||||||||
Other
Stocks and Bonds
|
$ | 475 | $ | 2 | $ | - | $ | 477 | ||||||||
Mortgage-backed
Securities:
|
||||||||||||||||
U.S.
Government Agencies
|
25,965 | 36 | 58 | 25,943 | ||||||||||||
Government
Sponsored Enterprises
|
164,000 | 501 | 531 | 163,970 | ||||||||||||
Total
|
$ | 190,440 | $ | 539 | $ | 589 | $ | 190,390 |
At
|
At
|
|||||||
March
31,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
Real Estate
Loans:
|
||||||||
Construction
|
$ | 101,574 | $ | 96,356 | ||||
1-4
Family Residential
|
240,856 | 237,888 | ||||||
Other
|
205,513 | 211,280 | ||||||
Commercial
Loans
|
156,137 | 154,171 | ||||||
Municipal
Loans
|
119,015 | 112,523 | ||||||
Loans to
Individuals
|
157,784 | 149,012 | ||||||
Total
Loans
|
$ | 980,879 | $ | 961,230 |
Three
Months
Ended March
31,
|
||||||||
2008
|
2007
|
|||||||
Allowance
for Loan Losses
|
||||||||
Balance at
beginning of period
|
$
|
9,753
|
$
|
7,193
|
||||
Provision for
loan losses
|
2,239
|
117
|
||||||
Loans charged
off
|
(1,858
|
)
|
(593
|
)
|
||||
Recoveries of
loans charged off
|
477
|
544
|
||||||
Balance at
end of period
|
$
|
10,611
|
$
|
7,261
|
||||
Reserve for
Unfunded Loan Commitments
|
||||||||
Balance at
beginning of period
|
$
|
50
|
$
|
–
|
||||
Provision
for losses on unfunded loan
commitments
|
20
|
–
|
||||||
Balance
at end of period
|
$
|
70
|
$
|
–
|
Remainder of
2008
|
$ | 329 | ||
2009
|
383 | |||
2010
|
319 | |||
2011
|
255 | |||
2012
|
198 | |||
Thereafter
|
324 | |||
$ | 1,808 |
7.
|
Long-term Obligations
|
March
31,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
(dollars in
thousands)
|
||||||||
Federal Home
Loan Bank Advances (1)
|
||||||||
Varying
maturities to 2017
|
$ | 255,562 | $ | 86,247 | ||||
Long-term
Debt (2)
|
||||||||
Southside
Bancshares Statutory Trust III Due 2033 (3)
|
20,619 | 20,619 | ||||||
Southside
Statutory Trust IV Due 2037 (4)
|
23,196 | 23,196 | ||||||
Southside
Statutory Trust V Due 2037 (5)
|
12,887 | 12,887 | ||||||
Magnolia
Trust Company I Due 2035 (6)
|
3,609 | 3,609 | ||||||
Total
Long-term Debt
|
60,311 | 60,311 | ||||||
Total
Long-term Obligations
|
$ | 315,873 | $ | 146,558 |
|
(2)
|
This
long-term debt consists of trust preferred securities that qualify under
the risk-based capital guidelines as Tier 1 capital, subject to certain
limitations.
|
|
(3)
|
This debt
carries an adjustable rate of 5.63625% through June 30, 2008 and adjusts
quarterly at a rate equal to three-month LIBOR plus 294 basis
points.
|
|
(4)
|
This debt
carries a fixed rate of 6.518% through October 30, 2012 and thereafter,
adjusts quarterly at a rate equal to three-month LIBOR plus 130 basis
points.
|
|
(5)
|
This debt
carries a fixed rate of 7.48% through December 15, 2012 and thereafter,
adjusts quarterly at a rate equal to three-month LIBOR plus 225 basis
points.
|
|
(6)
|
This debt
carries an adjustable rate of 4.8925% through May 22, 2008 and adjusts
quarterly at a rate equal to three-month LIBOR plus 180 basis
points.
