SOUTHSIDE BANCSHARES CORP
10-K, 1997-03-31
NATIONAL COMMERCIAL BANKS
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<PAGE>   1





                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-K
(Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 (Fee Required)
                  For the fiscal year ended December 31, 1996.
                                       OR
[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 (No Fee Required)

            For the transition period from __________ to __________

                         Commission File Number 0-10849

                           SOUTHSIDE BANCSHARES CORP.
            --------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S><C>
             MISSOURI                                                                    43-1262037                            
- ----------------------------------------                                  ---------------------------------------------
(State or Other Jurisdiction of Incorporation or Organization)                  (I.R.S. Employer Identification No.)

  3606 GRAVOIS AVENUE, ST. LOUIS, MISSOURI                                        63116                                           
- -----------------------------------------------------------------------------------------------------------------------
(Address of Principal Executive Offices)                                        (Zip Code)
</TABLE>

Registrant's Telephone Number, Including Area Code:    (314) 776-7000        
                                                     ------------------------

          Securities registered pursuant to Section 12(b) of the Act:

                                                  Name of Each Exchange
               Title of Each Class                 on Which Registered
               -------------------                ----------------------
                     NONE                                    NONE

          Securities registered pursuant to Section 12(g) of the Act:

                         COMMON STOCK, $1.00 PAR VALUE
                                (Title of Class)       

                      ------------------------------------

         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 ___

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by references in Part III of this Form 10-K or any
amendment to this Form 10-K. [  ]

         At March 17, 1997, the aggregate market value, computed by the average
bid and asked prices, of the voting stock held by non-affiliates of the
Registrant was approximately $73,727,420.00.

         At March 17, 1997, the number of shares outstanding of the
Registrant's common stock, $1.00 par value, was 2,835,670.

                      DOCUMENTS INCORPORATED BY REFERENCE
(1)      Portions of the Registrant's Annual Report to Shareholders for the
         fiscal year ended December 31, 1996 (Part I and Part II); and

(2)      Portions of the Registrant's Proxy Statement for the Annual Meeting of
         Shareholders scheduled for April 24, 1997 (Part III). 
================================================================================
<PAGE>   2

                                     PART I

ITEM 1.  BUSINESS

         (a)     General

         Southside Bancshares Corp. (the "Registrant" or "Southside") was
incorporated under the laws of the State of Missouri on January 25, 1982.
Southside became a registered bank holding company on January 3, 1983, when
South Side National Bank in St. Louis and a wholly-owned subsidiary of the
Registrant were merged on that date.  The wholly-owned subsidiary of the
Registrant now continues banking operations under the name "South Side National
Bank in St. Louis."  Prior to such merger, the Registrant was not actively
involved in any banking operations.  Southside's principal office is located at
3606 Gravois Avenue, St. Louis, Missouri 63116.

         Southside, through its subsidiary banks, is primarily engaged in
commercial banking and providing trust services.  The Registrant and its
subsidiaries had, at December 31, 1996, consolidated total assets of
approximately $528 million.  The following table shows the year of acquisition,
total assets, total loans and total deposits at December 31, 1996, of each of
Southside's wholly-owned subsidiary banks, all of which are located in
Missouri.

<TABLE>
<CAPTION>
                                                                                    (in thousands)                                 
                                  Year of              --------------------------------------------------------------------------
            Bank                Acquisition             Total Assets                 Total Loans            Total Deposits
            ----                -----------             ------------                 -----------            --------------
<S>                                  <C>                   <C>                         <C>                     <C>
South Side National Bank
  in St. Louis                       1983                  $338,077                    $172,877                $299,586
State Bank of DeSoto                 1983                  $ 54,340                    $ 38,049                $ 48,449
Bank of Ste. Genevieve               1985                  $ 89,490                    $ 51,686                $ 79,897
The Bank of St. Charles
  County                             1986                  $ 44,286                    $ 31,851                $ 39,732
</TABLE>


         The Registrant's subsidiary banks, which operated 13 banking offices
in Missouri during 1996, are engaged in the general banking business of
accepting funds for deposit, making loans, renting safe deposit boxes and
performing such other banking services as are usual and customary in banks of
similar size and character.  All of the subsidiary banks offer real estate,
commercial and consumer loans. Customers of all subsidiary banks are offered
regular checking, interest-bearing checking, money market, savings,
certificates of deposit and IRA accounts.  South Side National Bank in St.
Louis ("SSNB"), State Bank of DeSoto and The Bank of St. Charles County also
provide BankMate and CIRRUS 24-hour automated teller machines.  Bank of Ste.
Genevieve has a 24-hour banking machine on the Shazam and Plus automated teller
networks at its Plaza Bank location.  SSNB also provides a 24-hour automated
teller machine (ATM) at its Customer-Bank Communications Terminal branch in St.
Anthony's Medical Center located at 10010 Kennerly Road, St. Louis County,
Missouri 63128.

         Customers of all of the subsidiary banks are also offered the services
of the trust department of SSNB.  At December 31, 1996, the combined market
value of fiduciary and custodial assets under management of the trust
department was approximately $276 million, which are not included in the
consolidated assets of the Registrant as they do not represent assets of the
Registrant.

         The responsibility for the management of the subsidiary banks remains
with the officers and directors of the respective banks.  Southside provides
the subsidiary banks with assistance and service in auditing, record keeping,
tax planning, trust operations, new business development, lending, regulatory
compliance and human resources management.

         Southside has nine officers.  Southside utilizes, to the extent
necessary, the officers, employees and services of its banking subsidiaries.
The total number of full and part-time employees of the Registrant and its
wholly-owned subsidiaries was 217 and 34, respectively, on December 31, 1996.

         The information on page 4 of the Southside Bancshares Corp. 1996
Annual Report is incorporated herein by reference.

<PAGE>   3

         (b)     Supervision and Regulation

         Southside is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and, as such, is subject
to regulation, supervision and examination by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board").  Registered bank holding
companies are required to file an annual report with the Federal Reserve Board
and to provide the Federal Reserve Board with such additional information as
the Federal Reserve Board may require pursuant to the BHCA.

         The BHCA requires that bank holding companies obtain prior approval
from the Federal Reserve Board before (1) acquiring (except in certain limited
circumstances) direct or indirect ownership or control of more than 5% of the
voting shares of any bank or bank holding company, (2) acquiring all or
substantially all of the assets of any bank or bank holding company, or (3)
merging or consolidating with any other bank holding company.  In determining
whether to approve a proposed acquisition, merger or consolidation, the Federal
Reserve Board is required to take into consideration the financial and
managerial resources and future prospects of the company or companies and the
banks concerned, and the convenience and needs of the community to be served.

         The BHCA also prohibits any bank holding company, or any subsidiary
thereof, from acquiring, directly or indirectly, more than 5% of the voting
shares of, interest in, or all or substantially all of the assets of any
additional bank located outside the state in which the operations of such bank
holding company's banking subsidiaries were principally conducted on the date
which such company became a bank holding company unless the acquisition of such
shares or assets of a state bank by an out-of-state bank holding company is
specifically authorized by the statutes of the state in which the bank is
located.  Missouri law  permits banks and bank holding companies in states
contiguous to Missouri to acquire banks and bank holding companies located in
Missouri, if such states have passed reciprocal interstate banking laws.  A
bank or bank holding company having its principal operations in Iowa, Illinois,
Kentucky, Tennessee, Arkansas, Oklahoma, Kansas or Nebraska is currently
permitted to acquire control of Missouri banks since all of the states listed
above have adopted regional or national interstate banking legislation
reciprocal with that of Missouri.

         Missouri law provides that a bank holding company may not obtain
control of any bank if as a result of the acquisition, the total deposits in
such bank together with the total deposits of all banks located in the State of
Missouri controlled by the bank holding company would exceed 13% of the total
deposits of all depository financial institutions in the state, including
banks, thrifts and credit unions.  In computing the total deposits in all banks
controlled by the bank holding company and the bank which the holding company
seeks to acquire, certificates of deposit in the face amount of $100,000 or
more, deposits from sources outside the United States and deposits of banks
other than banks controlled by the bank holding company are to be deducted.

         The BHCA further prohibits a bank holding company, with certain
exceptions, from engaging in and from acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any company engaged in a
business other than that of banking, managing and controlling banks, or
furnishing services to its affiliated banks.  An exception to this prohibition
provides that a bank holding company may engage in, and may own shares of
companies engaged in, certain businesses which the Federal Reserve Board has
determined to be so closely related to banking as to be a proper incident
thereto.  The Federal Reserve Board has adopted regulations specifying areas of
activity which it regards as so closely related to banking or the managing of
banks as to be permissible for bank holding companies under the law, subject to
Board approval in individual cases.  The Registrant is not engaged in any such
non-banking activities.

         In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 was enacted.  As of September 29, 1995, bank holding
companies have the right to expand, by acquiring existing banks, into all
states, even those which had theretofore restricted entry, subject to state
deposit caps and a 10% nationwide deposit cap.  This legislation also provides
that, subject to future action by individual states, a holding company has the
right, commencing on June 1, 1997, to convert the banks which it owns in
different states to branches of a single bank.  States are permitted to "opt
out" of this full interstate branching provision prior to the effective date,
but may not "opt out" of the law allowing bank holding companies from other
states to enter such states.  Alternatively, states may "opt in" earlier than
June 1, 1997.  As of the date hereof, the state of Missouri, in which all of
the Registrant's subsidiary banks are located, has neither "opted in" nor
"opted out" of the interstate branching provisions of this legislation.





                                       2
<PAGE>   4


         Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any of its other subsidiaries, on investments in
the stock or other securities thereof, and on the taking of such stock or
securities as collateral for loans to any borrower.  Further, under the BHCA
and regulations of the Federal Reserve Board, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property, or
furnishing of services.

         The primary subsidiary of the Registrant, South Side National Bank in
St. Louis, is a national bank and, as such, its primary bank regulatory
authority is the Office of the Comptroller of the Currency.  A national bank is
also regulated by the Federal Reserve Board and the Federal Deposit Insurance
Corporation.  Banks organized under state law which are members of the Federal
Reserve System are regulated and examined primarily by the Federal Reserve
Board and state banking authorities, while banks organized under state law
which are not members of the Federal Reserve System are regulated and examined
primarily by the Federal Deposit Insurance Corporation and state banking
authorities.  The Bank of Ste. Genevieve is a state-chartered bank which is a
member of the Federal Reserve System, while State Bank of DeSoto and The Bank
of St. Charles County are state-chartered banks which are not members of the
Federal Reserve System.  Regulation by the federal and state banking
authorities is designed to protect depositors rather than shareholders.

         Subsidiary bank dividends are the principal source of revenue to the
Registrant although management fees may be charged to cover services rendered
to such subsidiary banks.  The ability of each subsidiary bank to pay such
dividends to Southside is subject to limitations established by various state
and federal laws and regulations. Banks organized under either federal or state
laws are limited in the amount of dividends they may declare, depending upon
the amount of their capital and surplus, and in certain instances must obtain
regulatory approval before declaring dividends.  Under the National Banking
Act, until a national bank's surplus equals or exceeds the amount of its
capital, no dividend may be declared unless at least one-tenth of the national
bank's net profit earned since declaration of the last dividend has been
transferred to surplus.  Under federal law, regulatory approval is required for
any dividend by a national bank or a state-chartered bank which is a member of
the Federal Reserve System if the total of all dividends declared by the bank
in any calendar year would exceed the total of its net income for that year
combined with its retained net income for the preceding two years, less any
required transfers to surplus.  Under Missouri law, a state-chartered bank
which is not a member of the Federal Reserve System whose surplus account for
each dividend period does not equal at least 40% of the amount of its capital
stock is required to transfer to its surplus account 10% of its net income for
such dividend period.  Retained earnings in excess of any such required
transfer to surplus are available for dividends.  In addition, sound banking
practices require the maintenance of adequate levels of capital.  Federal
regulatory authorities have adopted standards for the maintenance of capital by
banks, and adherence to such standards may further limit the ability of banks
to pay dividends.

         The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, identifies the following capital standards for
depository institutions:  well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized.  A depository institution is well capitalized if it
significantly exceeds the minimum level required by regulation for each
relevant capital measure, adequately capitalized if it meets each such measure,
undercapitalized if it fails to meet any such measure, significantly
undercapitalized if it is significantly below any such measure, and critically
undercapitalized if it fails to meet any critical capital level set forth in
the regulations.  FDICIA requires a bank that is determined to be
undercapitalized to submit a capital restoration plan, and the bank's holding
company must guarantee that the bank will meet its capital plan, subject to
certain limitations.  FDICIA also prohibits banks from making any capital
distribution or paying any management fee if the bank would thereafter be
undercapitalized.

         FDICIA grants the FDIC authority to impose special assessments on
insured depository institutions to repay FDIC borrowings from the United States
Treasury or other sources and to establish semiannual assessment rates on Bank
Insurance Fund ("BIF") member banks so as to maintain the BIF at the designated
reserve ratio defined in FDICIA.  FDICIA also required the FDIC to implement a
risk-based insurance assessment system pursuant to which the premiums paid by a
depository institution are based on the probability that the BIF will incur a
loss in respect of such institution.  The FDIC has adopted a deposit insurance
assessment system that places each insured institution in one of nine risk
categories based on the level of its capital, evaluation of its risks by its
primary state or federal supervisor, statistical analysis and other
information.  The FDIC has recently adopted an amendment to the BIF risk-based
assessment schedule which effectively eliminated deposit insurance assessments
for most commercial banks and other depository institutions with deposits
insured by the BIF.  Under the FDIC amendment, the





                                       3
<PAGE>   5

assessment rates for BIF-insured institutions range from 0.27% of insured
deposits for the most financially troubled BIF members to 0% of deposits for
most well-capitalized institutions, including over 90% of BIF-insured
institutions.

         The Economic Growth and Regulatory Paperwork Reduction Act of 1996
("EGRPRA") was signed into law on September 30, 1996.  EGRPRA streamlined the
non-banking activities application process for well-capitalized and
well-managed bank holding companies.  Under EGRPRA, qualified bank holding
companies may commence a regulatory approved non-banking activity without prior
notice to the Federal Reserve Board.  Written notice is required within 10 days
after commencing the activity.  Under EGRPRA, the prior notice period is
reduced to 12 days in the event of any non-banking acquisition or share
purchase, assuming the size of the acquisition does not exceed 10% of
risk-weighted assets of the acquiring bank holding company and the
consideration does not exceed 15% of Tier I capital.  The foregoing prior
notice requirement also applies to commencing non-banking activity de novo
which has been previously approved by order of the Federal Reserve Board, but
not yet implemented by regulations.  EGRPRA also provides for the
recapitalization of the Savings Association Insurance Fund in order to bring
that fund into parity with the BIF of the FDIC.

         The references in this section to various aspects of supervision and
regulation are brief summaries which do not purport to be complete and which
are qualified in their entirety by reference to applicable laws, rules and
regulations.  Any change in applicable laws or regulations may have a material
effect on the business and prospects of Southside.  The operations of Southside
may be affected by legislative changes and by the policies of various
regulatory authorities.  Southside is unable to predict the nature or the
extent of the effects on its business and earnings that fiscal or monetary
policies, economic controls or new federal or state legislation may have in the
future.

         The information contained in note 11 of the Notes to Consolidated
Financial Statements on pages 39 and 40 of the Southside Bancshares Corp. 1996
Annual Report is incorporated herein by reference.

         (c)     Competition

         The Registrant and its subsidiaries encounter substantial competition
in all aspects of their banking activities.  New banks may be established in
the market areas of the subsidiary banks, and the location of existing banks
may be moved on occasion.  In addition, competing banks and competing bank
holding companies are continuing to establish separate banking facilities or
branches which have been permitted under Missouri law since 1972.  Any such new
or relocated banks and facilities may have a tendency to increase the
competition faced by the subsidiary banks.  Missouri law permits unlimited,
state-wide branching for both national and state-chartered banks, subject to
certain criteria.

         As lenders, the subsidiary banks compete not only with other banks but
also with savings and loans associations, credit unions, finance companies,
insurance companies and other non-banking financial institutions that offer
credit.  The subsidiary banks also compete for savings and time deposits with
other banks, savings and loan associations, credit unions, money market and
mutual funds, and issuers of commercial paper, securities and various forms of
fixed and variable income investments.  The principal competitive factors in
the markets for deposits and loans are interest rates paid and interest rates
charged, along with related services; accessibility to customers is also a
substantial factor.

         (d)     Monetary Policy and Economic Conditions

         The principal sources of funds to banks and bank holding companies are
deposits, stockholders' equity and borrowed funds.  Stockholders' equity is
represented by common stock, surplus and retained earnings, as well as current
net income.  Borrowed funds include short-, intermediate- and long-term debt,
as well as Federal funds purchased and securities sold under agreements to
repurchase.  The availability of these various sources of funds and other
potential sources, such as preferred stock, convertible securities and
commercial paper, and the extent to which they are utilized, depends on many
factors, the most important of which are the monetary policies of the Federal
Reserve Board and the relative costs of different types of funds.

         An important function of the Federal Reserve Board is to regulate the
national supply of bank credit.  Among the instruments of monetary policy used
by the Federal Reserve Board to implement these objectives are open market
operations in United States Government Securities, changes in the discount rate
on bank borrowings and changes in reserve requirements against bank deposits.
The foregoing means are used in varying combinations to influence overall
growth of bank loans.  Investments and deposits may also affect interest rates
charged on loans and paid for deposits.  The availability and cost of various
sources of funds are also affected by fiscal policies of the United States
Government.





                                       4
<PAGE>   6

         The monetary policies of the Federal Reserve Board and the fiscal
policies of the United States Government have had a significant effect on
operating results of commercial banks in the past and are expected to continue
to do so in the future.  No prediction can be made as to future changes in
interest rates, credit availability, deposit levels, loan demand or the overall
performance of banks generally and the subsidiaries of Southside in particular.

         (e)     Statistical Information

         The following selected statistical information relative to Southside
and its subsidiaries should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations, the Consolidated
Financial Statements and Notes to Consolidated Financial Statements included in
the Southside Bancshares Corp. 1996 Annual Report, incorporated herein by
reference.

                        SELECTED STATISTICAL INFORMATION
I.       Loan Portfolio

         A.      Types of Loans

         The following table shows the classification of loans by major
category at December 31 for the years shown.


<TABLE>
<CAPTION>
                                                                    (in thousands)
                                                                                                                                    
                                           -----------------------------------------------------------------------------------
                                               1996          1995            1994         1993          1992
                                           -----------------------------------------------------------------------------------
<S>                                           <C>             <C>          <C>           <C>          <C>
Commercial, financial
 and agricultural                              $62,016        $ 62,214     $ 69,219      $ 73,566     $ 88,026
Real estate-commercial                          82,045          88,321       82,807        86,258       90,860
Real estate-construction                        26,067          15,510       11,019         9,540       17,555
Real estate-residential                         96,039         102,418      108,134       110,806      132,941
Consumer                                        17,304          17,626       18,334        18,849       19,797
Industrial revenue bonds                         6,373           7,789        9,311         8,544       10,841
Other loans                                      4,619           9,946        2,573           668          839
                                               -------         -------      -------       -------      -------

  TOTAL LOANS                                 $294,463        $303,824     $301,397      $308,231     $360,859
                                               =======         =======      =======       =======      =======
</TABLE>


      B.      Maturities and Sensitivities of Loans to Changes in Interest Rates

         The following table shows the remaining maturities of selected loan
                                                  categories at December 31,
                                                  1996.  (in thousands)
<TABLE>
<CAPTION>
                                                                                                                                   
                                           ----------------------------------------------------------------------------------------
                                              One year          Over one up            Over
                                              or less*          to 5 years           5 years          Total
                                           ----------------------------------------------------------------------------------------
<S>                                               <C>                 <C>               <C>           <C>
Commercial, financial
 and agricultural                                 $44,615             $16,178           $1,223        $62,016
Real estate-construction                           22,300               3,767              -           26,067
Other loans                                         4,619                -                 -            4,619
                                                   ------             -------           ------         ------
     TOTAL                                        $71,534             $19,945           $1,223        $92,702
                                                   ------              ------            -----         ------
</TABLE>
*        Demand loans, loans having no stated schedule of repayments and no
         stated maturity, and overdrafts are reported as due "One year or
         less."





