| SOUTHSIDE BANCSHARES INC ITEM 1A RISK FACTORS An investment in the Company’s common stock is subject to risks inherent to the Company’s business |
| The material risks and uncertainties that management believes affect the Company are described below |
| Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report |
| The risks and uncertainties described below are not the only ones facing the Company |
| Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Company’s business operations |
| This report is qualified in its entirety by these risk factors |
| If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected |
| If this were to happen, the value of the Company’s common stock could decline significantly, and you could lose all or part of your investment |
| RISKS RELATED TO THE COMPANY’S BUSINESS The Company is subject to interest rate risk |
| The Company’s earnings and cash flows are largely dependent upon its net interest income |
| Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds |
| Interest rates are highly sensitive to many factors that are beyond the Company’s control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Board of Governors of the Federal Reserve System |
| Changes in monetary policy, including changes in interest rates, could influence not only the interest the Company receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect: • the Company’s ability to originate loans and obtain deposits; • the fair value of the Company’s financial assets and liabilities; and • the average duration of the Company’s mortgage-backed securities portfolio |
| If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the Company’s net interest income, and therefore earnings, could be adversely affected |
| Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings |
| Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on the Company’s results of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on the Company’s financial condition and results of operations |
| See the section captioned “Net Interest Income” in “Item 7 |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations” located elsewhere in this report for further discussion related to the Company’s management of interest rate risk |
| 12 ______________________________________________________________________ The Company’s interest rate risk, liquidity, market value of securities and profitability are subject to risks associated with the performance of the leverage program |
| The Company implemented a leverage strategy in 1998 for the purpose of enhancing overall profitability by maximizing the use of the Company’s capital |
| Risks to our leverage strategy include reduced net interest margin and spread, adverse market value changes to the investment, mortgage-backed and marketable equity securities, incorrect modeling results due to the unpredictable nature of mortgage-backed securities prepayments, the length of interest rate cycles, and the slope of the interest rate yield curve |
| Another risk could include the Company’s inability to obtain wholesale funding to profitably and properly fund the leverage program |
| If the Company’s leverage strategy is flawed or poorly implemented, we may incur significant losses |
| The Company has a high concentration of loans secured by real estate and a downturn in the real estate market, for any reason, could result in losses and materially and adversely affect business, financial condition, results of operations and future prospects |
| A significant portion of the Company’s loan portfolio is dependent on real estate |
| In addition to the financial strength and cash flow characteristics of the borrower in each case, often loans are secured with real estate collateral |
| At December 31, 2005, approximately 58dtta5prca of loans have real estate as a primary or secondary component of collateral |
| The real estate in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended |
| An adverse change in the economy affecting values of real estate generally or in the Company’s primary markets specifically could significantly impair the value of collateral and ability to sell the collateral upon foreclosure |
| Furthermore, it is likely that, in a decreasing real estate market, the Company would be required to increase its allowance for loan losses |
| If the Company is required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase its allowance for loan losses, the Company’s profitability and financial condition could be adversely impacted |
| The Company has a high concentration of loans directly related to the medical community in its market area, primarily in Smith and Gregg counties |
| A negative change adversely impacting the medical community, for any reason, could result in losses and materially and adversely affect our business, financial condition, results of operations and future prospects |
| A significant portion of the Company’s loan portfolio is dependent on the medical community |
| The primary source of repayment for loans in the medical community is cashflow from continuing operations |
| We believe that risk in the medical community is mitigated because it is spread among multiple practice types and multiple specialties |
| However, changes in the amount the government pays the medical community through the various government health insurance programs could adversely impact the medical community which in turn could result in higher default rates by borrowers in the medical industry |
| Furthermore, it is likely that, should there be any significant adverse impact to the medical community, the Company’s profitability and financial condition could also be adversely impacted |
| The Company’s allowance for probable loan losses may be insufficient |
| The Company maintains an allowance for probable loan losses, which is a reserve established through a provision for probable loan losses charged to expense, that represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans |
| The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio |
| The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio |
| The determination of the appropriate level of the allowance for probable loan losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks and future trends, all of which may undergo material changes |
| Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Company’s control, may require an increase in the allowance for 13 ______________________________________________________________________ probable loan losses |
| In addition, bank regulatory agencies periodically review the Company’s allowance for loan losses and may require an increase in the provision for probable loan losses or the recognition of further loan charge-offs, based on judgments different than those of management |
| In addition, if charge-offs in future periods exceed the allowance for probable loan losses, the Company will need additional provisions to increase the allowance for probable loan losses |