|
Three Months
Ended March 31,
|
||||||||||||||||
Defined
Benefit
|
||||||||||||||||
Pension
Plan
|
Restoration
Plan
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Service
cost
|
$
|
327
|
$
|
309
|
$
|
15
|
$
|
15
|
||||||||
Interest
cost
|
618
|
590
|
45
|
45
|
||||||||||||
Expected
return on assets
|
(732
|
)
|
(633
|
)
|
–
|
–
|
||||||||||
Transition
obligation recognition
|
–
|
–
|
–
|
1
|
||||||||||||
Net loss
recognition
|
113
|
136
|
19
|
32
|
||||||||||||
Prior service
credit amortization
|
(10
|
)
|
(10
|
)
|
(1
|
)
|
(1
|
)
|
||||||||
Net periodic
benefit cost
|
$
|
316
|
$
|
392
|
$
|
78
|
$
|
92
|
||||||||
Three
Months Ended
March
31, 2008
|
||||||||
Number
of Options
|
Weighted
Average Grant-Date Fair Value
|
|||||||
Nonvested at
beginning of the period
|
6,030
|
$
|
4.91
|
|||||
Vested
|
(6,030
|
)
|
$
|
4.91
|
||||
Nonvested at
end of period
|
–
|
$
|
–
|
Number of
Options
|
Weighted
Average Exercise Prices
|
Weighted
Average Remaining Contract Life (Years)
|
Aggregate
Intrinsic Value
(in
thousands)
|
||||||
Outstanding
at December 31, 2007
|
500,510
|
$
|
5.52
|
–
|
–
|
||||
Exercised
|
(9,607
|
)
|
$
|
5.44
|
–
|
–
|
|||
Cancelled
|
–
|
$
|
–
|
–
|
–
|
||||
Outstanding
at March 31, 2008
|
490,903
|
$
|
5.52
|
1.90
|
$
|
8,498
|
|||
Exercisable
at March 31, 2008
|
490,903
|
$
|
5.52
|
1.90
|
$
|
8,498
|
Effective
January 1, 2008, we adopted the provisions of SFAS No. 157,
"Fair Value Measurements," for financial assets. In accordance with
Financial Accounting Standards Board Staff Position (FSP) No. 157-2,
"Effective Date of FASB Statement No. 157," we will delay application
of SFAS 157 for non-financial assets, until January 1, 2009.
SFAS 157 defines fair value, establishes a framework for measuring
fair value in accordance with GAAP and expands disclosures about fair
value measurements.
|
|
FAS 157
defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants. A fair value measurement assumes that the transaction to
sell the asset or transfer the liability occurs in the principal market
for the asset or liability or, in the absence of a principal market, the
most advantageous market for the asset or liability. The price in the
principal (or most advantageous) market used to measure the fair value of
the asset or liability shall not be adjusted for transaction costs. An
orderly transaction is a transaction that assumes exposure to the market
for a period prior to the measurement date to allow for marketing
activities that are usual and customary for transactions involving such
assets and liabilities; it is not a forced transaction. Market
participants are buyers and sellers in the principal market that are
(i) independent, (ii) knowledgeable, (iii) able to transact
and (iv) willing to transact.
|
|
SFAS 157
requires the use of valuation techniques that are consistent with the
market approach, the income approach and/or the cost
approach. Inputs to valuation techniques refer to the
assumptions that market participants would use in pricing the asset or
liability. Inputs may be observable, meaning those that reflect
the assumptions market participants would use in pricing the asset or
liability developed based on market data obtained from independent
sources, or unobservable, meaning those that reflect the reporting
entity’s own assumptions about the assumptions market participants would
use in pricing the asset or liability developed based on the best
information available in the circumstances. SFAS 157
establishes a fair value hierarchy for valuation inputs that gives the
highest priority to quoted prices in active markets for identical assets
or liabilities and the lowest priority to unobservable inputs. The fair
value hierarchy is as follows:
|
|
Level 1 Inputs -
Unadjusted quoted prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the
measurement date.
|
|
Level 2 Inputs -
Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly.
These might include quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets or
liabilities in markets that are not active, inputs other than quoted
prices that are observable for the asset or liability (such as interest
rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that
are derived principally from or corroborated by market data by correlation
or other means.
|
|
Level 3 Inputs -
Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entity's own assumptions about the assumptions
that market participants would use in pricing the assets or
liabilities.
|
A description
of the valuation methodologies used for assets and liabilities measured at
fair value, as well as the general classification of such instruments
pursuant to the valuation hierarchy, is set forth below.