                                       5
<PAGE>   7

The following table shows the amount of loans above having maturities over one
year which have predetermined interest rates, and the amount which have
floating or adjustable interest rates at December 31, 1996 (in thousands).

<TABLE>
<S>                                                                 <C>
Loans with predetermined interest rates                              $19,130
Loans with floating or adjustable interest rates                       2,038
                                                                      ------
                                                                     $21,168
                                                                     =======
</TABLE>

II.      Summary of Loan Loss Experience

         The information under the caption Allowance for Loan Losses and Risk
Elements on pages 8 through 10 of the Southside Bancshares Corp.  1996 Annual
Report is incorporated herein by reference.

         The following table analyzes the loan loss experience of the
Registrant for the periods indicated:

<TABLE>
<CAPTION>
                                                                     (dollars in thousands)
                                                                    Years Ended December 31,
                                                                                                                                   
                                           ----------------------------------------------------------------------------------------
                                               1996          1995            1994         1993          1992
                                           ----------------------------------------------------------------------------------------
<S>                                       <C>              <C>           <C>           <C>          <C>
Average loans outstanding, net of
  unearned discount                         $295,683         $297,480      $294,749      $330,869     $394,967
                                             =======          =======       =======       =======      =======

Allowance at beginning of year              $  5,635         $  7,144      $  8,334      $  9,994     $  6,646
                                            --------         --------      --------      --------     --------

Loans charged off:
  Commercial, financial and
     agricultural                                878            1,606           821         3,087        1,976
  Real estate - construction                      -              -             -              -            -
  Real estate - residential                       93              294         1,302         1,884        1,290
  Consumer                                       248              274           195           528          975
                                              ------          -------       -------       -------      -------

  Total loans charged off                      1,219            2,174         2,318         5,499        4,241
                                              ------          -------       -------       -------      -------

Recoveries:
  Commercial, financial and
     agricultural                                869              661           276           615          278
  Real estate - construction                      -                -             -             -            -
  Real estate - mortgage                         171              186           568           531            6
  Consumer                                        86               75            91            85           63
                                              ------          -------       -------       -------      -------

  Total recoveries                             1,126              922           935         1,231          347
                                              ------          -------       -------       -------      -------

Net loans charged off                             93            1,252         1,383         4,268        3,894
                                              ------          -------       -------       -------      -------

Provisions charged to
  operating expense                               60               70           193         2,608        7,242
                                              ------          -------       -------       -------      -------

Adjustment due to sale of
  Bay-Hermann-Berger Bank                        -               (327)           -             -            - 
                                              ------          --------      -------       -------      -------

Allowance at end of year                     $ 5,602         $  5,635      $  7,144      $  8,334     $  9,994
                                              ======          =======       =======       =======      =======

Ratio of net charge-offs during
  year to average loans outstanding             0.03%            0.42%         0.47%         1.29%        0.99%
                                              ======          =======       =======      ========      =======  
</TABLE>





                                       6
<PAGE>   8

         The following table sets forth at the end of each reported period, a
breakdown of the allowance for possible loan losses by major categories of
loans and the percentage of loans in each category to total loans at the dates
indicated:

<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                                              (dollars in thousands)
                                                                                                                                   
                   ----------------------------------------------------------------------------------------------------------------
                         1996                   1995                 1994                 1993                  1992
                   ----------------------------------------------------------------------------------------------------------------
                            Percent of              Percent of            Percent of             Percent of            Percent of
                            Loans in Each           Loans in Each         Loans in Each          Loans in Each         Loans in Each
                            Category To             Category To           Category To            Category To           Category To
                 Allowance  Total Loans  Allowance  Total Loans Allowance Total Loans  Allowance Total Loans Allowance Total Loans
                 ---------  -----------  ---------  ----------- --------- -----------  --------- ----------- ---------  -----------
<S>                <C>      <C>          <C>         <C>        <C>        <C>         <C>        <C>         <C>         <C>
Commercial,
  financial and
  agricultural      $3,902    23.2%      $3,935       23.0%     $5,094     26.0%        $5,984     26.6%      $6,644     27.4%

Real estate -
  construction        300     8.9%          300        5.1%        300      3.7%           300      3.1%         300      4.9%

Real estate -
  mortgage          1,000    60.5%        1,000       62.8%      1,500     63.4%         1,500     63.9%       2,000     62.0%

Consumer loans to
  individuals         200     5.8%          200        5.8%        200      6.1%           500      6.2%       1,000      5.5%

Other loans
  (Unallocated)       200     1.6%          200        3.3%         50      0.8%            50      0.2%          50      0.2%
                    -----    -----       ------     --------    -------  --------      --------  --------    --------  --------
                   $5,602   100.0%      $ 5,635      100.0%    $ 7,144    100.0%       $ 8,334    100.0%     $ 9,994    100.0%
                    =====   ======       ======     ========    =======  ========      ========  ========    ========  ========
</TABLE>





                                       7
<PAGE>   9

III.     Investment Portfolio

         The information contained in note 2 of the Notes to Consolidated
Financial Statements on pages 34 and 35 of the Southside Bancshares Corp. 1996
Annual Report is incorporated herein by reference.  The following table
summarizes the carrying values and weighted average yields of investments in
debt securities by contractual maturity.  Actual maturities will differ from
contractual maturities, because borrowers have the right to prepay obligations
with or without prepayment penalties.  A maturity distribution for
mortgage-backed securities has not been prepared due to their accelerated
prepayment characteristics.

<TABLE>
<CAPTION>
                                                                             (dollars in thousands)
                                                                                DECEMBER 31, 1996
                                                          --------------------------------------------------------                  

                                                              AVAILABLE FOR SALE                  HELD TO MATURITY
                                                              ------------------                  ----------------

                                                          CARRYING          AVERAGE          CARRYING          AVERAGE
                                                           VALUE            YIELD*            VALUE             YIELD*
                                                           -----            -----             -----             ----- 
 <S>                                                       <C>                  <C>          <C>                   <C>
 U.S. TREASURY SECURITIES AND OBLIGATIONS OF U.S.
    GOVERNMENT AGENCIES AND CORPORATIONS:

       Within 1 year                                        $4,713              5.83%         $23,808              5.32%
       After 1 but within 5 years                           13,724              5.87           59,471              5.98

       After 5 but within 10 years                             408              6.00            9,190              5.83

       After 10 years                                          -                 -                -                 -
                                                           -------                           --------                
                        Total                               18,845              5.87           92,469              5.80
                                                           =======                           ========                  

 OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS:
       Within 1 year                                           146              4.45              620              6.23

       After 1 but within 5 years                              305              7.21            8,536              6.06

       After 5 but within 10 years                               -                 -           11,232              5.32
       After 10 years                                            -                 -            1,321              5.90
                                                           -------                           --------                  

                        Total                                  451              6.31           21,709              5.67
                                                           =======           =======         ========           =======
 OTHER DEBT SECURITIES:

       Within 1 year                                             -                 -                -                 -

       After 1 but within 5 years                            1,179              6.25              300              6.00
       After 5 but within 10 years                               -                 -                -                 -

       After 10 years                                          100              6.29              -                 -  
                                                           -------                           --------           -------
                        Total                                1,279              6.25              300              6.00
                                                           =======           =======         ========           =======

 TOTAL INVESTMENT SECURITIES:

       Within 1 year                                         4,859              5.78           24,428              5.33
       After 1 but within 5 years                           15,208              5.90           68,307              5.99

       After 5 but within 10 years                             408              6.00           20,422              5.55
       After 10 years                                          100              6.29            1,321              5.90
                                                           -------                           --------                  

                        Total                               20,575              5.90          114,478              5.77
                                                           =======           =======         ========           =======

 MORTGAGE-BACKED SECURITIES                                 46,075              6.29            6,166              7.15
                                                           =======           =======         ========           =======
                        Total                              $66,650              6.17         $120,644              5.85
                                                           =======           =======         ========           =======
</TABLE>

*  The weighted average yield for each maturity range was calculated using the
   yield on each security within that range, weighted by the amortized cost of
   each security at December 31, 1996.  The yields for obligations of states
   and political subdivisions exempt from federal income taxes have been
   adjusted to a fully tax-equivalent basis at a maximum tax rate of 34% for
   1996, adjusted for the disallowance of interest cost to carry nontaxable
   securities.





                                       8
<PAGE>   10

ITEM 2.  PROPERTIES

         The Registrant owned the following physical properties as of December
31, 1996:

         South Side National Bank in St. Louis, a subsidiary of the Registrant,
owns a nine-story banking and office building at 3606 Gravois Avenue in St.
Louis, Missouri 63116, and the adjacent drive-up facilities and three parking
lots.  The Registrant and this subsidiary occupy all nine stories in the
building.  This subsidiary of the Registrant owns the land and bank building
located at its branch facility at 10330 Gravois Road, St. Louis, Missouri
63126.  This is a two story building and the lower level and a portion of the
main level are leased to tenants for an annual rental of approximately $34,000.
This subsidiary also owns the land and bank building at 9914 Kennerly Road in
St. Louis County upon which its South County branch is located. This is a
two-story building and the second floor is leased to tenants for an annual
rental of approximately $83,000.  This subsidiary also owns the land and bank
buildings at 10385 West Florissant, Ferguson, Missouri 63136, 8440 Morganford
Road, St. Louis County, Missouri 63123 and 3420 Iowa Street, St. Louis,
Missouri 63118.  This subsidiary leases a branch facility at 4666 Lansdowne,
St. Louis, Missouri 63116.

         State Bank of DeSoto owns the land and a two-story building at its
main banking office at 224 S. Main Street, DeSoto, Missouri 63020.  The State
Bank of DeSoto also owns the land and a one-story building housing its facility
located at 2000 Rock Road, DeSoto, Missouri 63020.

         Bank of Ste. Genevieve owns the land, a one-story building and an
adjacent parking lot at its main banking office at Second and Market Streets,
Ste. Genevieve, Missouri 63670 and the land and one-story building at its
facility at 710 Parkwood Drive, Ste. Genevieve, Missouri 63670.

         The Bank of St. Charles County owns the land and a two-story building
at its banking facility at 6004 Highway 94 South, St. Charles, Missouri 63304.
This subsidiary bank occupies one story in the building and leases
approximately 5,000 square feet for an annual rental of approximately $19,000.
This subsidiary bank owns the land and a one-story building at its facility
located at 750 First Capitol Drive, St. Charles, Missouri 63301.

         In the opinion of the Registrant's management, the physical properties
of the subsidiary banks are suitable and adequate and are being productively
utilized.


ITEM 3.  LEGAL PROCEEDINGS

         The information contained in note 13 of the Notes to Consolidated
Financial Statements on page 41 of the Southside Bancshares Corp.  1996 Annual
Report is incorporated herein by reference.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.





                                       9
<PAGE>   11



EXECUTIVE OFFICERS OF THE REGISTRANT

         The following is a list of the names and ages of the executive
officers of the Registrant and their business history for the past five years:

<TABLE>
<CAPTION>
 NAME, AGE AND POSITION WITH THE
 COMPANY                                PRINCIPAL OCCUPATIONS OR EMPLOYMENT SINCE JANUARY 1, 1992
 ------------------------------------   ---------------------------------------------------------
 <S>                                    <C>
 Thomas M. Teschner (40)                President and Chief Executive Officer, Southside Bancshares Corp.
 President and Chief Executive          (Since June 1992); President and Chief Executive Officer, South Side
 Officer                                National Bank in St. Louis (Since October 1992); Senior Vice President
                                        and Senior Loan Officer, South Side National Bank in St. Louis and
                                        Southside Bancshares Corp. (September 1986 - June 1992).

 Joseph W. Pope (31)                    Chief Financial Officer and Senior Vice President, Southside
 Senior Vice President and              Bancshares Corp. (Since April 1995); Vice President, South Side
 Chief Financial Officer                National Bank in St. Louis (Since November 1992); Certified Public
                                        Accountant, KPMG Peat Marwick LLP (August 1987 - November 1992).
</TABLE>


                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

         The only class of the Registrant's common equity is common stock,
$1.00 par value (the "Common Stock").  The number of shares of Common Stock of
the Registrant outstanding at March 17, 1997 was 2,835,670 shares, and the
market price for the Common Stock on March 17, 1997 was $23.50 bid; $28.50
asked.

         The information on page 25 of the Southside Bancshares Corp. 1996
Annual Report to Shareholders is incorporated herein by reference.


ITEM 6.  SELECTED FINANCIAL DATA

         The information on page 5 of the Southside Bancshares Corp. 1996
Annual Report to Shareholders is incorporated herein by reference.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION

         The information on pages 6 through 25 of the Southside Bancshares
Corp. 1996 Annual Report to Shareholders is incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The information on pages 26 through 43 of the Southside Bancshares
Corp. 1996 Annual Report to Shareholders is incorporated herein by reference.





                                       10
<PAGE>   12


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         None.


                                    PART III

ITEM 10.         DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information on pages 4 through 6 of the Southside Bancshares Corp.
Proxy Statement for the Annual Meeting of Shareholders scheduled for April 24,
1997 is incorporated herein by reference.  The information on page 16 of the
Southside Bancshares Corp. Proxy Statement for the Annual Meeting of
Shareholders scheduled for April 24, 1997, with respect to compliance by the
Registrant's officers and directors with Section 16(a) of the Securities
Exchange Act of 1934, is incorporated herein by reference.  The required
information regarding Southside's executive officers is contained in PART I in
the item captioned "Executive Officers of the Registrant."


ITEM 11.         EXECUTIVE COMPENSATION

         The information on pages 6 through 11 of the Southside Bancshares
Corp. Proxy Statement for the Annual Meeting of Shareholders scheduled for
April 24, 1997 is incorporated herein by reference.


ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information on pages 3 and 4 of the Southside Bancshares Corp.
Proxy Statement for the Annual Meeting of Shareholders scheduled for April 24,
1997, is incorporated herein by reference.


ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information on page 15 of the Southside Bancshares Corp. Proxy
Statement for the Annual Meeting of Shareholders scheduled for April 24, 1997,
is incorporated herein by reference.


                                    PART IV


ITEM 14.         EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K

(a)      The following financial statements of Southside and its consolidated
         subsidiaries, and the accountants' report thereon are incorporated
         herein by reference in Item 8.

         1.      Financial Statements:

                 Independent Auditors' Report

                 Consolidated Balance Sheets -
                          December 31, 1996 and 1995





                                       11
<PAGE>   13

                 Consolidated Statements of Income -
                          Years Ended December 31, 1996, 1995 and 1994

                 Consolidated Statements of Shareholders' Equity -
                          Years Ended December 31, 1996, 1995 and 1994

                 Consolidated Statements of Cash Flows -
                          Years Ended December 31, 1996, 1995 and 1994

                 Notes to Consolidated Financial Statements

          2.     Financial Statement Schedules:

                 All other schedules are omitted because they are not
         applicable, not required, or the information is included elsewhere in
         the Consolidated Financial Statements or notes thereto.

<TABLE>
          <S>    <C>
          3.     Exhibits:*

                 3(a)     Restated Articles of Incorporation of the Registrant filed as Exhibit 4(a) to the
                          Registrant's Registration Statement on Form S-8 on May 2, 1994, incorporated herein by
                          reference.

                 3(b)     Restated Bylaws of the Registrant with amendments through December 28, 1995 filed as
                          Exhibit 4(b) to the Registrant's Registration Statement on Form S-8 on January 31, 1996,
                          incorporated herein by reference.

                 4(a)     Rights Agreement dated as of May 27, 1993 between the Registrant and Boatmen's Trust Company
                          filed as Exhibits 1 and 2 to the Registrant's Registration Statement on Form 8-A on May 27,
                          1993, incorporated herein by reference.

                 10(a)    Employment Agreement Dated April 27, 1995 between Southside Bancshares Corp., South Side
                          National Bank in St. Louis and Thomas M. Teschner filed as Exhibit 10(b) to the Registrant's
                          Report on Form 10-K for the fiscal year ended December 31, 1995, incorporated herein by
                          reference.

                 10(b)    Southside Bancshares Corp. 1993 Non-Qualified Stock Option Plan, filed as Exhibit 10(e) to
                          the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994,
                          incorporated herein by reference.

                 10(c)    Deferred Compensation Agreement dated April 25, 1996 between
                          Thomas M. Teschner and Southside Bancshares Corp.

                 10(d)    Southside Bancshares Corp. Deferred Compensation Plan for
                          Directors

                 11       Computation of Net Income Per Common Share

                 13       Portions of the Annual Report to Shareholders of the Registrant for the fiscal year ended
                          December 31, 1996.
</TABLE>





                                       12
<PAGE>   14


<TABLE>
                 <S>      <C>
                 21       List of Subsidiaries.

                 23       Independent Auditors' Consent of KPMG Peat Marwick LLP.

                 27       Financial Data Schedule.
</TABLE>

*        The exhibits included under Exhibit 10 constitute all management
         contracts, compensatory plans and arrangements required to be filed as
         an exhibit to this form pursuant to Item 14(c) of this report.


(b)      Reports filed on Form 8-K:

                 The following reports on Form 8-K were filed for the three
months ended December 31, 1996:

                 None.





                                       13
<PAGE>   15

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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.




<TABLE>
          <S>                                      <C>               
                                                   By       /s/ Thomas M. Teschner                                                 
                                                      ------------------------------------------------------------------------
                                                            Thomas M. Teschner
                                                            President and Chief Executive Officer
                                                            (Principal Executive Officer)
March 28, 1997


                                                   By       /s/ Joseph W. Pope                                                     
                                                      ---------------------------------------------------------------------------
                                                            Joseph W. Pope
                                                            Senior Vice President and Chief Financial Officer (Principal 
                                                            Financial Officer, Controller and Principal Accounting Officer)
March 28, 1997
</TABLE>

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.




<TABLE>
<S>      <C>                                                <C>     <C>
         /s/ Howard F. Etling                                       /s/ Joseph W. Beetz                                           
- ---------------------------------------------------         ----------------------------------------------------------------------
         Howard F. Etling                                           Joseph W. Beetz
         Chairman of the Board                                      Director

Date:  March 28, 1997                                     Date:  March 28, 1997



         /s/ Ralph Crancer, Jr.                                     /s/ Douglas P. Helein                                          
- ---------------------------------------------------         -----------------------------------------------------------------------
         Ralph Crancer, Jr.                                         Douglas P. Helein
         Director                                                   Director

Date:  March 28, 1997                                     Date:  March 28, 1997


         /s/ Thomas M. Teschner                                     /s/ Earle J. Kennedy, Jr.                                      
- ---------------------------------------------------         ----------------------------------------------------------------------
         Thomas M. Teschner                                         Earle J. Kennedy, Jr.
         President, Chief Executive Officer and                     Director
         Director

Date:  March 28, 1997                                     Date:  March 28, 1997
</TABLE>

<PAGE>   16

<TABLE>
<S>                                                                 <C>
         /s/ Norville K. McClain                                    /s/ Richard G. Schroeder, Sr.                      
- ---------------------------------------------------         -----------------------------------------------------------
         Norville K. McClain                                        Richard G. Schroeder, Sr.
         Director                                                   Director

Date:  March 28, 1997                                     Date:  March 28, 1997



         /s/ Daniel J. Queen                       
- ---------------------------------------------------
         Daniel J. Queen
         Director

Date:  March 28, 1997 
</TABLE>

<PAGE>   17

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
    REGULATION S-K                                                                                          REPORT
        EXHIBIT                                                                                              PAGE         
          NO.                                             DESCRIPTION                                         NO.   
     ------------                                         -----------                                      --------        
                                                                                                             
         <S>            <C>                                                                                     <C>
         3(i)           Restated Articles of Incorporation of the Registrant filed as Exhibit 4(a) to           *
                        the Registrant's Registration Statement on Form S-8 on May 2, 1994
                        (No. 33-78454), incorporated herein by reference.