| Any increases in the allowance for probable loan losses will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on the Company’s financial condition and results of operations |
| See the section captioned “Allowance for Loan Losses” in “Item 7 |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations” located elsewhere in this report for further discussion related to the Company’s process for determining the appropriate level of the allowance for probable loan losses |
| The Company is subject to environmental liability risk associated with lending activities |
| A significant portion of the Company’s loan portfolio is secured by real property |
| During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans |
| In doing so, there is a risk that hazardous or toxic substances could be found on these properties |
| If hazardous or toxic substances are found, the Company may be liable for remediation costs, as well as for personal injury and property damage |
| Environmental laws may require the Company to incur substantial expenses and may materially reduce the affected property’s value or limit the Company’s ability to use or sell the affected property |
| In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Company’s exposure to environmental liability |
| Although the Company has policies and procedures to perform an environmental review before initiating any foreclosure action on nonresidential real property, these reviews may not be sufficient to detect all potential environmental hazards |
| The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on the Company’s financial condition and results of operations |
| The Company’s profitability depends significantly on economic conditions in the State of Texas |
| The Company’s success depends primarily on the general economic conditions of the State of Texas and the specific local markets in which the Company operates |
| Unlike larger national or other regional banks that are more geographically diversified, the Company provides banking and financial services to customers primarily in the Texas areas of Tyler, Longview, Lindale, Whitehouse, Gresham, Athens, Palestine, Jacksonville, Forney, Seven Points and Gun Barrel City |
| The local economic conditions in these areas have a significant impact on the demand for the Company’s products and services as well as the ability of the Company’s customers to repay loans, the value of the collateral securing loans and the stability of the Company’s deposit funding sources |
| A significant decline in general economic conditions, caused by inflation, recession, acts of terrorism, outbreak of hostilities or other international or domestic occurrences, unemployment, changes in securities markets or other factors could impact these local economic conditions and, in turn, have a material adverse effect on the Company’s financial condition and results of operations |
| The Company operates in a highly competitive industry and market area |
| The Company faces substantial competition in all areas of its operations from a variety of different competitors, many of which are larger and may have more financial resources |
| Such competitors primarily include national, regional, and community banks within the various markets the Company operates |
| Additionally, various out-of-state banks have begun to enter or have announced plans to enter the market areas in which the Company currently operates |
| The Company also faces competition from many other types of financial institutions, including, without limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance companies, factoring companies and other financial intermediaries |
| The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation |
| Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking |
| Also, technology has lowered barriers to entry and made it 14 ______________________________________________________________________ possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems |
| Many of the Company’s competitors have fewer regulatory constraints and may have lower cost structures |
| Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than the Company can |
| The Company’s ability to compete successfully depends on a number of factors, including, among other things: • The ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets |
| • The ability to expand the Company’s market position |
| • The scope, relevance and pricing of products and services offered to meet customer needs and demands |
| • The rate at which the Company introduces new products and services relative to its competitors |
| • Customer satisfaction with the Company’s level of service |
| • Industry and general economic trends |
| Failure to perform in any of these areas could significantly weaken the Company’s competitive position, which could adversely affect the Company’s growth and profitability, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations |
| The Company is subject to extensive government regulation and supervision |
| The Company, primarily through Southside Bank and certain non-bank subsidiaries, is subject to extensive federal and state regulation and supervision |
| Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not shareholders |
| These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things |
| Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes |
| Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Company in substantial and unpredictable ways |
| Such changes could subject the Company to additional costs, limit the types of financial services and products the Company may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things |
| Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the Company’s business, financial condition and results of operations |
| While the Company has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur |
| See the section captioned “Supervision and Regulation” in “Item 1 |
| Business” and “Note 13 – Shareholders’ Equity” in the notes to consolidated financial statements included in “Item 8 |
| Financial Statements and Supplementary Data,” which are located elsewhere in this report |
| The Company’s controls and procedures may fail or be circumvented |
| Management regularly reviews and updates the Company’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures |
| Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met |
| Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition |
| 15 ______________________________________________________________________ New lines of business or new products and services may subject the Company to additional risks |
| From time to time, the Company may implement new delivery systems or offer new products and services within existing lines of business |
| There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed |
| In developing and marketing new delivery systems and/or new products and services the Company may invest significant time and resources |
| Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible |
| External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service |
| Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of the Company’s system of internal controls |
| Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on the Company’s business, results of operations and financial condition |
| The Company relies on dividends from its subsidiaries for most of its revenue |
| The Company is a separate and distinct legal entity from its subsidiaries |
| It receives substantially all of its revenue from dividends from its subsidiaries |
| These dividends are the principal source of funds to pay dividends on the Company’s common stock and interest and principal on the Company’s debt |
| Various federal and/or state laws and regulations limit the amount of dividends that Southside Bank and certain non-bank subsidiaries may pay to the Company |
| Also, the Company’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors |
| In the event Southside Bank is unable to pay dividends to the Company, the Company may not be able to service debt, pay obligations or pay dividends on the Company’s common stock |
| The inability to receive dividends from Southside Bank could have a material adverse effect on the Company’s business, financial condition and results of operations |
| See the section captioned “Supervision and Regulation” in “Item 1 |
| Business” and “Note 13 – Shareholders’ Equity” in the notes to consolidated financial statements included in “Item 8 |
| Financial Statements and Supplementary Data,” which are located elsewhere in this report |
| The holders of the Company’s junior subordinated debentures have rights that are senior to those of the Company’s shareholders |
| On October 6, 2003, the Company issued dlra20dtta6 million of floating rate junior subordinated debentures in connection with a dlra20dtta0 million trust preferred securities issuance by its subsidiary, Southside Statutory Trust III The 2003 junior subordinated debentures mature in October of 2033 |
| Payments of the principal and interest on the trust preferred securities are conditionally guaranteed by the Company |
| The 2003 junior subordinated debentures are senior to the Company’s shares of common stock |
| As a result, the Company must make payments on the junior subordinated debentures (and the related trust preferred securities) before any dividends can be paid on our common stock and, in the event of bankruptcy, dissolution or liquidation, the holders of the debentures must be satisfied before any distributions can be made to the holders of common stock |
| The Company has the right to defer distributions on the 2003 junior subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid to holders of common stock |
| Potential acquisitions may disrupt the Company’s business and dilute stockholder value |
| While the Company has never made an acquisition, we occasionally investigate potential merger or acquisition partners that are culturally similar and have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services |
| Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among other things: 16 ______________________________________________________________________ • potential exposure to unknown or contingent liabilities of the target company; • exposure to potential asset quality issues of the target company; • difficulty and expense of integrating the operations and personnel of the target company; • potential disruption to the Company’s business; • potential diversion of the Company’s management’s time and attention; • the possible loss of key employees and customers of the target company; • difficulty in estimating the value of the target company; and • potential changes in banking or tax laws or regulations that may affect the target company |
| The Company occasionally evaluates merger and acquisition opportunities and conducts due diligence activities related to possible transactions with other financial institutions and financial services companies |
| As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving cash, debt or equity securities may occur at any time |
| Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of the Company’s tangible book value and net income per common share may occur in connection with any future transaction |
| Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits and synergies from an acquisition could have a material adverse effect on the Company’s financial condition and results of operations |
| The Company may not be able to attract and retain skilled people |
| The Company’s success depends, in large part, on its ability to attract and retain key people |
| Competition for the best people in most activities engaged in by the Company can be intense and the Company may not be able to hire people or to retain them |
| The unexpected loss of services of one or more of the Company’s key personnel could have a material adverse impact on the Company’s business because of their skills, knowledge of the Company’s market, years of industry experience and the difficulty of promptly finding qualified replacement personnel |
| The Company does not currently have employment agreements or non-competition agreements with any of its senior officers |
| The Company’s information systems may experience an interruption or breach in security |
| The Company relies heavily on communications and information systems to conduct its business |
| Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Company’s customer relationship management, general ledger, deposit, loan and other systems |
| While the Company has policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed |
| The occurrence of any failures, interruptions or security breaches of the Company’s information systems could damage the Company’s reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny, or expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s financial condition and results of operations |
| The Company continually encounters technological change |
| The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services |
| The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs |
| The Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to 17 ______________________________________________________________________ create additional efficiencies in the Company’s operations |
| Many of the Company’s competitors have substantially greater resources to invest in technological improvements |
| The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers |
| Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on the Company’s business and, in turn, the Company’s financial condition and results of operations |
| The Company is subject to claims and litigation pertaining to fiduciary responsibility |