Securities
Available for Sale - Securities classified as available for sale are
reported at fair value utilizing Level 1 and Level 2 inputs. The
fair value measurements consider observable data that may include dealer
quotes, market spreads, cash flows, the U.S. Treasury yield curve, live
trading levels, trade execution data, market consensus prepayment speeds,
credit information and the bond's terms and conditions, among other
things.
Loans Held
for Sale - These loans are reported at the lower of cost or fair value.
Fair value is determined based on expected proceeds based on sales
contracts and commitments and are considered Level 2 inputs.
Impaired
Loans – Certain impaired loans may be reported at the fair value of the
underlying collateral if repayment is expected solely from the
collateral. Collateral values are estimated using Level 3 inputs
based on customized discounting criteria.
The following
table summarizes financial assets and financial liabilities measured at
fair value on a recurring basis as of March 31, 2008, segregated by
the level of the valuation inputs within the fair value hierarchy utilized
to measure fair value (dollars in thousands):
|
||||||||||||||||
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
Input
|
Input
|
Input
|
Fair
Value
|
|||||||||||||
Securities
available for sale
|
$ | 6,361 | $ | 875,997 | $ | – | $ | 882,358 |
March
31,
|
||||||||
2008
|
2007
|
|||||||
Unused
commitments:
|
||||||||
Due in one
year or less
|
$
|
80,982
|
$
|
79,520
|
||||
Due after one
year
|
48,998
|
28,513
|
||||||
Total
|
$
|
129,980
|
$
|
108,033
|
·
|
general
economic conditions, either globally, nationally, in the State of Texas,
or in the specific markets
|
·
|
legislation,
regulatory changes or changes in monetary or fiscal policy that adversely
affect the businesses in which we are engaged, including the Federal
Reserve’s actions with respect to interest
rates;
|
·
|
adverse
changes in the status or financial condition of the Government Sponsored
Enterprises (the “GSEs”) impacting the GSEs’ guarantees or ability to pay
or issue debt;
|
·
|
economic or
other disruptions caused by acts of terrorism in the United States, Europe
or other areas;
|
·
|
changes in
the interest rate yield curve such as flat, inverted or steep yield
curves, or changes in the interest rate environment that impact interest
margins and may impact prepayments on the mortgage-backed securities
portfolio;
|
·
|
unexpected
outcomes of existing or new litigation involving
us;
|
·
|
changes
impacting the leverage strategy;
|
·
|
significant
increases in competition in the banking and financial services
industry;
|
·
|
changes in
consumer spending, borrowing and saving
habits;
|
·
|
technological
changes;
|
·
|
our ability
to increase market share and control
expenses;
|
·
|
the effect of
changes in federal or state tax
laws;
|
·
|
the effect of
compliance with legislation or regulatory
changes;
|
·
|
the effect of
changes in accounting policies and
practices;
|
·
|
the costs and
effects of unanticipated
litigation;
|
·
|
risks of
mergers and acquisitions including the related time and cost of
implementing transactions and the potential failure to achieve expected
gains, revenue growth or expense
savings;
|
·
|
credit risks
of borrowers, including any increase in those risks due to changing
economic conditions;
|
·
|
risks related
to loans secured by real estate, including the risk that the value and
marketability of collateral could
decline;
|
·
|
increases in
the Company’s non-performing
assets;
|
·
|
the Company’s
ability to maintain adequate liquidity to fund its operations and growth;
and
|
·
|
failure of
assumptions underlying allowance for loan losses and other
estimates.