         3(ii)          Restated Bylaws of the Registrant with amendments through December 28, 1995             *
                        filed as Exhibit 4(b) to the Registrant's Registration Statement (No. 333-
                        00579) on Form S-8 on January 31, 1996, incorporated herein by reference.

         4(a)           Rights Agreement dated as of May 27, 1993 between Registrant and Boatmen's              *
                        Trust Company filed as Exhibits 1 and 2 to Registrant's Registration Statement
                        on Form 8-A on June 1, 1993 (No. 0-10849), incorporated herein by reference.

         10(a)          Employment Agreement Dated April 27, 1995 between Registrant, South Side                *
                        National Bank in St. Louis and Thomas M. Teschner filed as Exhibit 10(b) to
                        the Registrant's Report on Form 10-K for the fiscal year ended December 31,
                        1995, incorporated herein by reference.

         10(b)          Southside Bancshares Corp. 1993 Non-Qualified Stock Option Plan, filed as               *
                        Exhibit 10(e) to the Registrant's Report on Form 10-K for the fiscal year
                        ended December 31, 1994, incorporated herein by reference.

         10(c)          Deferred Compensation Agreement dated April 25, 1996 between Thomas M.
                        Teschner and Southside Bancshares Corp., filed herewith.

         10(d)          Southside Bancshares Corp. Deferred Compensation Plan for Directors, filed
                        herewith.

          11            Computation of Net Income Per Common Share, filed herewith.

          13            Portions of the Annual Report to Shareholders of the Registrant for the fiscal
                        year ended December 31, 1996, filed herewith.

          21            List of Subsidiaries, filed herewith.

          23            Independent Auditors' Consent of KPMG Peat Marwick LLP, filed herewith.

          27            Financial Data Schedule, filed herewith.
</TABLE>

         *       Incorporated by reference.

<PAGE>   1

                                                                EXHIBIT 10(c)




                        DEFERRED COMPENSATION AGREEMENT


         This deferred compensation agreement ("Agreement") is made and entered
into this 25th day of April, 1996, by and between THOMAS M.  TESCHNER
("Employee") and SOUTHSIDE BANCSHARES CORP., a Missouri Corporation
("Company").

                                    RECITAL

         Company desires to provide additional compensation to employee in
order to offset certain limitations imposed upon employee's participation in
company's qualified deferred compensation plans from and after 1988.

                                   AGREEMENT

         In consideration of the foregoing, the mutual covenants herein
contained and other good and valuable consideration (the receipt, adequacy and
sufficiency of which are hereby acknowledged by the parties by their execution
hereof), the parties agree as follows:

1.       Performance Stock.  The compensation to be awarded under this
Agreement will be in the form of grants of "Performance Stock," which will be
credited to a "Performance Stock Account" to be maintained for Employee's
benefit.  The Performance Stock Account will be maintained solely for
accounting purposes and will neither require nor permit a segregation of any
Company assets.  Performance stock may be issued in whole and/or fractional
shares.  Each share of Performance Stock will be deemed to be equivalent in
value to one share of Company's common stock as herein specified.  An award of
Performance Stock under this Agreement constitutes a potential right to receive
payment and does not confer any dividend rights, voting rights or any other
rights of a shareholder with respect to Company common stock.

2.       Grant of Awards.  As of the date of this Agreement, an initial grant
of 6,518 shares of Performance Stock, having a value on the date of grant of
$104,288.00 is hereby credited to Employee's Performance Stock Account.  For
each calendar year after 1995 during the term of this Agreement, Employee will
be granted (as of the last business day of each such year) such number of whole
and/or fractional shares of Performance Stock, at a deemed value of the bid
price of the Company's publicly traded common stock on the last trading day of
the Plan Year in the case of 2.a. and 2.b. and Sixteen Dollars ($16.00) per
share in the case of 2.c., as shall have a value equal to the sum of:

         a.      An amount determined by multiplying Employee's "Excess 401(k)
Amount" (defined below) by the sum of the highest federal and applicable state
income tax rates in effect for the year in question; plus

         b.      An amount equal to (i) the employer matching contribution
percentage under the KSOP for such year multiplied by Employee's gross annual
compensation (determined without regard to this

<PAGE>   2

Agreement), less (ii) the employer matching contributions actually made to the
KSOP for the benefit of Employee; plus

         c.      An amount determined by (i) multiplying total Company
discretionary basic and optional contributions to the KSOP, plus forfeitures,
by a fraction, the numerator of which is Employee's gross annual compensation
for such year (determined without regard to this Agreement), and the
denominator of which is total compensation of all KSOP participants, less (ii)
the amount actually contributed to the KSOP by Company, plus forfeitures
allocated, for the benefit of Employee.

         In the event Company hereafter elects to (i) alter, amend or terminate
the KSOP, or (ii) establish one or more new deferred compensation plans, the
above stated formula for determining annual grants may be amended in such
manner as Company, in its sole discretion, determines appropriate.

         As used in paragraph 2.a., above, the term "Excess 401(K) Amount"
means an amount equal to (i) fifteen percent (15%) of Employee's gross annual
compensation for such year (determined without regard to this Agreement), less
(ii) the maximum permitted deferral through salary reduction contributions to
Company's Employee Stock Ownership Plan with 401(k) Provisions ("KSOP") for
such year.

         In the event the common stock of the Company shall cease to be
publicly traded, the deemed value for purposes of 2.a. and 2.b. shall be the
value of a share of the common stock of the Company on the relevant date under
the KSOP.

3.       Right to Payment for Performance Stock.

         a.      Employee will be entitled to receive payment for all shares of
Performance Stock credited to the Performance Stock Account upon the earliest
to occur of the following events:

                 i.       A "Change in Control" of Company (defined below);

                 ii.      Employee's termination of employment or retirement
                          from company;

                 iii.     Employee's death; or

                 iv.      Employee's Total Disability (defined below).

         b.      A "Change in Control" has occurred if (i) one person, or more
than one person acting as a group, acquires ownership of capital stock of
Company resulting in such person(s) owning Company stock possessing more than
50 percent of the total fair market value or voting power of the stock of the
Company; (ii) substantially all of the assets of Company are sold; (iii)
Company merges or consolidates with any other corporation or other entity and
Company is not the surviving corporation of such merger or consolidation; or
(iv) the owners of a majority of shares of capital stock of Company terminate
the business of, or liquidate or dissolve, Company.





                                       2
<PAGE>   3


         c.      "Total Disability" means complete and permanent inability by
reason of illness or accident to perform employee's duties.  All determinations
as to the date and extent of disability shall be made by Company upon the basis
of such evidence as Company deems necessary and desirable.

4.       Form and Timing of Payment.       Within thirty (30) days after
Employee is entitled to receive payment pursuant to paragraph 3.a hereof,
Company will pay Employee an amount equal to the value of all Performance Stock
which has then been credited to the Performance Stock Account.  For purposes of
determining the amount of the payment each share of Performance Stock will be
valued at the midpoint between the bid and asked price of the Company's
publicly traded common stock as of the close of business on the date of
payment, or if the common stock is no longer publicly traded, at the value of a
share of the Company's common stock as set forth in the then most recent
valuation of the common stock of the Company for purposes of the KSOP.
Payments shall be made wholly in cash and the Employee may not receive common
stock or any other security of Company in lieu thereof.  Upon payment, this
Agreement shall terminate.

5.       Dilution and Other Adjustments.   In the event of any change in the
outstanding shares of common stock of Company by reason of any stock dividend
or split, recapitalization, merger, consolidation, spin-off, reorganization,
combination or exchange of shares or other similar corporate change, Company
shall make an adjustment in the number or kind of Performance Stock then held
in the Performance Stock Account.

6.       Miscellaneous Provisions.

         a.      Company may terminate this Agreement at any time; provided,
however, that any Performance Stock granted prior to such termination shall not
be adversely affected by such termination and shall continue to be governed by
and subject to the terms and provisions of this Agreement.

         b.      This Agreement may not be amended more than once every six
months, other than to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act, or the rules thereunder.

         c.      Employee's rights and interests under this agreement may not
be assigned or transferred.  In the case of Employee's death, payment due under
this Agreement shall be made to Employee's beneficiary, as designated below
(which designation may hereafter be amended), or in the absence of a
designation, to Employee's estate.

         d.      Neither this Agreement nor any action taken hereunder shall be
construed as creating any right to be retained in the employ of Company or its
subsidiaries.

         e.      The Performance Stock Account shall at all times be entirely
unfunded and no provision shall at any time be made with respect to segregating
assets of Company for payment of any benefits hereunder.  This Agreement does
not create or confer any interest in any particular assets of Company by reason
of the right to receive a benefit under this Agreement, and Employee will have
only the rights of a general unsecured creditor of Company with respect to any
rights under this Agreement.





                                       3
<PAGE>   4

         f.      Company shall have the right to deduct from all awards any
taxes required by law to be withheld with respect to such awards.


                                        SOUTHSIDE BANCSHARES CORP.



Date ____________                          By:     ____________________________
                                           Title:  ____________________________



Date ____________                             _______________________________
                                                      Thomas M. Teschner


                                            BENEFICIARY DESIGNATION


         Full Name of Beneficiary:         ________________________________

         Residence        ______________________________________________
         Address of
         Beneficiary:     ______________________________________________

         Beneficiary's Social Security no.:        _________________________

         Beneficiary's Relationship to Employee:   __________________

         Initials:        Company:  _____  Employee: ____





                                       4

<PAGE>   1


                                                                  EXHIBIT 10(d)
                           SOUTHSIDE BANCSHARES CORP.

                             DEFERRED COMPENSATION

                               PLAN FOR DIRECTORS

                                   ARTICLE I

                                  Definitions

         Section 1.1              "Additions" means all amounts credited to the
Director's Deferred Compensation Account pursuant to Article IV herein.

         Section 1.2              "Beneficiary" means any person (including but
not limited to any trust, estate, fiduciary, corporation, foundation, but
excluding the Director) designated by the Director in a written document
delivered to the Corporation to receive any benefit under this Plan after the
death of the Director or if, for any reason, such designation shall be legally
ineffective, then in any of said events the amounts which would have been paid
to the designated living beneficiary shall be paid to the estate of the
Director.

         Section 1.3.             "Board of Directors" means the Board of
Directors of Southside Bancshares Corp.

         Section 1.4.             "Committee" means the Executive Committee of
Southside Bancshares Corp.

         Section 1.5.             "Compensation" means the retainer and fees
payable to a Director for his services to the Corporation in such capacity
during the Plan Year excluding any amounts paid for services as an employee of
the Corporation.

         Section 1.6.             "Corporation" means Southside Bancshares
Corp.

         Section 1.7.             "Deferral Amount" means the Compensation
which a Director elects to defer under the Plan for any Plan Year.

         Section 1.8.             "Deferred Compensation Account" means a
bookkeeping account maintained by the Corporation for the Directors which
reflects accumulated Deferral Amounts of the Directors, plus Additions thereto
calculated as set forth in Article IV herein.

         Section 1.9.             "Director" means a member of the Board of
Directors of the Corporation.

         Section 1.10.            "Effective Date" means April 25, 1996.
<PAGE>   2

         Section 1.11.     "Normal Retirement" means termination of a
Director's service to the Corporation in such capacity for reasons other than
death.

         Section 1.12.     "Plan" means the Southside Bancshares Corp.
Deferred Compensation Plan for Directors.

         Section 1.13.            "Plan Year" means the period commencing on
the Effective Date and ending December 31, 1996 and any twelve-month period
commencing January 1, thereafter.

                                   ARTICLE II

                                  ELIGIBILITY

         Section 2.1       A Director is eligible to participate in the
Plan if he completes a Participant Agreement indicating his agreement to the
terms of the Plan, a form of which is attached hereto as Exhibit A.

                                  ARTICLE III

                            DEFERRAL OF COMPENSATION

         Section 3.1       A Director shall have the right to elect
annually to defer all or a portion of his Compensation for the Plan Year;
provided, however, that, with respect to the Plan Year commencing on the
Effective Date, such deferral shall be limited to Compensation payable to the
Director after April 24, 1996, and a Director who first becomes entitled to
Compensation during a Plan Year may elect to defer all or a portion of his
Compensation for such Plan Year and such deferral shall be limited to
Compensation payable to the Director following his entitlement.

         Section 3.2       The Director shall notify the Corporation of
his election to defer for any Plan Year by completing an Annual Election Form,
a form of which is attached hereto as Exhibit B.

         Section 3.3       To be effective, the Annual Election Form for
the Plan Year commencing on the Effective Date must be received by the
Corporation on or before April 25, 1996, or, in the case of a Director who
first becomes entitled to Compensation during a Plan Year, such Annual Election
Form must be received prior to such entitlement.  Thereafter, the Annual
Election Form must be received before the first day of the Plan Year to which
the election relates.

         Section 3.4       An election to defer for any Plan Year shall be
irrevocable.

         Section 3.5       The Deferred Amount shall be credited to a
Director's Deferred Compensation Account as a cash amount on the date the
Deferral Amount would otherwise have been paid to the Director.

<PAGE>   3


                                   ARTICLE IV

                         ADDITIONS TO DEFERRAL AMOUNTS

         Section 4.1.    The Corporation on the Friday following the
fourth Thursday of each month will credit the Director's Deferred Compensation
Account with interest Additions thereon.  Interest Additions shall be
calculated by multiplying the cash balance of the Deferred Compensation Account
as of the Wednesday preceding the fourth Thursday  of each month by a rate
equal to one-twelfth (1/12) of the effective interest rate on such date for
United States Treasury Bills with a one-year maturity.

                                   ARTICLE V

                       BENEFITS RESULTING FROM DEFERRALS

         Section 5.1.    Upon the Normal Retirement or death, or both,
of the Director, the amount credited to the Director's Deferred Compensation
Account shall be payable to the Director in the manner provided by Article V.

         Section 5.2.    At the time of executing his Participation
Agreement, a Director must elect to receive amounts credited to his Deferred
Compensation Account under one of the following benefit payment schedules:

                 (a)     one lump sum, payable not later than thirty (30) days
after the Director's Normal Retirement; or

                 (b)     a series of substantially equal yearly installments
         over a five (5) year period, payable each January following the
         Director's Normal Retirement.

         Section 5.3.    Upon the death of a Director, the amount
credited to the Director's Deferred Compensation Account not yet distributed
shall be payable to the Director's Beneficiary in a lump sum no later than
thirty (30) days after the date the Corporation receives notice of the
Director's death.

                                   ARTICLE VI

                                 ADMINISTRATION

         Section 6.1.    The Plan shall be administered by the
Committee.  The Committee shall administer the Plan in accordance with its
terms and shall have all powers necessary to carry out the provisions of the
Plan, including the power, in its sole discretion, to accelerate the payment of
benefits under the Plan to any Director or Beneficiary.

         Section 6.2.    The Committee shall, with respect to the
general management of the Plan, have the sole, final and absolute right to
reconcile any inconsistency in the Plan, to interpret and construe the
provisions of the Plan in all particulars in such manner and to such extent as
it deems proper and to





                                       3
<PAGE>   4

take all action and make all decisions and determination necessary under the
Plan or in connection with its administration, interpretation and application.
Any interpretation or construction placed upon any term or provision of the
Plan by the Committee, any decision of the Committee with regard to the rights
of a Director, former Director or Beneficiary or any other person, any
reconciliation of an inconsistency in the Plan made by the Committee and any
other action, determination or decision whatsoever taken by the Committee,
shall be final, conclusive and binding upon all persons or parties interested
or concerned in the Plan.

                                  ARTICLE VII

                                 MISCELLANEOUS

         Section 7.1.    The Corporation shall maintain a record of
each Director's accumulated Deferral Amounts and Additions thereto by means of
a Deferred Compensation Account.

         Section 7.2.    Nothing contained in this Plan and no section
taken pursuant to the provisions thereof shall create or be construed to create
a trust of any kind or a fiduciary relationship between the Corporation and the
Director, the Director's Beneficiary or any other person.

         Section 7.3.    To the extent that any person acquires the
right to receive payment of benefits from the Corporation under this Plan, such
right shall be no greater than the rights of any unsecured general creditor of
the Corporation.

         Section 7.4.    Neither the Director, his Beneficiary, heirs,
assigns, trust, estate, nor any other person claiming through or under the
Director shall have any right to commute, encumber or dispose of the right to
receive payments hereunder, all of which payments and the right thereto are
expressly declared to be nonassignable and any such attempt at assignment shall
be void and of no effect.

         Section 7.5.    No provision of this Plan nor any action
taken hereunder shall be construed as giving the Director any right to be
retained by the Corporation.

         Section 7.6.    The Corporation shall, to the extent
permitted by law, have the right to deduct from any payments of any kind with
respect to the benefit otherwise due to the Director any Federal, state or
local taxes of any kind required by law to be withheld from such payments.

         Section 7.7.    The Plan shall be governed and construed in
accordance with the laws of the State of Missouri.  In the event any provision
of this Plan is held invalid, void or unenforceable, the same shall not affect,
in any respect whatsoever, the validity of any other provision of this Plan.





                                       4
<PAGE>   5


                                  ARTICLE VIII

                           TERMINATION AND AMENDMENT

         Section 8.1.     The Board of Directors will have full power
and authority to amend, modify, alter or terminate this Plan in whole or in
part; provided, however, that any such termination, modification or amendment
shall not terminate or diminish any rights or benefits accrued by a Director
under this Plan as of the effective date of any such termination, modification
or amendment.





                                       5

<PAGE>   1

                                                                      EXHIBIT 11

                           SOUTHSIDE BANCSHARES CORP.

                   Computation of Net Income Per Common Share


<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,

                                                            1996                1995               1994  
                                                          --------            --------           --------
 <S>                                                   <C>                 <C>                <C>
 Primary(1)
   Earnings
        Net Income . . . . . . . . . . . . . . .       $6,158,000          $6,754,000         $5,014,000

        Weighted daily average number of common
        shares outstanding . . . . . . . . . . .        2,712,775           2,643,890          2,591,440

        Net income per common share  . . . . . .            $2.27               $2.55              $1.93
                                                            =====               =====              =====
 Assuming Full Dilution (1)(2)
        Earnings
                Net Income . . . . . . . . . . .        6,158,000           6,784,000          5,014,000

          Weighted daily average number of
                common shares outstanding  . . .        2,712,775           2,643,890          2,591,440
 weighted average common stock equivalents due to
 the dilutive effect of stock options when
 utilizing the Treasury stock method.  Per share
 market price is based on the average per share            14,988               6,611              5,313
 market price for the period . . . . . . . . . . .

 Total weighted average common shares and stock
 equiivalents outstanding  . . . . . . . . . . . .      2,727,763           2,650,501          2,596,753

 Net income per common share assuming
          full dilution  . . . . . . . . . . . . .          $2.26               $2.54              $1.93
</TABLE>


Notes:
(1)      Daily average shares outstanding for all years have been adjusted to
         reflect a 10 for 1 stock split in 1996.

(2)      This calculation is submitted in accordance with Regulation S-K Item
         801(b)(11) although not required by footnote 2 to paragraph 14 of APB
         Opinion No. 15 because it results in dilution of less than 3%.

<PAGE>   1
                                                                      EXHIBIT 13


















                           SOUTHSIDE BANCSHARES CORP.

                                 Annual Report

                               December 31, 1996

                  (With Independent Auditors' Report Thereon)




<PAGE>   2




                           SOUTHSIDE BANCSHARES CORP.