| From time to time, customers make claims and take legal action pertaining to the Company’s performance of its fiduciary responsibilities |
| Whether customer claims and legal action related to the Company’s performance of its fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to the Company they may result in significant financial liability and/or adversely affect the market perception of the Company and its products and services as well as impact customer demand for those products and services |
| Any financial liability or reputation damage could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations |
| Severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact the Company’s business |
| Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on the Company’s ability to conduct business |
| Such events could affect the stability of the Company’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Company to incur additional expenses |
| For example, during 2005, hurricanes Katrina and Rita made landfall and subsequently caused extensive flooding and destruction along the coastal areas of the Gulf of Mexico |
| While the impact of these hurricanes did not significantly affect the Company, other severe weather or natural disasters, acts of war or terrorism or other adverse external events may occur in the future |
| Although management has established disaster recovery policies and procedures, the occurrence of any such event could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations |
| As part of the Company’s disaster recovery policies and procedures, contingency plans exist, but there is no assurance of success |
| Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive |
| The Company’s stock price can fluctuate significantly in response to a variety of factors including, among other things: • actual or anticipated variations in quarterly results of operations; • recommendations by securities analysts; • operating and stock price performance of other companies that investors deem comparable to the Company; • news reports relating to trends, concerns and other issues in the financial services industry; • perceptions in the marketplace regarding the Company and/or its competitors; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or its competitors; 18 ______________________________________________________________________ • failure to integrate acquisitions or realize anticipated benefits from acquisitions; • changes in government regulations; and • geopolitical conditions such as acts or threats of terrorism or military conflicts |
| General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause the Company’s stock price to decrease regardless of operating results |
| The trading volume in the Company’s common stock is less than that of other larger financial services companies |
| Although the Company’s common stock is listed for trading on the NASDAQ National Market, the trading volume is such that you are not assured liquidity with respect to transactions in the Company’s common stock |
| A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of the Company’s common stock at any given time |
| This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control |
| Given the lower trading volume of the Company’s common stock, significant sales of the Company’s common stock, or the expectation of these sales, could cause the Company’s stock price to fall |
| An investment in the Company’s common stock is not an insured deposit |
| The Company’s common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity |
| Investment in the Company’s common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company |
| As a result, if you acquire the Company’s common stock, you may lose some or all of your investment |
| Provisions of our amended and restated articles of incorporation and amended and restated bylaws, as well as state and federal banking regulations, could delay or prevent a takeover of us by a third party |
| The Company’s amended and restated articles of incorporation and amended and restated bylaws could delay, defer or prevent a third party from acquiring the Company, despite the possible benefit to the Company’s shareholders, or otherwise adversely affect the price of the Company’s common stock |
| These provisions include, among others, requiring advance notice for raising business matters or nominating directors at shareholders’ meetings and staggered board elections |
| Any individual, acting alone or with other individuals, who is seeking to acquire, directly or indirectly, 10dtta0prca or more of the Company’s outstanding common stock must comply with the Change in Bank Control Act, which requires prior notice to the Federal Reserve Board for any acquisition |
| Additionally, any entity that wants to acquire 5dtta0prca or more of the Company’s outstanding common stock, or otherwise to control the Company, may need to obtain the prior approval of the Federal Reserve under the Bank Holding Company Act of 1956, as amended |
| As a result, prospective investors in the Company’s common stock need to be aware of and comply with those requirements, to the extent applicable |
| 19 ______________________________________________________________________ RISKS ASSOCIATED WITH THE COMPANY’S INDUSTRY The earnings of financial services companies are significantly affected by general business and economic conditions |
| The Company’s operations and profitability are impacted by general business and economic conditions in the United States and abroad |
| These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, and the strength of the US economy and the local economies in which the Company operates, all of which are beyond the Company’s control |
| A deterioration in economic conditions could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for the Company’s products and services, among other things, any of which could have a material adverse impact on the Company’s financial condition and results of operations |
| Financial services companies depend on the accuracy and completeness of information about customers and counterparties |
| In deciding whether to extend credit or enter into other transactions, the Company may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information |
| The Company may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information |
| Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse impact on the Company’s business and, in turn, the Company’s financial condition and results of operations |
| Consumers may decide not to use banks to complete their financial transaction |
| Technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods |
| For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds |
| Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks |
| The process of eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits |
| The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on the Company’s financial condition and results of operations |