|
AVERAGE
BALANCES AND YIELDS
|
||||||||||||||||||||||||
(dollars in
thousands)
|
||||||||||||||||||||||||
(unaudited)
|
||||||||||||||||||||||||
Three Months
Ended
|
||||||||||||||||||||||||
March 31,
2008
|
March 31,
2007
|
|||||||||||||||||||||||
AVG
BALANCE
|
INTEREST
|
AVG
YIELD
|
AVG
BALANCE
|
INTEREST
|
AVG
YIELD
|
|||||||||||||||||||
ASSETS
|
||||||||||||||||||||||||
INTEREST
EARNING ASSETS:
|
||||||||||||||||||||||||
Loans (1)
(2)
|
$ | 976,099 | $ | 18,855 | 7.77 | % | $ | 765,575 | $ | 13,021 | 6.90 | % | ||||||||||||
Loans Held
For Sale
|
2,849 | 31 | 4.38 | % | 3,303 | 41 | 5.03 | % | ||||||||||||||||
Securities:
|
||||||||||||||||||||||||
Investment
Securities (Taxable)(4)
|
61,115 | 680 | 4.48 | % | 68,262 | 836 | 4.97 | % | ||||||||||||||||
Investment
Securities (Tax-Exempt)(3)(4)
|
76,952 | 1,290 | 6.74 | % | 41,040 | 723 | 7.14 | % | ||||||||||||||||
Mortgage-backed
and Related Securities (4)
|
903,436 | 11,973 | 5.33 | % | 862,621 | 10,934 | 5.14 | % | ||||||||||||||||
Total
Securities
|
1,041,503 | 13,943 | 5.38 | % | 971,923 | 12,493 | 5.21 | % | ||||||||||||||||
FHLB stock
and other investments, at cost
|
24,985 | 262 | 4.22 | % | 25,297 | 370 | 5.93 | % | ||||||||||||||||
Interest
Earning Deposits
|
1,534 | 15 | 3.93 | % | 552 | 7 | 5.14 | % | ||||||||||||||||
Federal Funds
Sold
|
6,984 | 52 | 2.99 | % | 2,337 | 29 | 5.03 | % | ||||||||||||||||
Total
Interest Earning Assets
|
2,053,954 | 33,158 | 6.49 | % | 1,768,987 | 25,961 | 5.95 | % | ||||||||||||||||
NONINTEREST
EARNING ASSETS:
|
||||||||||||||||||||||||
Cash and Due
From Banks
|
48,081 | 45,106 | ||||||||||||||||||||||
Bank Premises
and Equipment
|
39,991 | 32,547 | ||||||||||||||||||||||
Other
Assets
|
88,781 | 43,813 | ||||||||||||||||||||||
Less: Allowance
for Loan Loss
|
(10,020 | ) | (7,236 | ) | ||||||||||||||||||||
Total
Assets
|
$ | 2,220,787 | $ | 1,883,217 | ||||||||||||||||||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||||||||||||||||||
INTEREST
BEARING LIABILITIES:
|
||||||||||||||||||||||||
Savings
Deposits
|
$ | 53,927 | 172 | 1.28 | % | $ | 51,168 | 164 | 1.30 | % | ||||||||||||||
Time
Deposits
|
597,942 | 7,482 | 5.03 | % | 532,308 | 6,361 | 4.85 | % | ||||||||||||||||
Interest
Bearing Demand Deposits
|
476,241 | 3,101 | 2.62 | % | 389,542 | 3,040 | 3.16 | % | ||||||||||||||||
Total
Interest Bearing Deposits
|
1,128,110 | 10,755 | 3.83 | % | 973,018 | 9,565 | 3.99 | % | ||||||||||||||||
Short-term
Interest Bearing Liabilities
|
360,011 | 3,300 | 3.69 | % | 330,037 | 3,946 | 4.85 | % | ||||||||||||||||
Long-term
Interest Bearing Liabilities – FHLB Dallas
|
157,085 | 1,586 | 4.06 | % | 113,053 | 1,232 | 4.42 | % | ||||||||||||||||
Long-term
Debt (5)
|
60,311 | 1,085 | 7.24 | % | 20,619 | 428 | 8.30 | % | ||||||||||||||||
Total
Interest Bearing Liabilities
|
1,705,517 | 16,726 | 3.94 | % | 1,436,727 | 15,171 | 4.28 | % | ||||||||||||||||
NONINTEREST
BEARING LIABILITIES:
|
||||||||||||||||||||||||
Demand
Deposits
|
351,686 | 315,381 | ||||||||||||||||||||||
Other
Liabilities
|
24,728 | 18,460 | ||||||||||||||||||||||
Total
Liabilities
|
2,081,931 | 1,770,568 | ||||||||||||||||||||||
Minority
Interest in SFG
|
679 | - | ||||||||||||||||||||||
SHAREHOLDERS’
EQUITY
|
138,177 | 112,649 | ||||||||||||||||||||||
Total
Liabilities and Shareholders’ Equity
|
$ | 2,220,787 | $ | 1,883,217 | ||||||||||||||||||||
NET INTEREST
INCOME
|
$ | 16,432 | < |