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                   Page
<S>                                                                                <C>
Letter to Our Shareholders ......................................................   2
Southside Bancshares Corp. - Organization .......................................   4
Financial Highlights ............................................................   5
Management's Discussion and Analysis of Financial Condition
   and Results of Operations ....................................................   6
Statement of Management's Responsibility for Financial Statements ...............  26
Independent Auditors' Report ....................................................  27
Consolidated Financial Statements of Southside Bancshares Corp. and Subsidiaries:
   Balance Sheets ...............................................................  28
   Statements of Income .........................................................  29
   Statements of Shareholders' Equity ...........................................  30
   Statements of Cash Flows .....................................................  31
   Notes to Consolidated Financial Statements ...................................  32
Southside Bancshares Corp. and Subsidiaries - Directors and Officers:
   Southside Bancshares Corp. ...................................................  44
   South Side National Bank in St. Louis ........................................  45
   State Bank of DeSoto .........................................................  46
   Bank of Ste. Genevieve .......................................................  46
   The Bank of St. Charles County ...............................................  47
</TABLE>




                                       1

<PAGE>   3

LETTER TO OUR SHAREHOLDERS
Southside Bancshares Corp. and Subsidiaries


Dear Shareholders:



     Southside Bancshares Corp. experienced its third consecutive
record-breaking year in 1996.  The Company achieved record core net earnings
for the third straight year, the return on average assets exceeded 1% for the
second consecutive year, and nonperforming loans declined to their lowest level
in the Company's fourteen-year history.

     The Company earned $6,158,000 or $2.27 per common share in 1996, compared
to $6,734,000 or $2.55 per share in 1995; however, 1995 net income included the
effects of two nonrecurring items, the sale of Bay-Hermann-Berger Bank and a
litigation settlement, which totaled $1,370,000.  Excluding the effects of
these nonrecurring items, core net earnings for 1995 were $5,364,000 or $2.03
per common share.  Accordingly, core net earnings increased $794,000 or
approximately 15% during 1996.  This increase in our net earnings was largely
attributable to an increase in net interest income and a decrease in
noninterest expense.

     The 1996 earnings resulted in a return on average assets (ROA) of 1.20%
and a return on average shareholders equity (ROE) of 12.27%, compared to an ROA
of 1.06% and an ROE of 12.32%, using core net earnings in 1995.  The ROA
represents the second straight year in which the Company established an
all-time high in this ratio.  Due to three consecutive years of strong earnings
and an enhanced capital position, the ROE has declined slightly.  Management
and the Board of Directors is very cognizant of this fact, and we are
continually evaluating various alternatives for utilizing our capital.

     With the increase in the March 15, 1997 dividend to $.16 per common share,
the quarterly dividend has been raised a total of 60% over the past four
quarters.  Over the past three years, the quarterly dividend rate has been
raised 433%.  We believe that these increases in the dividend level demonstrate
our commitment to increasing shareholder value and our confidence in our 
ability to sustain our current level of profitablility.

     Total nonperforming loans and nonperforming assets declined to $1,183,000
and $2,043,000, respectively, as of December 31, 1996, which resulted in
declines of 64% and 47%, respectively, from 1995.  This is the fourth
consecutive year of dramatic improvement in this area, and nonperforming loans
are at their lowest level in the fourteen-year history of the Company.

     Total assets of the Company increased by approximately $15,000,000 or 3%
during 1996.  Excluding the assets sold in the Bay-Hermann-Berger Bank
transaction, total assets have increased by approximately $35,000,000 over the
past two years.  One of the components of our strategic business plan was to
achieve growth without negatively impacting earnings or asset quality.  As
evidenced by the 1996 results, this portion of our plan has been a success.  We
will continue to evaluate opportunities for growth in the future as means of
better utilizing our existing capital structure; however, we do not intend to
sacrifice earnings or asset quality to accomplish this objective.

     As most of you are well aware, there is a dramatic transformation taking
place in the financial institution industry and the St. Louis market, in
particular.  Merger and consolidation activity in our marketplace is changing
the nature of our competition.  We believe entities such as ours can have a
unique place in this market.  As our competition focuses on volume, we will
focus on personal service; as our competition increases earnings through high
transaction fees and increased service charges, we will focus on increasing
revenues through adding cost effective products to our customer relationships;
and as our competition reduces the number of retail outlets available to their
customers and moves to eliminate personal contact from a banking relationship,
we will encourage and

                                       2

<PAGE>   4

LETTER TO OUR SHAREHOLDERS (CONT.)
Southside Bancshares Corp. and Subsidiaries




promote employee and customer interaction. We firmly believe there will always
be a place in the financial institution industry for organizations that are
committed to customer service. The Company continues to be financially stronger
today than at any time in its history and is positioned to remain competitive
in the banking industry.


     As always, we would like to take this opportunity to thank our entire
staff, customers, fellow directors, and shareholders for their support during
the past year.  We are proud of each of our dedicated employees who work hard in
providing superior customer service.




Sincerely,



Howard F. Etling                          Thomas M. Teschner
Chairman of the Board                     President and Chief Executive Officer

                                       3

<PAGE>   5




                   SOUTHSIDE BANCSHARES CORP. - ORGANIZATION

     Southside Bancshares Corp. (the Company) was incorporated in 1982 and has
operated as a registered bank holding company since 1983 under the Bank Holding
Company Act of 1956, as amended.  The Company and its subsidiaries had
consolidated total assets of approximately $528,000,000 at December 31, 1996.
The following table shows the total assets at December 31, 1996, before
elimination of intercompany accounts, of each of the Company's subsidiary
banks, all of which are located in Missouri.

<TABLE>
<CAPTION>
                                                    TOTAL ASSETS AT
                                                   DECEMBER 31, 1996
            SUBSIDIARY BANKS                        (IN THOUSANDS)
            -------------------------------------  -----------------
            <S>                                    <C>
            South Side National Bank in St. Louis           $338,077
            State Bank of DeSoto                              54,340
            Bank of Ste. Genevieve                            89,490
            The Bank of St. Charles County                    44,286
</TABLE>


     The Company's subsidiary banks, which operate 13 banking offices in
Missouri, are engaged in the general banking business of accepting funds for
deposit, making loans, renting safe deposit boxes, and performing such other
banking services as are usual and customary in banks of similar size and
character.

     Customers of the subsidiary banks are also offered fiduciary services
through the trust department of South Side National Bank in St. Louis (South
Side National Bank).  At December 31, 1996, the combined market value of
fiduciary and custodial assets under management of the trust department was
approximately $276,000,000.  These assets are not reflected in the consolidated
financial statements, as they do not represent assets of the Company.

     The responsibility for the management of the subsidiary banks remains with
the officers and directors of the respective banks.  The Company provides its
subsidiary banks with assistance and service in auditing, record keeping, tax
planning, trust operations, new business development, lending, regulatory
compliance, and human resources management.

     Southside Bancshares Corp. has nine officers, the majority of whom are
also officers of South Side National Bank.  South Side National Bank is a
national banking organization and employs 134 full-time and 17 part-time
employees.  State Bank of DeSoto, Bank of Ste. Genevieve, and The Bank of St.
Charles County are Missouri state-chartered banks and employ a total of 74
full-time and 17 part-time employees.



                                       4

<PAGE>   6
                             FINANCIAL HIGHLIGHTS

                FIVE-YEAR COMPARISON OF SELECTED FINANCIAL DATA
                   (dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                   As of and For the Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------
                                                         %                    %                       %              
                                                       CHANGE               Change                 Change           
                                          1996         96/95      1995       95/94      1994       94/93      
- ---------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>        <C>        <C>       <C>        <C>      
EARNINGS                                                                                                  
   Total interest income                  $37,868          2%    $  37,263       8%   $   34,383      (5)%
   Total interest expense                  17,526          1        17,335      18        14,753      (8) 
   Net interest income                     20,342          2        19,928       2        19,630      (2) 
   Provision for possible loan                                                                            
      losses                                   60        (14)           70     (64)          193     (93) 
   Net interest income after                                                                              
      provision for possible loan  
      losses                               20,282          2        19,858       2        19,437      12  
   Income before cumulative                                                                               
      effect of accounting change           6,158         (9)        6,734      34         5,014      65  
   Cumulative effect of account-                                                                          
      ing change                                -          -             -       -             -       -  
   Net income                               6,158         (9)        6,734      34         5,014      65  
- ---------------------------------------------------------------------------------------------------------
SHARE DATA                                                                                                
   Net income per common share:                                                                           
      Income before cumulative                                                                            
        effect of accounting
        change                            $  2.27        (11)% $      2.55      32%   $     1.93      65% 
      Cumulative effect of                                                                                
        accounting change                       -          -             -       -             -       -  
      Net income                             2.27        (11)         2.55      32          1.93      65  
   Dividends paid per share                   .50         37           .365    103           .18       9  
   Book value                               19.30          9         17.64      20         14.66       5  
   Tangible book value                      19.18         10         17.49      21         14.43       6  
   Shares outstanding (year-end)(1)     2,836,670          -     2,849,650      10     2,591,440       -  
   Average shares outstanding           2,712,775          3     2,643,890       2     2,591,440       -  
- ---------------------------------------------------------------------------------------------------------
FINANCIAL POSITION                                                                                        
   Total assets                          $527,907          3%  $   512,908      (1)%  $  517,118      (3)%
   Total deposits                         467,276          2       457,567      (2)      468,093      (3) 
   Total loans                            294,463         (3)      303,824       1       301,397      (2) 
   Allowance for possible loan                                                                            
      losses                                5,602         (1)        5,635     (21)        7,144     (14) 
   Short-term borrowings                    1,623        108           779     (77)        3,378      (8) 
   ESOP debt                                1,779        (40)        2,987     100             -       -  
   Subordinated capital                                                                                   
      notes                                     -          -             -    (100)        4,190       -  
   Total shareholders' equity              52,841         12        47,300      24        38,002       5  
- ---------------------------------------------------------------------------------------------------------
                                                                
<CAPTION>
                             As of and For the Years Ended December 31,
- ------------------------------------------------------------------------
                                                    %
                                                 Change
                                      1993        93/92           1992
- ------------------------------------------------------------------------
<S>                                   <C>          <C>         <C>
EARNINGS                                           
   Total interest income              $   36,052     (17)%   $    43,355
   Total interest expense                 16,059     (25)         21,373
   Net interest income                    19,993      (9)         21,982
   Provision for possible loan                                  
      losses                               2,608     (64)          7,242
Net interest income after                       
provision for possible loan                        
      losses                              17,385      18          14,740
   Income before cumulative                       
      effect of accounting change          3,041     146           1,237
   Cumulative effect of account-                   
      ing change                               -    (100)            377
   Net income                              3,041      88           1,614
- ------------------------------------------------------------------------
SHARE DATA                                         
   Net income per common share:                                                    
      Income before cumulative                     
        effect of accounting                                                                                       
        change                        $     1.17     144%    $       .48
      Cumulative effect of                         
        accounting change                      -    (100)            .14
      Net income                            1.17      89             .62
   Dividends paid per share                 .165       -             .165
   Book value                              13.93       9           12.74
   Tangible book value                     13.66      10           12.43
   Shares outstanding (year-end)(1)    2,591,440       -       2,591,440
   Average shares outstanding          2,591,440       -       2,591,440
- ------------------------------------------------------------------------
FINANCIAL POSITION                                 
   Total assets                       $  530,649      (3)%   $   549,869
   Total deposits                        484,308      (4)        502,597
   Total loans                           308,231     (15)        360,859
   Allowance for possible loan                     
      losses                               8,334     (17)          9,994
   Short-term borrowings                   3,678     (51)          7,501
   ESOP debt                                   -       -               -
   Subordinated capital                            
      notes                                4,190       -           4,190
   Total shareholders' equity             36,102       9          33,019
- ------------------------------------------------------------------------
</TABLE>
 
                                SELECTED RATIOS



<TABLE>
<CAPTION>
                                                       As of and For the Years Ended December 31,
                                                       ------------------------------------------
                                                             1996    1995    1994    1993    1992
- --------------------------------------------------------------------------------------------------
<S>                                                         <C>     <C>     <C>     <C>     <C>
Loan-to-deposit ratio                                        63.02%  66.40%  64.39%  63.64%  71.80%
Allowance for loan losses to total loans                      1.90    1.85    2.37    2.70    2.77
Dividend payout ratio (2)                                    22.03   14.31    9.33   14.10   26.61
Return on average assets                                      1.20    1.33     .97     .57     .29
Return on average shareholders' equity                       12.27   15.47   13.48    8.86    4.88
Average shareholders' equity to average total assets          9.75    8.62    7.19    6.48    5.90
Net interest margin on average interest-earning assets        4.42    4.41    4.27    4.30    4.42
Allowance for loan losses to nonperforming loans            473.54  172.11  136.13   62.95   26.94
Allowance for loan losses as a multiple of net charge-offs    60.2X    4.5x    5.2x    2.0x    2.6x
- --------------------------------------------------------------------------------------------------
</TABLE>

(1)  Shares outstanding at December 31, 1996 and 1995 include 98,832 and
     168,000 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.
(2)  Dividends paid per common share divided by net income per common share.

                                       5

<PAGE>   7




                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


     This discussion is presented to provide an understanding of the
consolidated financial condition and results of operations for the fiscal year
ended December 31, 1996 and prior years of the Company and its subsidiaries.

     As a registered bank holding company, the Company is subject to
supervision and regulation by the Board of Governors of the Federal Reserve
System (Federal Reserve) pursuant to the Bank Holding Company Act of 1956, as
amended.  All subsidiary banks are subject to regulation by the Federal Reserve
and are also members of and subject to regulation by the Federal Deposit
Insurance Corporation (FDIC).  The national banking subsidiary, South Side
National Bank in St. Louis, is subject to supervision and regulation by the
Office of the Comptroller of the Currency (OCC).  The three state-chartered
banks are subject to supervision and regulation by the Missouri Division of
Finance.



                             BALANCE SHEET ANALYSIS

     Total consolidated assets of the Company increased approximately
$15,000,000 to $527,907,000 at December 31, 1996 when compared to $512,908,000
at December 31, 1995.  The increase was the result of continued growth at three
of the Company's four subsidiary banks.  An integral component of management's
strategic business plan has been to achieve controlled growth at each of the
subsidiary banks.  This process began in the second quarter of 1995 following
the sale of the Bay-Hermann-Berger Bank (Bay-Hermann-Berger).  As a result of
the sale, total assets declined $4,210,000 in 1995.  With assets of
$24,157,000, Bay-Hermann-Berger was the smallest of the Company's five
subsidiary banks.  Excluding the decline in assets attributable to the
aforementioned sale, total consolidated assets of the Company increased by
$19,947,000 during 1995 and approximately $35,000,000 over the past two years.
Prior to 1995, the Company's focus had been on improving asset quality, but
with the situation much improved, the Company's focus turned to growth in 1995.

LOAN PORTFOLIO
     The Company's loan portfolio consists of business loans to small and
medium size companies, commercial 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.  Management expects real estate to continue to be a major factor in
future loan relationships, but recognizes that economic conditions may dictate
further diversification in the loan portfolio.

     The table below sets forth the components of the Company's loan portfolio
for each of the last five years:

                                                (in thousands)
                            1996      1995         1994         1993      1992
                            -----     -----       -------      ------    ------

Commercial, financial, and                      
    agricultural             $62,016   $62,214    $ 69,219  $ 73,566  $ 88,026
Real estate - commercial      82,045    88,321      82,807    86,258    90,860
Real estate - construction    26,067    15,510      11,019     9,540    17,555
Real estate - residential     96,039   102,418     108,134   110,806   132,941
Consumer                      17,304    17,626      18,334    18,849    19,797
Industrial revenue bonds       6,373     7,789       9,311     8,544    10,841
Other                          4,619     9,946       2,573       668       839
                            --------  --------    --------  --------  --------
                            $294,463  $303,824    $301,397  $308,231  $360,859
                            ========  ========    ========  ========  ========

                                       6

<PAGE>   8

BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries





     Total loans decreased $9,361,000 during 1996, as growth in the
construction real estate loan portfolio was more than offset by declines in the
commercial and residential real estate loan portfolios, industrial revenue
bonds, and other loans.  St. Louis and the surrounding communities continue to
have a very competitive lending environment. Institutions of all sizes are
attempting to find a niche in the market, or they are preparing themselves for
an eventual sale.  As a result, loan pricing and underwriting criteria have
become increasingly aggressive.  While management is keenly aware of the
importance that lending volume has in the financial performance of the Company,
management also believes that part of defining its niche in the market is to
establish and adhere to its own credit philosophy.  Management of the Company
strongly believes that the most prudent course of action, at this time, is to
weigh both the short- and long-term effects of pursuing and retaining borrowing
relationships during this period of intense competition and focusing on
maintaining asset quality.

     Total loans increased by $2,427,000 during 1995; however, included in the
Bay-Hermann-Berger sale was approximately $12,064,000 in total loans.
Excluding the effects of the loans sold, the remaining four subsidiary banks of
the Company experienced loan growth of more than $14,000,000.  In 1995, more
effort was devoted to business development than in previous years, and the
overall lending environment was less competitive than that faced by the Company
during 1996.

     Total loans declined by $6,834,000 during 1994.  This decline can
partially be attributed to the interest rate environment during that period of
time, as well as increased competition from nontraditional financing sources.

     Following is an analysis of the changes in the individual loan portfolios
during 1996 and 1995.

     -  The commercial, financial, and agricultural loan portfolio remained
        relatively stable during 1996 after decreasing $7,005,000 in 1995.  Of
        the 1995 decline, $2,878,000 was attributable to the Bay-Hermann-Berger
        sale.  The remainder of the decrease was the result of increased
        competition on commercial loan pricing, which resulted in the loss of
        borrowing relationships.  As banks, in general, continued to achieve
        record profits and asset quality problems remained at low levels, they
        were somewhat aggressive in their pursuit of borrowing relationships
        during 1995.

     -  The real estate loan portfolio, which includes commercial,
        construction, and residential loans, decreased $2,098,000 in 1996 and
        increased $4,289,000 in 1995. Commercial and residential real estate
        loans declined by a total of $12,655,000 during 1996.  This decline is
        partially attributable to the aforementioned competition within the
        banking industry, as well as competition from secondary-market mortgage
        lenders for residential real estate loan business.  These decreases
        were offset by a $10,557,000 increase in the construction loan
        portfolio.  New home sales remained strong throughout 1996 and, as a
        result, the demand for new residential developments also remained
        strong.  The 1995 increase, which would have been $11,953,000 excluding
        the Bay-Hermann-Berger sale, was largely due to an increase in the
        commercial and construction real estate loan portfolios and a decrease
        in the residential real estate portfolio.  The majority of the decline
        in the residential real estate portfolio was due to the
        Bay-Hermann-Berger sale.  The increase in the commercial and
        construction portfolios was largely the result of intensified efforts
        to develop new business within these portfolios.

     -  Consumer banking relationships are an important component of the 
        Company's loan portfolio; however, continued pressure from nonbank
        providers of consumer credit for a larger portion of the overall
        consumer loan market has made it more difficult for banks to compete in
        this area.  As a result of the continued pressure, the consumer loan
        portfolio has declined by $322,000 and $708,000 in 1996 and 1995,
        respectively.


                                       7

<PAGE>   9

BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries




     -  Industrial revenue bonds continue to decline as normal payments and
        early repayments reduce the size of the existing portfolio.  In
        addition, there is very little new loan origination activity in this
        area.  Tax law changes in the late 1980s made it more difficult and
        less advantageous to pursue this form of financing.

     -  The portfolio of other loans includes loans made to bank holding
        companies which are secured by the common stock of the subsidiary banks
        owned by the holding companies.  During 1995, the Company made three
        such loans, which accounted for the increase during the prior year.
        Two of the loans were repaid during 1996, which resulted in the decline
        in the current year.


ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS
     Implicit in lending activities is the consideration that losses will be
experienced and the amount of such losses will vary from time to time,
depending upon the risk characteristics of the portfolio as affected by
economic conditions, competition, and the financial experience of borrowers.
The allowance for loan losses, which is designed to provide for the risk of
loss inherent in the lending process, is increased by the provision for loan
losses charged to expense and decreased by the amount of loans charged off, net
of recoveries.  The allowance for loan losses provides for anticipated
potential loan losses and is maintained at a level commensurate with
management's evaluation of the risks inherent in the subsidiary banks' loan
portfolios.  In order to identify potential risks in the loan portfolios of the
subsidiary banks, monthly reports, which contain information on the overall
characteristics of the subsidiary banks' loan portfolios and specific analyses
of loans requiring special attention, including nonperforming and certain
criticized loans, are reviewed by each subsidiary bank's senior management
personnel and Board of Directors.  In addition, the Company performs periodic
examinations of individual loans and of the overall loan portfolio of each
banking subsidiary through the Company's loan review process.


                SUMMARY OF ALLOWANCE FOR POSSIBLE LOAN LOSSES

                                              


<TABLE>
<CAPTION>
                                                  (in thousands)
                                             Years Ended December 31,
                                                
                                 --------------------------------------------
                                   1996     1995     1994     1993      1992
                                 -------  -------  -------  -------  --------
<S>                             <C>        <C>       <C>      <C>      <C>       
BALANCE AT BEGINNING OF YEAR     $  5,635  $ 7,144  $ 8,334  $ 9,994  $  6,646
Provision charged to expense           60       70      193    2,608     7,242
Adjustment due to sale of
   Bay-Hermann-Berger Bank              -     (327)       -        -         -
Loans charged off                  (1,219)  (2,174)  (2,318)  (5,499)   (4,241)
Recoveries                          1,126      922      935    1,231       347
                                 --------  -------  -------  -------  --------
   Net charge-offs                    (93)  (1,252)  (1,383)  (4,268)   (3,894)
                                 --------  -------  -------  -------  --------
BALANCE AT END OF YEAR           $  5,602  $ 5,635  $ 7,144  $ 8,334  $  9,994
                                 ========  =======  =======  =======  ========
</TABLE>  


<TABLE>
<CAPTION>

                                              Years Ended December 31,                                            
                                        -----------------------------------
                                         1996    1995    1994   1993   1992
                                        ------  ------  ------  -----  -----
<S>                                     <C>     <C>     <C>     <C>    <C>
RATIOS:
   Allowance for possible loan losses:
      As % of total loans                 1.90%    1.85%   2.37%  2.70%  2.77%
      As % of nonperforming loans       473.54   172.11  136.13  62.95  26.94
      As multiple of net charge-offs      60.2x    4.5x    5.2x   2.0x   2.6x
   Net charge-offs:
      As % of total loans at year-end      -  %     .41%    .46%  1.38%  1.08%
      As % of average total loans          -        .42     .47   1.29    .99
      As % of allowance for possible
        loan losses at year-end           1.66    22.22   19.36  51.21  38.96
</TABLE> 

 

                                       8

<PAGE>   10

BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries



 

     The allowance for possible loan losses at December 31, 1996 was $5,602,000
or 1.90% of the total loans outstanding compared to $5,635,000 or 1.85% in 1995
and $7,144,000 or 2.37% in 1994; however, the balance of the allowance for
possible loan losses as a percentage of nonperforming loans increased to
473.54% in 1996 as a result of the continuing decline in nonperforming loans.
This is the fourth consecutive year in which this ratio has substantially
improved.  Management and the Board of Directors continue to monitor the
adequacy of the allowance for possible loan losses and, while the balance has
declined over the past four years, the Company believes its ability to cover
potential losses within the portfolio has improved, as evidenced by the
increase in the above ratio.

     Net charge-offs were $93,000 in 1996 compared to $1,252,000 or .42% in
1995 and $1,383,000 or .47% in 1994.  Net charge-offs in 1996 were at their
lowest level in the past ten years.

     The reduction in nonperforming loans and the decrease in net charge-offs
in recent years has also enabled the Company to substantially reduce the
provision for possible loan losses.  The provision for possible loan losses
over the past three years was $60,000, $70,000, and $193,000 in 1996, 1995, and
1994, respectively.

     Management records provisions for possible loan losses in amounts
sufficient to result in an allowance for possible loan losses that covers
current net charge-offs and risks believed to be inherent in the loan
portfolio.  Amounts charged against current income are based on such factors as
past loan loss experience as it relates to current portfolio mix, evaluation of
potential losses in the loan portfolio, prevailing economic conditions, and
regular reviews of the portfolio conducted by loan officers, internal loan
review staff, and bank regulatory agencies. The loan review process entails
analyzing the borrower's financial condition, payment performance, impact of
economic and business conditions on certain borrowers, loan concentration risk,
sufficiency of collateral, and any other known risks inherent in borrowing
relationships.  This process is used as the basis for determining the adequacy
of the allowance for possible loan losses.  Company management believes the
allowance for possible loan losses is adequate to cover actual and potential
losses in the loan portfolio under current conditions.


                              NONPERFORMING ASSETS


<TABLE>
<CAPTION>

                                                         (dollars in thousands)
                                                                December 31,
                                             ---------------------------------------------      
                                              1996    1995      1994      1993       1992
                                             -----    ----      ----      ----       -----  
<S>                                           <C>     <C>       <C>       <C>       <C>
Nonaccrual loans                              $1,037    $1,811    $2,829    $8,038  $17,021
Past due 90 days and still accruing interest     146     1,463     2,419     5,187   17,041
Loans not included above which are
    "troubled debt restructurings" as
    defined in SFAS 15                             -         -         -        15    3,030
                                              ------  --------  --------  --------  -------
            TOTAL NONPERFORMING LOANS          1,183     3,274     5,248    13,240   37,092
Other real estate owned                          860       554     1,833     4,316    5,439
                                              ------  --------  --------  --------  -------
            TOTAL NONPERFORMING ASSETS        $2,043    $3,828    $7,081   $17,556  $42,531
                                              ======  ========  ========  ========  =======
RATIOS:
    Nonperforming loans as % of
         total loans                            0.40%     1.08%     1.74%     4.30%   10.28%
    Nonperforming assets as % of
         total loans and other real
         estate owned                           0.69      1.26      2.34      5.62    11.61
    Nonperforming assets as % of
         total assets                           0.39      0.75      1.37      3.31     7.73
    Allowance for possible loan losses
         as % of nonperforming loans          473.54    172.11    136.13     62.95    26.94
</TABLE>
 

                                        9

<PAGE>   11

BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries



 

     Nonperforming loans totaled $1,183,000 or .40% of the loan portfolio at
December 31, 1996 compared to $3,274,000 or 1.08% of the portfolio at December
31, 1995.  Nonperforming assets totaled $2,043,000 or .39% of total assets at
December 31, 1996 compared to $3,828,000 or .75% of total assets at December
31, 1995.  Both nonperforming loans and assets are at their lowest levels since
1989.  This was the fourth consecutive year of dramatic improvement in this
area since year-end 1992 when nonperforming assets were at all-time highs.  As
shown in the table above, the reduction in nonperforming assets over the past
four years has totaled $40,488,000, a 95.20% reduction, including a $1,785,000
or 46.63% reduction during 1996.  Improving asset quality has been at the heart
of the Company's strategic business plan since the change in management
occurred in June 1992.  With the improvement in 1996, the Company's level of
nonperforming assets, as well as our asset quality ratios, have improved to a
level that exceeds those of our peers in the industry.  Management and the
Board of Directors are committed to maintaining acceptable asset quality levels
in the future.

     The Company adopted revised accounting methods for impaired loans in 1995,
as mandated by Statement of Financial Accounting Standards (SFAS) No. 114 (as
amended by SFAS 118).  SFAS 114 does not apply to smaller-balance homogeneous
loans which management has assessed to include consumer and home equity loans.
Accordingly, the loan classifications affected by SFAS 114 are commercial,
financial and agricultural, real estate, industrial revenue bonds, and other
loans.  The adoption of SFAS 114 did not result in a significant change in the
Company's risk identification process.  SFAS 114 requires that a loan be
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; however, loans which are
past due more than 90 days as to the 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 measurement of impaired loans is the
collateral underlying the identified loan.  Because of the similarities between
the Company's risk identification process before and after the adoption of SFAS
114, management does not believe the comparability of the nonperforming asset
table was affected.  In addition, management does not anticipate any changes in
the Company's charge-off policy as a result of the adoption of SFAS 114.

     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  December 31, 1996, there were no concentrations
of loans exceeding 10% of total loans which were not disclosed as a category of
loans in note 3 to the consolidated financial statements of the Company.

     The amounts received in cash and recognized as interest income on
nonaccrual loans were $27,000 and $66,000 for the years ended December 31, 1996
and 1995, respectively.  If the contractual interest on these loans had been
recognized, such income would have been $133,000 and $160,000, respectively.
There were no restructured loans at December 31, 1996 or 1995. 

INVESTMENT PORTFOLIO
     The Company's investment portfolio has historically provided a stable
earnings base, a secondary source of long-term liquidity, and is one of the
primary means of adjusting interest rate sensitivity, thereby managing
interest-rate risk.  Debt securities included in the held to maturity category
are stated at cost, adjusted for 



                                       10

<PAGE>   12

BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries





amortization of premiums and accretion of discounts, in the Company's
consolidated financial statements.  Debt securities included in the available
for sale category are recorded in the consolidated financial statements at their
market value.  The investment portfolio contains a mixture of debt securities in
terms of the types of securities, interest rates, and maturity distribution. 
This diversity, as well as management's conservative philosophy towards risk
management, has resulted in a solid investment portfolio.

     The carrying value of the Company's investment portfolio increased by
$27,520,000 during 1996 due to a combination of growth at the subsidiary banks
and a decline in loan volume.  In addition, buying opportunities were more
attractive in 1996 than they were in 1995, as investments in the two to five
years maturity range offered favorable spreads to the rates being paid on
federal funds sold.  This was not the case in 1995, when the yield curve was
exceptionally flat.  As a result, in addition to the other funding sources, the
Company also reduced its liquid investments in federal funds sold by $5,600,000
to take advantage of the interest rate environment.

     The carrying value of the Company's investment portfolio decreased by
$13,461,000 in 1995.  The decrease in 1995 was largely due to loan growth at
the subsidiary banks.

     The amortized cost and estimated market value of the Company's available
for sale and held to maturity debt securities at December 31, 1996, 1995, and
1994 are shown below:




<TABLE>
<CAPTION>
                                                       (in thousands)
                                      1996                 1995                  1994
                              --------------------  --------------------  --------------------
                                         ESTIMATED             Estimated             Estimated
                              AMORTIZED   MARKET    Amortized   Market    Amortized   Market
                                COST       VALUE      Cost       Value      Cost       Value
                              ---------  ---------  ---------  ---------  ---------  ---------
<S>                           <C>        <C>        <C>        <C>        <C>        <C>
AVAILABLE FOR SALE:
  U.S. Treasury securities
     and obligations of U.S.
     Government agencies
     and corporations           $18,861    $18,845    $ 7,569    $ 7,609    $ 9,498    $ 9,249
  Obligations of states and
     political subdivisions         445        451        530        543        731        738
  Other securities                1,279      1,279      1,260      1,262        292        292
                                -------    -------    -------    -------    -------    -------
                                 20,585     20,575      9,359      9,414     10,521     10,279
  Mortgage-backed securities     46,444     46,075     40,981     40,738     43,913     40,858
                                -------    -------    -------    -------    -------    -------
                                $67,029    $66,650    $50,340    $50,152    $54,434    $51,137
                                =======    =======    =======    =======    =======    =======

HELD TO MATURITY:
  U.S. Treasury securities
     and obligations of U.S.
     Government agencies
     and corporations          $ 92,469   $ 92,396   $ 83,086   $ 82,939   $ 93,372   $ 88,624
  Obligations of states and
     political subdivisions      21,709     22,461     21,875     22,822     22,800     22,587
  Other securities                  300        300        471        471        863        847
                               --------   --------   --------   --------   --------   --------
                                114,478    115,157    105,432    106,232    117,035    112,058
  Mortgage-backed securities      6,166      6,220      4,190      4,262      5,063      4,879
                               --------   --------   --------   --------   --------   --------
                               $120,644   $121,377   $109,622   $110,494   $122,098   $116,937
                               ========   ========   ========   ========   ========   ========
</TABLE>


     The Company has designated certain debt securities with a market value of
approximately $66,650,000 and $50,152,000 as available for sale at December 31,
1996 and 1995, respectively, with the differences of $379,000 and $188,000,
respectively, between the market value and amortized cost of such securities
being recorded in a valuation reserve.  Debt securities with an amortized cost
of $120,644,000 and $109,622,000 at December 31, 1996 and 1995, respectively,
remain as held to maturity securities, to be used for the Company's longer-term
liquidity 


                                       11

<PAGE>   13

BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries



needs.  The held to maturity securities at December 31, 1996 and 1995
reflected market values of $121,377,000 and $110,494,000, respectively, which
represent net unrealized gains of $733,000 and $872,000 in 1996 and 1995,
respectively.  Because it is not management's intention to sell securities from
the portfolio, these gains or losses are not anticipated to be realized by the
Company.

     As evidenced by the above information, the market value of the Company's
portfolio in relationship to the amortized cost of the portfolio remained
relatively stable during 1996 after having improved significantly during 1995.
This improvement in 1995 can be attributed to a combination of factors.  First,
the yield on virtually all investment securities declined during 1995,
increasing the market value of the Company's portfolio.  Second, because of the
1995 loan growth, the Company purchased very few securities during the falling
interest rate environment.  Third, many of the investment securities which
matured during 1995 had lower yields, thus increasing the average yield of the
remaining portfolio.  As these securities matured, the unrealized losses which
were reflected in the 1994 balances because the security yields were below
market levels were eliminated, without any adverse impact to the Company's
earnings.

     There were no sales of securities during 1996, 1995, and 1994.

     At December 31, 1996, there were no securities of a single issuer that
exceeded 10% of shareholders' equity.

DEPOSITS
     Deposits are the primary funding source for the Company's subsidiary banks
and are acquired from a broad base of local markets, including both individual
and commercial customers.  Total deposits increased $9,709,000 during 1996,
after having decreased by $10,526,000 in 1995.

     The 1996 deposit growth was largely in interest-bearing demand deposits
and time deposits $100,000 and over.  The growth in these two portfolios was
partially offset by small declines in noninterest-bearing demand deposits,
savings deposits, and time deposits under $100,000.  Interest-bearing demand
deposits increased by $4,850,000 or 4% during 1996, with the majority of this
growth attributable to deposit migration from noninterest-bearing demand and
savings deposits.  Over the past several years, commercial and retail customers
have become more sophisticated in managing their cash positions, and they are
also more sensitive to the interest rate being earned on their interest-bearing
deposits.  As a result, the Company experienced an increase in both NOW and
money market accounts.  Time deposits $100,000 and over increased $12,929,000
or 35% during 1996.  This increase was largely the result of a few larger
public fund accounts, for which the Company was the successful bidder.  In each
case, the Company was not overly aggressive in the pricing of these deposits,
and the yields were such that profit margins existed between the rates paid on
the deposits and comparable investment securities.  While it remains
management's general philosophy not to actively pursue these volatile deposits,
management is willing to capitalize on opportunities which present themselves
throughout the year.  The decline in time deposits under $100,000 was largely
due to the highly competitive market for these deposits during 1996.  Several
of the Company's competitors offered a number of special rates throughout the
year in an effort to build market share.  Management of the Company opted not
to pursue the same course of action, because with the decrease in loans during
the year, the impact would have been detrimental to the net interest margin.


     The decrease in deposits in 1995 was the result of the sale of
Bay-Hermann-Berger and its $21,677,000 in total deposits.  Excluding these
deposits, the remaining four subsidiary banks experienced deposit growth of
$11,151,000.  This growth was due to an increase in time deposits.  Excluding
the time deposits of Bay-Hermann-Berger, time deposits of $100,000 and under
increased by $7,725,000 and time deposits over $100,000 increased by
$17,428,000.  These increases were partially offset by decreases in demand
deposits and savings accounts.


                                       12

<PAGE>   14


BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries




Excluding the effects of the Bay-Hermann-Berger sale, noninterest-bearing
demand deposits decreased by $6,103,000, savings accounts decreased by
$7,899,000, and interest-bearing demand deposits remained relatively unchanged
from year to year.  Interest rates played a key role in the changing of the
deposit mix during 1995, as rates paid on time deposit and money market
accounts made them an attractive alternative to savings accounts and other low
risk investments.

     The following table shows the breakdown of core deposits and volatile
liabilities at December 31, 1996, 1995, and 1994:

<TABLE>
<CAPTION>

                                                      (dollars in thousands)
                                         1996                 1995                     1994
                                  ------------------  ----------------------     ------------------
                                            PERCENT                 Percent                Percent
                                            OF TOTAL                of Total               of Total
                                  AMOUNT    DEPOSITS    Amount      Deposits      Amount   Deposits
                                  --------  --------  -----------  -----------   --------  --------
<S>                               <C>          <C>     <C>           <C>        <C>         <C>
Noninterest-bearing
    demand deposits               $ 58,046      12%    $ 60,999        13%       $ 71,006     15%
Interest-bearing demand deposits   128,474      28      123,624        27         128,493     28
Savings deposits                    57,115      12       60,134        13          69,853     15
Time deposits under $100,000       174,102      37      176,200        39         179,003     38
                                  --------     ---     --------       ---        --------    ---
        Total core deposits        417,737      89      420,957        92         448,355     96
Time deposits $100,000 and                                                                   
    over (1)                        49,539      11       36,610         8          19,738      4
                                  --------     ---     --------       ---        --------    ---
        Total deposits            $467,276     100%    $457,567       100%       $468,093    100%
                                  ========     ===     ========       ===        ========    ===
</TABLE>


(1) Management considers these to be volatile liabilities.

     The following table shows the amount of time deposits $100,000 and over by
time remaining until maturity at December 31, 1996, 1995, and 1994:

<TABLE>
<CAPTION>

                                               (in thousands)
                                         1996     1995       1994
                                         ----     ----       ----

        <S>                             <C>       <C>        <C>
        Three months or less            $12,899   $17,039    $ 4,290
        Over three through six months    19,850     9,723      4,013
        Over six through twelve months   11,904     4,016      5,580
        Over twelve months                4,886     5,832      5,855
                                        -------   -------    -------
                                        $49,539   $36,610    $19,738
                                        =======   =======    =======
</TABLE>


     The following table reflects the average daily balances, by category, at
December 31, 1996, 1995, and 1994, and their weighted average interest rates
for the respective years:



<TABLE>
<CAPTION>

                                                     (dollars in thousands)
                                        1996                1995                      1994
                                  ---------------    ------------------------  -----------------
                                  AVERAGE   AVERAGE  Average      Average      Average   Average
                                  BALANCE   RATE     Balance      Rate         Balance   Rate
                                  --------  -------  -----------  -----------  --------  -------
<S>                               <C>       <C>      <C>          <C>          <C>       <C>
Noninterest-bearing demand
    deposits                      $ 54,965      -  %    $ 59,162     -   %       $ 69,536    -  %
Interest-bearing demand deposits   123,924     3.33      120,098    3.41          127,532   2.67
Savings deposits                    60,332     2.53       64,381    2.62           72,727   2.54
Time deposits under $100,000       175,239     5.40      176,943    5.36          182,462   4.47
Time deposits $100,000 and over     41,456     5.18       29,270    5.40           15,724   4.32
                                  --------     ====     --------    ====         --------   ====
                                  $455,916              $449,854                 $467,981
                                  ========              ========                 ========
</TABLE>


SHORT-TERM BORROWINGS
     Short-term borrowings are an alternative to other funding sources and
consist primarily of federal funds purchased, securities sold under agreements
to repurchase, U.S. Treasury tax and loan notes, and other short-term


                                       13

<PAGE>   15


BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries




borrowings.  These sources of funding are utilized primarily by South Side
National Bank and the Company itself.  Depending on funding requirements and
liquidity strategies employed by the Company's Asset/Liability Management
Committee, these funds are used on a short-term basis.  Short-term borrowings
increased during 1996 due to the addition of  two commercial repurchase
agreements.  Short-term borrowings decreased substantially during 1995 largely
due to the payoff of a $2,250,000 obligation of the parent company.  The funds
for this debt reduction were provided by the sale of Bay-Hermann-Berger.

     The following table is a summary of short-term borrowings at December 31,
1996, 1995, and 1994:



<TABLE>
<CAPTION>

                                                     (in thousands)
                                            1996       1995        1994
                                            ----       ----        ----
        <S>                                <C>         <C>        <C>
        Federal funds purchased             $    -       $  -     $  200
        Securities sold under agreements
            to repurchase                    1,623        307        362
        U.S. Treasury tax and loan notes         -        472        555
        Other short-term borrowings              -          -      2,261
                                            ------       ----     ------
                                            $1,623       $779     $3,378
                                            ======       ====     ======
</TABLE>


     The average daily balances, weighted average daily interest rates, maximum
month-end amounts outstanding, and average interest rates at year-end for
short-term borrowings were as follows:


<TABLE>
<CAPTION>

                                                 (dollars in thousands)
                                    1996                 1995                   1994
                               --------------  ------------------------   ----------------
                               AVERAGE AVERAGE     Average      Average    Average  Average
                               BALANCE  RATE       Balance       Rate      Balance   Rate
                               ------  -----    ----------   ---------    -------  -------
<S>                            <C>        <C>      <C>           <C>      <C>       <C>               
Federal funds purchased         $  188     5.85%      $  399      5.76%   $  104     3.85%
Securities sold under
    agreements to
    repurchase                     893     4.37          747      4.82     1,121     3.30
U.S. Treasury tax and loan                                                 
    notes                          703     5.97        1,333      5.40       215     3.72
Other short-term borrowings          -        -          479      8.77     2,565     7.99
                                ------     ====       ------      ====    ------     ====
                                $1,784                $2,958              $4,005
                                ======                ======              ======
Total maximum short-term
    borrowings outstanding
    at any month-end during
    the year                    $3,308                $8,161              $4,546
                                ======                ======              =======
Average short-term borrowings
    rate at end of year                    4.85%                  6.70%              6.59%
                                           ====                   ====               ====
</TABLE>


ASSET/LIABILITY MANAGEMENT
     The Company's overall goal in asset/liability management is to achieve a
reasonable balance of rate-sensitive assets with rate-sensitive liabilities in
order to minimize the impact of changing rates on net income.  As assets and
liabilities tend to become more rate sensitive, whether due to customer demands
or Company initiatives, it becomes more important that rates earned are matched
with rates paid, and that repricing dates are matched so the next earning
interval will have both components at current rates.  Assets and liabilities
that mature or are repriced in one year or less are considered in the financial
services industry to be "rate sensitive."  This means that as rates in the
marketplace change, the rates on these assets or liabilities will soon be
impacted.  Given a reasonably balanced rate sensitivity position if rates are
increasing, the Company will have more interest income and more interest
expense.  Conversely, if rates are decreasing, the Company will have less
interest income and less interest expense.


                                       14

<PAGE>   16

BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries




     Short-term interest rate sensitive positions are critical in managing net
interest income, as they have an immediate impact on earnings during periods of
changing interest rates.  Interest rate sensitivity is measured by
interest-sensitive gaps defined as the difference between interest-sensitive
assets and interest-sensitive liabilities within any specific time period.  A
positive or negative interest-sensitive gap demonstrates the relative exposure
to interest rate movements.  To the extent that these gaps are close to zero,
net interest income is protected from interest rate fluctuations for the
specific time period being examined.  Examples of interest-sensitive assets and
liabilities include commercial loans whose interest rates are tied to the prime
commercial lending rate and money market deposit accounts whose interest rates
are tied to the three-month treasury bill rate.  The objective of an interest
sensitivity analysis is to measure the potential impact of changes in the
levels of market interest rates on net interest income.

     Management believes that during periods of economic and interest rate
uncertainty, maintenance of appropriate rate-sensitive positions is imperative
in maintaining an adequate degree of liquidity and acceptable profit margins,
and has structured its deposit, investment, and loan portfolios accordingly.
It is the opinion of management that the Company has maintained an adequate
liquidity position and management will endeavor to do so in the future.


RATE SENSITIVITY
     Interest rate sensitivity is a key component of asset/liability management
and is related to liquidity, because each is affected by maturing assets and
sources of funds.  Interest sensitivity, however, also takes into consideration
those assets and liabilities with interest rates which are subject to change
prior to maturity.  The objective of interest sensitivity management is to
optimize earnings results, while managing, within internal policy constraints,
interest rate risk.  The Company's policy on interest rate sensitivity is to
manage exposure to potential risk associated with changing interest rates by
maintaining a balance sheet posture in which annual net income is not
significantly affected by interest rate movements.  The total absence of risk,
as well as excessive risk, can result in less than acceptable returns;
therefore, the Company manages its interest sensitivity risk between those two
extremes.

     The table on the following page is an analysis of interest sensitive
assets and liabilities at December 31, 1996 over various time horizons.
Because such an analysis does not capture many factors which determine interest
rate risk, the Company has put more emphasis on the use of a simulation model
to measure its exposure to changes in interest rates.  Under different rate and
growth assumptions, these projections enable the Company to adjust its
strategies to protect the net interest margin against significant rate
fluctuations.  Uniform sensitivity reports and guidelines are used by all
subsidiary banks of the Company.  Based on the Company's historical analysis,
interest-bearing demand and savings deposits have proven to be very stable core
deposits even through interest rate fluctuations.  Accordingly, management
believes these deposits are not 100% rate sensitive within the period of three
months or less.  As a result, these deposits have been allocated between the
four repricing categories as follows:  three months or less - 35%, three months
through 12 months - 20%, over one year through five years - 25%, and over five
years - 20%.

     As reflected on the Repricing and Interest Rate Sensitivity Analysis on
the following page, the Company has a well-balanced interest rate sensitivity
position.  Generally, a one-year gap ratio in a range of .80x - 1.20x indicates
an entity is not subject to any undue interest rate risk.  The Company's
current one-year gap of 1.05x is within an acceptable range.


                                       15

<PAGE>   17

BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries




                REPRICING AND INTEREST RATE SENSITIVITY ANALYSIS

                             (dollars in thousands)

                               December 31, 1996


<TABLE>
<CAPTION>
                                                    OVER      OVER
                                                  3 MONTHS   1 YEAR
                                        3 MONTHS   THROUGH   THROUGH   OVER
                                        OR LESS   12 MONTHS  5 YEARS  5 YEARS   TOTAL
                                        --------  ---------  -------  -------  -------
<S>                                     <C>       <C>        <C>      <C>      <C>
Interest-earning assets:
   Federal funds sold                   $ 13,500   $   -      $    -    $   -     $ 13,500
   Investments available for sale         15,480     12,297     37,186     1,687    66,650
   Investments held to maturity            7,356     21,126     68,343    23,819   120,644
   Loans, net of unearned discount (1)   129,222     67,469     81,392    16,380   294,463
                                        --------   --------   --------   -------  --------
      Total interest-earning
          assets                         165,558    100,892    186,921    41,886   495,257
                                        --------   --------   --------   -------  -------

Cumulative interest-earning assets       165,558    266,450    453,371   495,257   495,257
                                        --------   --------   --------  --------  -------

Interest-bearing liabilities:
   Interest-bearing demand deposits       44,966     25,695     32,118    25,695   128,474
   Savings deposits                       19,990     11,423     14,279    11,423    57,115
   Time deposits under $100,000           35,763     67,245     71,094       -     174,102
   Time deposits $100,000 and over        14,029     31,753      3,757       -      49,539
   Short-term borrowings                   1,623       -          -          -       1,623
   ESOP debt                               1,779       -          -          -       1,779
                                        --------   --------   --------  --------  --------
      Total interest-bearing
          liabilities                    118,150    136,116    121,248    37,118   412,632
                                        --------   --------   --------  --------  -------

Cumulative interest-bearing
   liabilities                           118,150    254,266    375,514   412,632   412,632
                                        --------   --------   --------  --------  --------

Gap analysis:
   Interest sensitivity gap             $ 47,408   $(35,224)  $ 65,673  $  4,768  $ 82,625
                                        ========   ========   ========  ========  ========
   Cumulative interest                                                                   
      sensitivity gap                   $ 47,408   $ 12,184   $ 77,857  $ 82,625  $ 82,625
                                        ========   ========   ========  ========  ========

Cumulative gap ratio of interest-
   earning assets to interest-bearing
   liabilities                              1.40X      1.05X      1.21X    1.20X      1.20X
                                            ====       ====       ====     ====       ====
</TABLE>                                                                       
          


(1)  Nonaccrual loans are reported in the "over 1 year through 5 years"
     column.

LIQUIDITY
     The Company's Asset/Liability Management Committee also formulates
guidelines for and monitors the composition of assets and liabilities.  The
objective is to meet earnings goals by producing the optimal yield and maturity
mix consistent with interest rate expectations and projected liquidity needs.

     Achieving these goals is the central role of liquidity management, which
must ensure that the Company has ready access to sufficient funds to meet
existing commitments and future financial obligations.  In addition, liquidity
management enables the Company to withstand fluctuations in deposit levels and
to provide for customers' credit needs in a timely and cost-effective manner.
Liquidity management, therefore, is viewed from both an asset and liability
perspective.

     Asset liquidity is normally provided through the maturities of various
assets, the receipt of loan payments, and the interest collected on assets.
Additionally, as part of its overall asset/liability management strategy, the
Company designates certain investment securities as available for sale.  In 
the event that liquidity needs arise, these securities are available to be 
converted to cash.


                                       16

<PAGE>   18

BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries





     The most important source of liquidity for the Company is deposit
liquidity, which is the ability to raise new funds and renew maturing
liabilities.  The Company's long-term customer relationships in the various
local markets are the foundation of the Company's long-term liquidity.

     Short-term liquidity needs arise from continuous fluctuations in the flow
of funds on both sides of the balance sheet.  The subsidiary banks control
their own asset/liability mix within guidelines of Company policy and their
individual loan demand and deposit structure, with guidance from the
Asset/Liability Management Committee.  Other than South Side National Bank, the
subsidiary banks do not generally borrow funds.

     As the parent company, Southside Bancshares Corp. maintains its liquidity
position and provides for its cash flow needs through dividends and management
fees received from its subsidiary banks.

     It is the opinion of management that the Company has historically
maintained an adequate liquidity position and management will endeavor to
continue to do so in the future.


CAPITAL RESOURCES
     A strong capital base is vital to any banking organization as capital
provides a solid foundation for anticipated future asset growth and promotes
depositor and investor confidence.

     Assets vary with respect to risk.  Some assets, such as cash or short-term
government securities, are practically risk free.  Other assets, such as loans,
have increased risk associated with them.  Capital requirements depend to some
extent on the degree of risk within a bank's asset categories and the level of
assets in those risk categories.

     The Company's total capital position has been historically maintained
through earnings retention and a conservative dividend policy.  During 1995,
the Company issued 263,560 shares of common stock in a private placement
offering in conjunction with the retirement of outstanding subordinated capital
notes.  This increase in capital was offset by the Company's guarantee of the
debt of the Company's Employee Stock Ownership Plan.

     Bank regulators consider a range of factors when determining capital
adequacy.  Such factors include the organization's size, quality and stability
of earnings, risk diversification, management expertise, asset quality,
liquidity, and internal controls.  The bank regulators adopted minimum capital
guidelines in 1990, which redefined capital and compared it with risk-weighted
assets.

     These risk-based capital guidelines define the components of capital,
categorize assets into different risk classes, and include certain
off-balance-sheet items in the calculation of capital requirements.
Off-balance-sheet items are converted into on-balance-sheet credit equivalents
and are categorized into different risk classes to determine the required
capital associated with each class.  On-balance-sheet items are also assigned
different risk weights to determine required capital.  Together, these two
items comprise the risk-weighted asset denominator of the required capital
ratios.

     Capital itself is categorized into two types:  Tier I and Tier II.  Tier I
capital elements include total shareholders' equity less goodwill and exclude
the effects of net unrealized gains or losses on available-for-sale securities.
Tier II capital includes other supplementary capital elements, subject to
certain limitations, such as mandatory convertible notes, subordinated debt,
and the allowance for possible loan losses.  The maximum amount of the
allowance for possible loan losses which can be included as Tier II capital is
1.25% of risk-weighted assets.

     The capital guidelines require banking organizations to maintain a minimum
total capital ratio of 8% (of which at least 4% must be Tier I capital).  The
Company's total capital ratios under the risk-weighted guidelines at December
31, 1996 and 1995 were 17.88% and 16.20%, respectively, which included Tier I
capital ratios of 16.62% and 14.94%, respectively.  In addition, the Company
and its subsidiary banks must maintain a minimum

                                      17

<PAGE>   19

BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries




Tier I leverage ratio (Tier I capital to adjusted total assets) of at least 3%.
The Company's Tier I leverage ratios were 10.12% and 9.27% at December 31,
1996 and 1995, respectively.  These ratios are well above the minimum
risk-weighted capital requirements.

     All of the subsidiary banks of the Company also exceeded the various
regulatory capital requirements at December 31, 1996, 1995, and 1994.
Management reviews the various capital measures monthly to ensure that they are
within internal guidelines and within external guidelines as established by
law, and management believes that the Company's current capital position is
adequate to support its banking operations.

     The following is a summary of data and ratios pertaining to the Company's
capital position at December 31, 1996, 1995, and 1994:


                                                   (dollars in thousands)
                                             1996     1995         1994
                                             -------  -----------  -----------

  RISK-BASED CAPITAL:
     Tier I capital                         $ 52,778     $ 47,030     $ 39,583
     Total capital                            56,767       50,986       47,701
     Risk-weighted assets                    317,494      314,770      311,063
  RISK-BASED CAPITAL RATIOS:
     Tier I capital to risk-weighted assets   16.62%       14.94%       12.73%
     Minimum requirement                        4.00         4.00         4.00
     Total capital to risk-weighted assets     17.88        16.20        15.33
     Minimum requirement                        8.00         8.00         8.00
                                            ========     ========     ========

  TIER I CAPITAL:
     Tier I capital                         $ 52,778      $47,030     $ 39,583
     Average fourth quarter total
       consolidated assets less
       intangibles                           521,523      507,108      515,185
  LEVERAGE CAPITAL RATIOS:
     Tier I capital to average total
       consolidated assets less
       intangibles                             10.12%        9.27%        7.68%
     Minimum requirement                        3.00         3.00         3.00
                                             =======       ======      =======




                             RESULTS OF OPERATIONS

EARNINGS SUMMARY
     The consolidated net income of the Company was $6,158,000, $6,734,000, and
$5,014,000 for the years ended December 31, 1996, 1995, and 1994, respectively,
which resulted in net income per common share of $2.27, $2.55, and $1.93 in
each of those years.  The results for 1996 represent the third consecutive year
in which the Company has achieved record core net earnings.  Net income in 1995
included the effects of two nonrecurring items which totaled $1,370,000.
Excluding the effects of these two nonrecurring items, core net earnings were
$5,364,000 for




                                      18

<PAGE>   20




the year. The increase in core net earnings was $794,000, or 15%, $350,000, or
7%, and $1,973,000, or 65%, in 1996, 1995, and 1994, respectively.  During this
three-year period, core net earnings have more than doubled.  The net income in
1996 results in a return on average assets (ROA) of 1.20%, compared to 1.33%
and .97% in 1995 and 1994, respectively.  In addition, the return on average
shareholders' equity (ROE) in 1996 was 12.27%, compared to 15.47% and 13.48% in
1995 and 1994, respectively.  The ROA and ROE in 1995, excluding the effects of
the nonrecurring items, would have been 1.06% and 12.32%, respectively.  The
decline in the ROE over the past three years is largely due to the Company's
strengthened capital position.

     As previously discussed, 1995 net income was impacted by two nonrecurring
items.  The first of the two nonrecurring items was a litigation settlement
received by the Company's lead bank, South Side National Bank, and the second
was the gain recognized on the sale of  Bay-Hermann-Berger.  These transactions
are discussed in greater detail in the Noninterest Income section of this
report.  The remainder of the increase in 1995 net income was largely due to an
increase in net interest income.


NET INTEREST INCOME
     Net interest income on a tax-equivalent basis increased by $584,000 and
$298,000 in 1996 and 1995, respectively, after decreasing by $364,000 in 1994.
The increase in 1996 was due to increased earnings on investment securities and
short-term investments, which were partially offset by a decrease in interest
income on loans and an increase in interest expense on deposits.  The $736,000
increase in the tax-equivalent interest earned on investment securities was due
to a combination of  an increase in the average balance outstanding during the
year and an increase in the average yield in the portfolio.  Because of the
deposit growth experienced during the year and a slight decline in average
loans outstanding, the Company had more funds available to purchase securities
during 1996.  In addition, favorable interest rate spreads between short-term
rates and securities with maturities in the two to five year range made
securities more attractive and contributed to the increase in the overall
portfolio yield.  The decline in loan interest was due to the decrease in the
average balance, while the increase in interest expense was largely due to
deposit growth.  The average rate paid on almost all of the Company's deposit
products declined during 1996; however, an increase in the average balance of
time deposits $100,000 and over caused the overall interest expense to
increase.  As indicated previously, the Company was not overly aggressive in
pricing these larger deposit relationships, as evidenced by the fact that while
the average balance outstanding increased more than $12 million, the average
rate paid on these deposits declined 22 basis points from 5.40% in 1995 to
5.18% in 1996.

     The increase in 1995 was the result of an improvement in the net interest
margin, which more than offset the decrease in interest-earning assets caused
by the Bay-Hermann-Berger sale.  The Company's net interest margin improved to
4.41% in 1995 from 4.27% in 1994.  This improved net interest margin was due to
a shift in the Company's asset mix.  Although the Company had seen continued
shrinkage in the loan portfolio and growth in the low-yielding investment
securities portfolio in previous years, the reverse was true in 1995.  Average
loans, with an average yield of 9.19%, increased by $2,731,000, while
investments in taxable debt securities, with an average yield of 5.84%,
decreased by $13,278,000.  This shift in asset mix contributed to the increase
in the overall yield on interest-earning assets.


                                      19

<PAGE>   21

RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries




         CONSOLIDATED AVERAGE BALANCE SHEETS AND AVERAGE INTEREST RATES

<TABLE>
<CAPTION>

                                                              (dollars in thousands)
                                                              YEAR ENDED DECEMBER 31,
                                                      -----------------------------------
                                                                    1996
                                                      -----------------------------------
                                                                                  AVERAGE
                                                                    INTEREST       RATES
                                                        AVERAGE     INCOME/       EARNED/
                                                        BALANCE     EXPENSE        PAID
                                                        -------    --------      -------
<S>                                                     <C>         <C>          <C>
ASSETS:
    Loans, net of unearned discount (1) (2) (3)         $295,683     $  27,164     9.19%
    Investments in debt securities:
      Taxable (4)                                        148,780         8,917     5.99
      Exempt from Federal income taxes (3) (4)            22,943         1,918     8.36
    Short-term investments                                18,744           994     5.30
                                                        --------        ------
            Total interest-earning assets/
                interest income/overall yield (3)        486,150        38,993     8.02
                                                                        ------     ====
    Allowance for loan losses                             (5,646)
    Cash and due from banks                               15,317
    Other assets                                          19,169
                                                        --------
            TOTAL ASSETS                                $514,990
                                                        ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
    Interest-bearing demand deposits                    $123,924         4,125     3.33%
    Savings deposits                                      60,332         1,529     2.53
    Time deposits under $100,000                         175,239         9,462     5.40
    Time deposits $100,000 and over                       41,456         2,148     5.18
    Short-term borrowings                                  1,784            92     5.16
    ESOP debt                                              2,060           170     8.25
    Subordinated capital notes                                 -             -        -
                                                        --------        ------
            Total interest-bearing liabilities/
                interest expense/overall rate            404,795        17,526     4.33
                                                                        ------     ====
    Noninterest-bearing demand deposits                   54,965
    Other liabilities                                      5,038
    Shareholders' equity                                  50,192
                                                        --------
            TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $514,990
                                                        ========
NET INTEREST INCOME                                                  $  21,467
                                                                        ======
NET INTEREST MARGIN ON AVERAGE INTEREST-EARNING ASSETS                             4.42%
                                                                                   ====
</TABLE>


(1)  Interest income includes loan origination fees.

(2)  Average balance includes nonaccrual loans.

(3)  Interest yields are presented on a tax-equivalent basis.  Nontaxable
     income has been adjusted upward by the amount of Federal income tax that
     would have been paid if the income had been taxable at a rate of 34%,
     adjusted downward by the disallowance of the interest cost to carry
     nontaxable loans and securities.

(4)  Includes investments available for sale.

                                      20

<PAGE>   22
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries



          
                            (dollars in thousands)
                           Years ended December 31,
     ----------------------------------------------------------------------
                 1995                                   1994
     ---------------------------           --------------------------------

                         Average                                    Average
               Interest  Rates                         Interest      Rates
     Average   Income/   Earned/           Average      Income/     Earned/
     Balance   Expense   Paid              Balance      Expense      Paid
     -------   -------   ------            -------     --------     -------

     $297,480   $27,331   9.19%           $294,749     $ 24,483      8.31%
                                     
      140,073     8,175   5.84             153,351        8,484      5.53
       22,273     1,924   8.64              21,655        1,870      8.64
       13,708       788   5.75              11,949          501      4.19
     --------  --------                   --------     --------

      473,534    38,218   8.07             481,704       35,338      7.34
               --------   ====                         --------      ====
       (6,175)                              (8,095)
       17,356                               22,079
       20,015                               21,927
     --------                             --------
     $504,730                             $517,615
     ========                             ========

     $120,098     4,095   3.41%           $127,532        3,409      2.67%
       64,381     1,685   2.62              72,727        1,848      2.54
      176,943     9,491   5.36             182,462        8,158      4.47
       29,270     1,582   5.40              15,724          679      4.32
        2,958       173   5.85               4,005          255      6.37
        2,160       190   8.80                 -              -         -
        1,233       119   9.65               4,190          404      9.65
     --------  --------                   --------     --------

      397,043    17,335   4.37             406,640       14,753      3.63
               --------   ====                         --------      ====
       59,162                               69,536
        4,997                                4,247
       43,528                               37,192
     --------                             --------
     $504,730                             $517,615
     ========                             ========
                $20,883                                $ 20,585
               ========                                ========
                          4.41%                                      4.27%
                          ====                                       ====



                                      21
<PAGE>   23

RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries




                   ANALYSIS OF CHANGES IN NET INTEREST INCOME
                 DUE TO CHANGES IN VOLUME AND CHANGES IN RATES

     The following table sets forth on a tax equivalent basis, for the periods
indicated, a summary of the changes in interest income and interest expense
resulting from changes in volume and changes in rates.  The change in interest
due to both volume and rate has been allocated in proportion to the
relationship of the absolute dollar amounts of the change in each.

<TABLE>
<CAPTION>
                                                             (in thousands)
                                                         Years ended December 31,
                                  ----------------------------------------------------------------------
                                        1996 COMPARED TO 1995                1995 Compared to 1994
                                  ----------------------------------  ----------------------------------
                                                INCREASE (DECREASE)                Increase (Decrease)
                                                 DUE TO CHANGE IN                   Due to Change in
                                     NET      ----------------------     Net      ----------------------
                                   INCREASE    AVERAGE     AVERAGE     Increase     Average     Average
                                  (DECREASE)    VOLUME       RATE     (Decrease)    Volume       Rate
                                 -----------  ---------   ----------  -----------  --------    --------
<S>                               <C>         <C>         <C>         <C>         <C>         <C>

Changes in interest income on:
   Loans                             $ (167)     $ (167)     $   -      $2,848      $  229      $2,619
   Investment securities:
      Taxable                           742         525         217       (309)       (765)        456
      Exempt from Federal income
        taxes                            (6)         57         (63)        54          54           -
   Short-term investments               206         272         (66)       287          81         206
                                     ------      ------      ------     ------      ------      ------
        TOTAL INTEREST INCOME           775         687          88      2,880        (401)      3,281
                                     ------      ------      ------     ------      ------      ------
Changes in interest expense on:
   Interest-bearing demand
      deposits                           30         128         (98)       686        (209)        895
   Savings deposits                    (156)       (101)        (55)      (163)       (219)         56
   Time deposits under $100,000         (29)        (96)         67      1,333        (253)      1,586
   Time deposits $100,000
      and over                          566         633         (67)       903         700         203
   Short-term borrowings                (81)        (62)        (19)       (82)        (66)        (16)
   ESOP debt                            (20)         (9)        (11)       190         190           -
   Subordinated capital notes          (119)       (119)          -       (285)       (285)          -
                                    -------      ------      ------     ------      ------      ------
        TOTAL INTEREST EXPENSE          191         374        (183)     2,582        (142)      2,724
                                    -------      ------      ------     ------      ------      ------
CHANGE IN NET INTEREST INCOME       $   584      $  313      $  271     $  298      $ (259)     $  557
                                    =======      ======      ======     ======      ======      ======
</TABLE>


PROVISION FOR POSSIBLE LOAN LOSSES
     The provision for possible loan losses has remained relatively low over
the past three years, largely due to the decline in the level of nonperforming
assets.  The provision for possible loan losses was $60,000 in 1996 compared to
$70,000 and $193,000 in 1995 and 1994, respectively.  In addition to the
decline in the level of nonperforming assets, a significant reduction in net
charge-offs has also contributed to the lower loan loss provisions.

NONINTEREST INCOME
     Noninterest income decreased by $2,112,000 during 1996 as a result of the
effects of two nonrecurring items which were included in other income in 1995.
In February 1995, the Company settled a lawsuit in which the Company's
subsidiary, South Side National Bank, was plaintiff.  Under the terms of the
settlement agreement executed by the parties, the Bank received a cash payment
of $1,400,000, which was offset by remaining legal expenses of approximately
$300,000.  The legal expenses are included in noninterest expense as a part of
"attorney fees."  In March 1995, the Company sold its wholly owned subsidiary,
Bay-Hermann-Berger, which resulted in a pretax gain to the Company of 
$825,000.  Excluding the effects of these two items, noninterest income 
increased by $113,000 during 1996 due, in large part, to gains on the sales of 
other real estate owned.

                                      22


<PAGE>   24


RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries


     Noninterest income increased $2,164,000 during 1995, mainly due to the two
nonrecurring items.  Excluding the effects of these items, noninterest income
declined by $61,000 for the year.


NONINTEREST EXPENSE
     Total noninterest expense declined by $731,000 during 1996, aided largely
by a decline in the Federal Deposit Insurance Corporation (FDIC) assessment.
In addition to a $848,000 decrease in the FDIC assessments, attorney fees
decreased by $120,000, data processing expense was $371,000 lower, and other
expense was reduced by $176,000.  Offsetting these expense reductions were
increases in salaries and benefits and net occupancy and equipment expense.
The reduction in the FDIC assessment was due to the substantial rate reduction
effected in 1995 when the Bank Insurance Fund reached its federally mandated
fully funded level.  The reduction in data processing costs was due in part to
additional costs associated with the data processing conversion in 1995.  The
remainder is due to the lower monthly servicing fees now being paid by each of
the banks.  The increase in net occupancy and equipment expense can be
partially attributed to a new facility opened by South Side National Bank in
February 1996, as well as additional equipment costs as a result of the 1995
data processing conversion. Management anticipates occupancy expense will
continue to grow as additional locations are added and facilities are updated.
The increase in salaries and employee benefits was due in large part to normal
annual salary increases.  In addition, costs associated with the Company's
employee benefit plans increased during 1996.

     Noninterest expense increased by $112,000 during 1995, as reductions in
salaries and employee benefits and the FDIC assessment were offset by increases
in the remainder of the other noninterest expense categories.  The reduction in
salaries and employee benefits was due to a reduction in the Company's payroll.
The reduction in the FDIC assessment was due to the reduction of FDIC
assessment rates to the minimum level required by the FDIC for a portion of the
year.  The increase in occupancy expense was due in part to the Company's
decision to outsource security personnel, as well as additional costs of a new
facility at the Bank of St. Charles County and major renovations at the State
Bank of DeSoto. The increases in equipment and data processing expenses were
largely due to the data processing conversion at all four of the Company's
banks during 1995.  New hardware and software were purchased, both of which has
enabled the Company to reduce ongoing data processing expense while increasing
the level of products and services offered to customers.  Attorney fees
increased slightly during 1995; however, excluding the $300,000 in fees
associated with the litigation settlement, attorney fees were reduced
dramatically during 1995.  The increase in other expense was due in part to
increased marketing costs, as well as additional expenses associated with the
data processing conversion.


INCOME TAXES
     Federal income tax expense was $2,177,000 in 1996 compared to $2,558,000
in 1995 and $1,805,000 in 1994.  The changes in Federal income tax expense have
been relatively consistent with the changes in pretax income, although the
Company's effective tax rate decreased to 26.1% in 1996 from 27.5% in 1995 and
26.5% in 1994.  The decrease in the effective tax rate was the result of an
increase in tax-exempt loan income, as well as Federal income tax credits
received on investments in low-income housing projects.  The increase in the
effective tax rate in 1995 was due to a substantial increase in pretax income
while the level of tax-exempt income remained relatively unchanged.


ACCOUNTING PRONOUNCEMENTS
     In June 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 125, Accounting for Transfers and Servicing Financial Assets and
Extinguishment of Liabilities (SFAS 125).  SFAS 125 provides

                                      23

<PAGE>   25

RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries




accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on the consistent application of
a financial-components approach that focuses on control.  It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings.

     SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to be
applied prospectively.  Earlier or retroactive application is not permitted.

     Management of the Company does not expect that adoption of SFAS 125 will
have a material impact on the Company's financial position, results of
operations, or liquidity.


EFFECTS OF INFLATION
     Persistent high rates of inflation can have a significant effect on the
reported financial condition and results of operations of all industries.
However, the asset and liability structure of a bank is substantially different
from that of an industrial company, in that virtually all assets and
liabilities of a bank are monetary in nature.  Accordingly, changes in interest
rates may have a significant impact on a bank's performance.  Interest rates do
not necessarily move in the same direction, or in the same magnitude, as the
prices of other goods and services.

     Inflation does have an impact on the growth of total assets in the banking
industry, often resulting in a need to increase equity capital at higher than
normal rates to maintain an appropriate equity-to-assets ratio.

     Although it is obvious that inflation affects the growth of total assets,
it is difficult to measure the impact precisely.  Only new assets acquired in
each year are directly affected, so a simple adjustment of asset totals by use
of an inflation index is not meaningful.  The results of operations also have
been affected by inflation, but again there is no simple way to measure the
effect on the various categories of income and expense.

     Interest rates in particular are significantly affected by inflation, but
neither the timing nor the magnitude of the changes coincides with changes in
standard measurements of inflation such as the consumer price index.
Additionally, changes in interest rates on some types of consumer deposits may
be delayed.  These factors in turn affect the composition of sources of funds
by reducing the growth of deposits that are less interest rate sensitive and
increasing the need for funds that are more interest rate sensitive.


FINANCIAL INSTRUMENT MARKET VALUE
     As disclosed in note 14 to the Company's consolidated financial
statements, the fair value of financial instrument assets exceeded the balance
sheet amounts of those instruments by $6,854,000 and $8,056,000 as of December
31, 1996 and 1995, respectively, while the fair value of financial instrument
liabilities was less than the amounts included in the balance sheet by $704,000
as of December 31, 1996 and exceeded the amounts included in the balance sheet
by $437,000 as of December 31, 1995.

     Such comparative information reflects the effect of the current rate
environment, as well as the Company's asset/liability and credit risk
management programs.  The fair value estimates are based on existing financial
instruments at December 31, 1996 and do not reflect amounts which would be
ultimately realized in the normal course of business.

                                      24

<PAGE>   26

RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries




                   COMMON STOCK - MARKET PRICE AND DIVIDENDS

     The Company's common stock is traded on the National Association of
Company Securities Dealers, Inc./SmallCap Market System (NASDAQ/SCM) under the
symbol SBCO.

     The table below sets forth the high and low bid prices for the Company's
common stock for the periods presented.



<TABLE>
<CAPTION>
                                1996                                   1995
                 ----------------------------------     ---------------------------------
QUARTER           1ST     2ND      3RD       4TH          1st      2nd      3rd       4th
<S>              <C>     <C>      <C>       <C>           <C>      <C>     <C>        <C>
Low bid          $19.00  $19.00   $20.25   $20.50       $16.00    $16.00   $17.50  $17.80
High bid          21.00   20.00    20.50    22.75        16.00     17.00    17.80   20.00
Dividends paid
   per common
   share            .10     .12      .13      .15         .065       .10      .10     .10
                 ======  ======   ======   ======       ======    ======   ======  ======
</TABLE>


     The market price of the Company's common stock on March 7, 1997 was $23.50
bid, $28.50 asked.  The approximate number of shareholders of the common stock
of  the Company as of March 8, 1997 was 446.


FINANCIAL REPORT
     A copy of the Company's 1996 Annual Report on Form 10-K as filed with the
Securities and Exchange Commission, including all exhibits and financial
statements thereto, is available without charge to shareholders on written
request to Joseph W. Pope, Senior Vice President and Chief Financial Officer,
Southside Bancshares Corp., 3606 Gravois Avenue, St. Louis, Missouri 63116.


ANNUAL MEETING OF SHAREHOLDERS
     The Annual Meeting of Shareholders of Southside Bancshares Corp. will be
held at 2:00 p.m. on April 27, 1997 at South Side National Bank's Lansdowne
facility, which is located at 4666 Lansdowne, St. Louis, Missouri.

     The Company's bylaws require that notice of shareholder nominations for
directors at the Company's Annual Meeting of Shareholders must be received by
the Secretary of the Company not less than 75 days prior to the date of the
Annual Meeting.


TRANSFER AGENT AND STOCK LISTING
     The Company's transfer agent is Boatmen's Trust Company, 510 Locust
Street, St. Louis, Missouri  63101, (314) 466-1359 or (800) 456-9852.

     The stock is traded on the NASDAQ SmallCap Market under the symbol SBCO.

                                      25

<PAGE>   27




                           SOUTHSIDE BANCSHARES CORP.
                              3606 Gravois Avenue
                              St. Louis, MO  63116
                                 (314) 776-7000

                    STATEMENT OF MANAGEMENT'S RESPONSIBILITY
                            FOR FINANCIAL STATEMENTS

                                 March 7, 1997




The management of Southside Bancshares Corp. is responsible for the preparation
and integrity of all information contained in the accompanying consolidated
financial statements.  The consolidated financial statements have been prepared
in conformity with generally accepted accounting principles appropriate in the
circumstances.  In preparing the consolidated financial statements, management
makes informed judgments and estimates.

To help meet this responsibility, the Company maintains a system of internal
control that is reviewed and revised, as necessary, in view of the results of
internal and independent audits, management recommendations, changes in the
Company's business, and other conditions that come to management's attention.
Management believes that the Company's system, taken as a whole, provides
reasonable assurance that (1) transactions are executed in accordance with
management's general or specific authorization, (2) transactions are recorded
as necessary to permit preparation of consolidated financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets, (3) access to assets is permitted only in accordance
with management's general or specific authorization, and (4) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

Management also seeks to assure the objectivity and integrity of the Company's
financial data by careful selection of managers, an internal audit function,
and organizational arrangements that provide an appropriate division of
responsibility.

The Company's consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent certified public accountants.  Their Independent
Auditors' Report, which is based on an audit made in accordance with generally
accepted auditing standards, expresses an opinion as to the fair presentation
of the consolidated financial statements.  In performing their audit, KPMG Peat
Marwick LLP considers the Company's internal control to the extent they deem
necessary in order to issue their opinion on the consolidated financial
statements.

The Audit Committee of the Board of Directors is composed solely of directors
who are not employees of the Company.  The Committee meets periodically and
privately with the independent auditors, the internal auditors, and the
financial officers of the Company to review matters relating to the quality of
the financial reporting of the Company, the related internal controls, and the
scope and results of audit examinations.  It is also responsible for
recommending the appointment of the Company's independent auditors, subject to
shareholder approval.


Thomas M. Teschner                               Joseph W. Pope
President and Chief Executive Officer            Senior Vice President and
                                                 Chief Financial Officer




                                      26


<PAGE>   28

[KPMG PEAT MARWICK LLP LOGO]


                          INDEPENDENT AUDITORS' REPORT

The Board of  Directors and Shareholders
Southside Bancshares Corp.:

     We have audited the accompanying consolidated balance sheets of Southside
Bancshares Corp. and subsidiaries as of  December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1996.  These
consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe our audits provide a reasonable basis for
our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Southside
Bancshares Corp. and subsidiaries as of December 31, 1996 and 1995, and the
results of  their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.



St. Louis, Missouri
March 7, 1997

                                      27

<PAGE>   29




                  SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
                   (dollars in thousands, except share data)





<TABLE>
<CAPTION>
                               ASSETS                                   1996      1995
                                                                        ----      ----
<S>                                                                   <C>       <C>

Cash and due from banks ............................................  $ 17,156  $ 16,912
Short-term investments .............................................    13,500    19,118
Investments in debt securities:
   Available for sale, at market value .............................    66,650    50,152
   Held to maturity, at amortized cost (approximate
     market value of $121,377 in 1996 and $110,494 in 1995) ........   120,644   109,622
                                                                      --------  --------
         Total investments in debt securities ......................   187,294   159,774
                                                                      --------  --------
Loans, net of unearned discount ....................................   294,463   303,824
   Less allowance for possible loan losses .........................    (5,602)   (5,635)
                                                                      --------  --------
         Loans, net ................................................   288,861   298,189
                                                                      --------  --------
Bank premises and equipment ........................................    10,785    10,777
Other assets .......................................................    10,311     8,138
                                                                      --------  --------
         TOTAL ASSETS ..............................................  $527,907  $512,908
                                                                      ========  ========

           LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
   Noninterest-bearing .............................................  $ 58,046  $ 60,999
   Interest-bearing ................................................   409,230   396,568
                                                                      --------  --------
         Total deposits ............................................   467,276   457,567
Short-term borrowings ..............................................     1,623       779
ESOP debt.... ......................................................     1,779     2,987
Other liabilities ..................................................     4,388     4,275
                                                                      --------  --------
         Total liabilities .........................................   475,066   465,608
                                                                      --------  --------
Commitments and contingent liabilities
Shareholders' equity:
   Cumulative preferred stock, no par value, 1,000,000 shares
     authorized and unissued .......................................      -          -
   Common stock, $1 par value, 5,000,000 shares authorized,
     2,859,010 shares issued and outstanding .......................     2,859     2,859
   Surplus. ........................................................     5,819     5,766
   Retained earnings ...............................................    46,448    41,655
   Unearned ESOP shares ............................................    (1,581)   (2,688)
   Treasury stock, at cost, 22,340 and 9,360 shares, respectively ..      (450)     (167)
   Net unrealized losses on available for sale securities ..........      (254)     (125)
                                                                      --------  --------
         Total shareholders' equity ................................    52,841    47,300
                                                                      --------  --------
         TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................  $527,907  $512,908
                                                                      ========  ========
</TABLE>



See  accompanying notes to consolidated financial statements.

                                      28
<PAGE>   30




                  SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
                 YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
                   (dollars in thousands, except share data)




<TABLE>
<CAPTION>
                                                                          1996       1995       1994
                                                                          ----       ----       ----
<S>                                                                       <C>        <C>        <C>
Interest income:
    Interest and fees on loans .....................................  $   26,691   $  27,030   $  24,164
    Interest on investments in debt securities available for sale:
      Taxable ......................................................       3,701       3,238       3,317
      Exempt from Federal income taxes .............................          32          41          44
    Interest on investments in debt securities held to maturity:           
      Taxable ......................................................       5,216       4,937       5,167
      Exempt from Federal income taxes .............................       1,234       1,229       1,190
    Interest on short-term investments .............................         994         788         501
                                                                      ----------   ---------  ----------
            TOTAL INTEREST INCOME ..................................      37,868      37,263      34,383
                                                                      ----------   ---------  ----------
Interest expense:
    Interest on deposits ...........................................      17,264      16,853      14,094
    Interest on short-term borrowings ..............................          92         173         255
    Interest on ESOP debt ..........................................         170         190           -
    Interest on subordinated capital notes .........................           -         119         404
                                                                      ----------   ---------  ----------
            TOTAL INTEREST EXPENSE .................................      17,526      17,335      14,753
                                                                      ----------   ---------  ----------
            NET INTEREST INCOME ....................................      20,342      19,928      19,630
Provision for possible loan losses .................................          60          70         193
                                                                      ----------   ---------  ----------
            NET INTEREST INCOME AFTER PROVISION                           
                FOR POSSIBLE LOAN LOSSES ...........................      20,282      19,858      19,437
                                                                      ----------   ---------  ----------
Noninterest income:
    Trust department ...............................................         918         940         872
    Service charges on deposit accounts ............................       1,256       1,230       1,271
    Net gains (losses) on sales of other real estate owned and other
      foreclosed property ..........................................          29         (88)        226
    Settlement of  litigation ......................................           -       1,400           -
    Gain on sale of Bay-Hermann-Berger Bank ........................           -         825           -
    Other ..........................................................         722         730         504
                                                                      ----------   ---------  ----------
            TOTAL NONINTEREST INCOME ...............................       2,925       5,037       2,873
                                                                      ----------   ---------  ----------
Noninterest expense:
    Salaries and employee benefits .................................       7,463       6,940       7,588
    Net occupancy and equipment expense ............................       2,328       2,067       1,786
    Data processing ................................................         467         838         581
    Federal Deposit Insurance Corporation assessment ...............         138         986       1,207
    Attorney fees ..................................................         376         496         463
    Other ..........................................................       4,100       4,276       3,866
                                                                      ----------   ---------  ----------
            TOTAL NONINTEREST EXPENSE ..............................      14,872      15,603      15,491
                                                                      ----------   ---------  ----------
            INCOME BEFORE FEDERAL INCOME
                TAX EXPENSE ........................................       8,335       9,292       6,819
Federal income tax expense .........................................       2,177       2,558       1,805
                                                                      ----------   ---------  ----------
            NET INCOME .............................................  $    6,158   $   6,734  $    5,014
                                                                      ==========   =========  ==========
SHARE DATA:
    Earnings per common  share .....................................  $     2.27   $    2.55  $     1.93
                                                                      ==========   =========  ==========
    Dividends paid per common share ................................  $      .50   $    .365  $      .18
                                                                      ===========  =========  ==========
    Average common shares outstanding ..............................    2,712,775  2,643,890   2,591,440
                                                                      ===========  =========  ==========
</TABLE>
                                      29

See accompanying notes to consolidated financial statements.


<PAGE>   31







                  SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
                   (dollars in thousands, except share data)





<TABLE>
<CAPTION>
                                                                                          NET
                                                                                        UNREALIZED
                                                                                         GAINS
                                                                                       (LOSSES) ON
                                                                  UNEARNED              AVAILABLE
                                       COMMON           RETAINED    ESOP    TREASURY    FOR SALE
                                       STOCK   SURPLUS  EARNINGS   SHARES    STOCK     SECURITIES       TOTAL
                                       ------  -------  --------  --------  --------  -------------     -----
<S>                                    <C>     <C>      <C>        <C>       <C>       <C>             <C>
BALANCE AT DECEMBER 31, 1993 ........  $2,591   $1,698   $31,343     $  -     $  -       $   470     $ 36,102
Net income ..........................       -        -     5,014        -        -             -        5,014
Cash dividends paid ($.180 per
    share) ..........................       -        -      (467)       -        -             -         (467)
Change in net unrealized
    losses on available for sale
    securities, net of  tax effect ..       -        -         -        -        -        (2,647)      (2,647)
                                       ------  -------  --------  --------   -----      --------     --------
BALANCE AT DECEMBER 31, 1994 ........   2,591    1,698    35,890        -        -        (2,177)      38,002
Net income ..........................       -        -     6,734        -        -             -        6,734
Cash dividends paid ($.365 per                                        
    share) ..........................       -        -     (969)        -        -             -         (969)
Issued 266,680 common shares ........     267    4,000         -        -        -             -        4,267
Exercise of stock options
    (890 shares) ....................       1       11         -        -        -             -           12
Purchase of 186,670 common
    shares by ESOP ..................       -        -         -   (2,987)       -             -       (2,987)
Allocation of 18,670 shares to
    ESOP participants ...............       -       57         -      299        -             -          356
Purchase of 9,360 common shares
    for treasury ....................       -        -         -        -     (167)            -         (167)
Change in net unrealized
    losses on available for sale
    securities, net of  tax effect ..       -        -         -        -        -         2,052        2,052
                                       ------  -------  --------  --------  ------      --------     --------
BALANCE AT DECEMBER 31, 1995 ........   2,859    5,766    41,655   (2,688)    (167)         (125)      47,300
Net income ..........................       -        -     6,158        -        -             -        6,158
Cash dividends paid ($.50 per
    share) ..........................       -        -    (1,365)       -        -             -       (1,365)
Allocation of 12,354 shares to
    ESOP participants ...............       -       53         -      198        -             -          251
Purchase of  56,814 shares by ESOP
    participants ....................       -        -         -      909        -             -          909
Purchase of  12,980 common shares
    for treasury ....................       -        -         -        -     (283)            -         (283)
Change in net unrealized
    losses on available for sale
    securities, net of tax effect ...       -        -         -        -        -          (129)        (129)
                                       ------  -------  --------  -------  -------      --------     --------
BALANCE AT DECEMBER 31, 1996 ........  $2,859   $5,819  $ 46,448  $(1,581)   $(450)     $   (254)    $ 52,841
                                       ======  =======  ========  =======  =======      ========     ========
</TABLE>



See accompanying notes to consolidated financial statements.

                                       30

<PAGE>   32




                  SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                 YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

                                 (in thousands)



<TABLE>
<CAPTION>
                                                                             1996      1995      1994
                                                                           --------  --------  --------
<S>                                                                        <C>       <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income ...........................................................  $  6,158  $  6,734  $  5,014
   Adjustments to reconcile net income to net cash provided by
      operating activities:
         Depreciation and amortization ..................................     1,920     1,877     2,138
         Provision for possible loan losses .............................        60        70       193
         Provision for deferred income taxes ............................        50       395       565
         Net losses (gains) on sales of other real estate owned and
            other foreclosed property ...................................       (29)       88      (226)
         Gain on sale of Bay-Hermann-Berger .............................         -      (825)        -
         Increase (decrease) in income taxes payable ....................      (381)      571       194
         Decrease (increase) in accrued interest receivable .............       118       111      (237)
         Increase in accrued interest payable ...........................        10       364        37
         ESOP compensation expense ......................................       251       356         -
         Other operating activities, net ................................      (495)     (183)    2,091
                                                                           --------  --------  --------
             Total adjustments ..........................................     1,504     2,824     4,755
                                                                           --------  --------  --------
             NET CASH PROVIDED BY OPERATING ACTIVITIES ..................     7,662     9,558     9,769
                                                                           --------  --------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Net decrease (increase) in short-term investments ....................     5,618    (9,271)    8,553
   Proceeds from maturities of and principal payments on debt securities:
      Available for sale ................................................     7,984     4,636    14,792
      Held to maturity ..................................................    37,260    23,455    30,679
   Purchases of  debt securities:.
      Available for sale ................................................   (24,729)   (4,700)  (14,636)
      Held to maturity ..................................................   (48,720)  (18,462)  (44,896)
   Purchase of life insurance ...........................................    (1,250)        -         -
   Net decrease (increase) in loans .....................................     7,083   (17,266)    4,027
   Recoveries of loans previously charged off ...........................     1,126       922       935
   Purchases of bank premises and equipment .............................    (1,194)   (2,344)   (1,364)
   Proceeds from sales of other real estate owned .......................       798     1,774     2,582
   Proceeds from sale of Bay-Hermann-Berger, net of cash transferred ....         -     2,213         -
                                                                           --------  --------  --------
             NET CASH PROVIDED BY (USED IN) INVESTING
                 ACTIVITIES .............................................   (16,024)  (19,043)      672
                                                                           --------  --------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net decrease in demand and savings deposits ..........................    (1,122)  (14,002)  (13,359)
   Net increase (decrease) in time deposits .............................    10,831    25,153    (2,856)
   Net increase (decrease) in short-term borrowings .....................       844      (138)     (180)
   Payments for ESOP debt ...............................................      (299)        -         -
   Payments for maturing long-term debt .................................         -    (2,250)     (120)
   Payments for subordinated capital notes ..............................         -    (4,190)        -
   Proceeds from issuance of common stock ...............................         -     4,279         -
   Payments to acquire treasury stock ...................................      (283)     (167)        -
   Cash dividends paid ..................................................    (1,365)     (969)     (467)
                                                                           --------  --------  --------
             NET CASH PROVIDED BY (USED IN) FINANCING
                 ACTIVITIES .............................................     8,606     7,716   (16,982)
                                                                           --------  --------  --------
             NET INCREASE (DECREASE) IN CASH AND CASH
                 EQUIVALENTS ............................................       244    (1,769)   (6,541)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............................    16,912    18,681    25,222
                                                                           --------  --------  --------
CASH AND CASH EQUIVALENTS, END OF YEAR ..................................  $ 17,156  $ 16,912  $ 18,681
                                                                           ========  ========  ========
Supplemental disclosures of cash flow information:
   Cash paid during the year for:
      Interest on deposits and borrowings ...............................  $ 17,516  $ 16,971  $ 14,716
      Income taxes ......................................................     2,497     2,026     1,000
                                                                           ========  ========  ========
   Noncash transactions:
      Transfers to other real estate owned in settlement of loans .......  $  1,059  $    989  $    784
      Loans made to facilitate the sale of other real estate owned ......         -       388        91
      Guarantee of ESOP debt ............................................         -     2,987         -
                                                                           ========  ========  ========
</TABLE>

See  accompanying notes to consolidated financial statements.

                                       31

<PAGE>   33










SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994





NOTE 1 -- SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

     Southside Bancshares Corp. and its banking subsidiaries (the Company)
provide a full range of banking services to individual and corporate customers
throughout the eastern portions of Missouri, including the City of St. Louis
and the counties of Franklin, Jefferson, St. Charles, St. Francois, Ste.
Genevieve, St. Louis, and Washington, through its four subsidiary banks.  In
February 1995 the Company sold its wholly owned subsidiary, Bay-Hermann-Berger
Bank, which accounted for less than 5% of total assets as of the date of sale,
in a cash transaction with an unaffiliated financial institution.

     The Company is subject to competition from other financial and
nonfinancial institutions providing financial products in these Missouri
markets.  Additionally, the Company is subject to the regulations of certain
federal and state agencies and undergoes periodic examinations by those
regulatory agencies.

     The accounting and reporting policies of the Company conform, in all
material respects, to generally accepted accounting principles within the
banking industry.  The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions, including the determination of the allowance
for possible loan losses, that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period.  Actual results could differ from those
estimates.

     The more significant of the Company's accounting policies are set forth
below:

CONSOLIDATION
     The consolidated financial statements include the accounts of the Company
and its banking subsidiaries, after elimination of all significant intercompany
accounts and transactions.

SHORT-TERM INVESTMENTS
     Short-term investments primarily represent federal funds sold.

INVESTMENTS IN DEBT SECURITIES
     At the time of purchase, debt securities are classified into one of three
categories:  trading, available for sale, or held to maturity.  The Company has
not and does not intend to hold any trading securities.  Held to maturity
securities are those securities for which the Company has the ability and
intent to hold until maturity.  All other securities not included in held to
maturity are classified as available for sale.

     Available for sale securities are recorded at fair value.  Held to
maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts.  Unrealized gains and
losses, net of the related tax effect, on available for sale securities are
excluded from earnings and reported as a separate component of shareholders'
equity until realized.  A decline in the market value of any available for sale
or held to maturity security below cost that is deemed other than temporary
results in a charge to earnings and the establishment of a new cost basis for
the security.

     Premiums and discounts are amortized or accreted over the lives of the
respective securities as an adjustment to yield using the interest method.
Dividend and interest income are recognized when earned.  Realized gains and
losses for securities classified as available for sale and held to maturity are
included in earnings and are derived using the specific-identification method
for determining the cost of securities sold.

INTEREST ON LOANS
     Interest on commercial, real estate mortgage, and installment loans is
credited to income based on the principal amount outstanding.  Loans are placed
on a nonaccrual basis when interest is past due 90 days or more and when, in
the opinion of management, full collection of principal or interest is
unlikely.  At the time a loan is placed on nonaccrual status, interest accrued
in the current year but not collected is charged against current income, with
any prior year interest accrued and unpaid charged against the allowance for
possible loan losses.  Subsequent interest payments received on such loans are
applied to principal if there is any doubt as to the collectibility of such
principal; otherwise, such receipts are recorded as interest



                                      32
<PAGE>   34

SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)


income.  Loans are returned to accrual status only when borrowers have brought
all past-due principal and interest payments current and, in the opinion of
management, the borrowers have demonstrated the ability to make future payments
of principal and interest as scheduled.

     Loan origination fees and costs, which management considers to be
insignificant, are recognized as incurred.

ALLOWANCE FOR POSSIBLE LOAN LOSSES
     The allowance for possible loan losses is increased by provisions charged
to expense and reduced by loans charged off, net of recoveries.  The allowance
for possible loan losses is maintained at a level considered adequate to
provide for potential loan losses based on management's evaluation of current
economic conditions, changes in the character and size of the loan portfolio,
portfolio risk characteristics, prior loss experience, and results of periodic
credit reviews of the loan portfolio.

     Management believes the allowance for possible loan losses is adequate to
absorb losses in the loan portfolio.  While management uses available
information to recognize loan losses, future additions to the allowance may be
necessary based on changes in economic conditions.  Additionally, regulatory
agencies, as an integral part of their examination process, periodically review
the subsidiary banks' allowances for possible loan losses.  Such agencies may
require the subsidiary banks to increase their allowances for possible loan
losses based on their judgments and interpretations about information available
to them at the time of their examinations.

     A loan is considered impaired when it is probable a creditor will be
unable to collect all amounts due, both principal and interest, according to
the contractual terms of the loan agreement.  When measuring impairment, the
expected future cash flows of an impaired loan must be discounted at the loan's
effective interest rate.  Alternatively, impairment can be measured by
reference to an observable market price, if one exists, or the fair value of
the collateral for a collateral-dependent loan.  Regardless of the historical
method used, the Company measures impairment based on the fair value of the
collateral when the creditor has determined foreclosure is probable.
Additionally, impairment of a restructured loan is measured by discounting the
total expected future cash flows at the loan's effective rate of interest as
stated in the original loan agreement.

BANK PREMISES AND EQUIPMENT
     Bank premises and equipment are stated at cost, less accumulated
depreciation and amortization.  Depreciation and amortization are computed
using the straight-line method over periods of 10 to 40 years for buildings and 
3 to 15 years for furniture and equipment.  Rents collected under lease 
agreements for space in subsidiary bank buildings are credited to occupancy 
expense in the noninterest expenses category.

OTHER REAL ESTATE OWNED
     Other real estate owned, included in other assets in the accompanying
consolidated balance sheets, represents property acquired through foreclosure
or deeded to the Company's banking subsidiaries in lieu of foreclosure on real
estate loans for which the borrowers have defaulted as to payment of principal
and interest.  Other real estate owned is recorded on an individual asset basis
at the lower of fair value minus estimated selling costs, or fair value at the
date of acquisition (cost).  If the fair value minus estimated selling costs is
less than cost, the deficiency is recorded in a valuation reserve account
through a charge against income.  Subsequent increases in the fair value minus
estimated selling costs are recorded through a reversal of the valuation
reserve, but not below zero.

     Gains and losses resulting from the sale of other real estate owned are
credited or charged to current period earnings.  Costs of maintaining and
operating other real estate owned are expensed as incurred and expenditures to
complete or improve other real estate owned properties are capitalized if the
expenditures are expected to be recovered upon ultimate sale of the property.

INTANGIBLE ASSETS
     Intangible assets, consisting primarily of goodwill and a core deposit
base premium, are included in other assets in the consolidated balance sheets.
Goodwill, the excess of cost over the fair value of net assets acquired in
business combinations accounted for as purchases, is amortized using the
straight-line method over 15 years.  The core deposit base premium is being
amortized over 10 years, the estimated life of the deposit base acquired.

INCOME TAXES
     The Company and its subsidiary banks file consolidated income tax returns.
Provisions for income taxes are based on the tax effects of transactions which
are included in the determination of pretax accounting income.

     Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.  Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected

                                      33

<PAGE>   35

SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)


to be recovered or settled.  The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.

TRUST ASSETS
     Assets held by the Company's national banking subsidiary in a fiduciary or
agency capacity for customers are not included in the consolidated financial
statements, as such items are not assets of the Company or its subsidiaries.
Trust department operating expense, included in noninterest expenses on the
consolidated statements of income, excludes salaries and employee benefits of
trust department personnel.

STOCK OPTION PLAN
     On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123), which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant.  Alternatively,
SFAS 123 also allows entities to continue to apply the provision of APB Opinion
No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and later years as if
the fair value based method defined in SFAS 123 had been applied.  The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS 123.

EARNINGS PER COMMON SHARE
     Earnings per common share are calculated by dividing net income by the
weighted average number of shares of common stock outstanding during each year.
Unexercised stock options are not included as common stock equivalents in the
calculation of earnings per share, because they have no material dilutive
effect.

CONSOLIDATED STATEMENTS OF CASH FLOWS
     For purposes of the consolidated statements of cash flows, the Company
considers cash and due from banks to be cash and cash equivalents.

IMPAIRMENT OF LONG-LIVED ASSETS AND
LONG-LIVED ASSETS TO BE DISPOSED OF
     The Company adopted the provisions of SFAS No. 121, Accounting for the 
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996, which requires long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flow expected
to be generated by the asset.  If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets.  Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.  Adoption of this statement did not have a material impact on
the Company's financial position, results of operations, or liquidity.

TRANSFERS AND SERVICING FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES
     In June 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 125, Accounting for Transfers and Servicing Financial Assets and
Extinguishment of Liabilities (SFAS 125). SFAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities based on the consistent application of a
financial-components approach that focuses on control.  It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings.  SFAS 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996,
and is to be applied prospectively.  Earlier or retroactive application is not
permitted.  Management of the Company does not expect that adoption of SFAS 125
will have a material impact on the Company's financial position, results of
operations, or liquidity.

RECLASSIFICATIONS
     Certain prior year information has been reclassified to conform with the
current year presentation.

NOTE 2 -- INVESTMENTS IN DEBT
SECURITIES
     The amortized cost and estimated market values of debt securities
classified as available for sale at December 31, 1996  and 1995 are as follows:


<TABLE>
<CAPTION>
                                         (in thousands)
                                              1996
                               ------------------------------------
                                        GROSS UNREALIZED  
                               AMOR-       HOLDING        ESTIMATED  
                               TIZED    ----------------    MARKET 
                               COST     GAINS    LOSSES     VALUE
                               -------  ------   -------  ---------
<S>                           <C>      <C>     <C>        <C>
            U.S. Treasury
               securities and
               obligations of
               U.S. Govern-
               ment agencies
               and corpora-
               tions           $18,861  $  51    $ (67)     $18,845
            Obligations of
               states and
               political
               subdivisions        445     6         -          451
            Mortgage-backed
               securities       46,444   132      (501)      46,075
            Other securities     1,279     -         -        1,279
                               -------  ----     -----     --------
                               $67,029  $189     $(568)     $66,650
                               =======  ====     =====     ========


</TABLE>




                                       34

<PAGE>   36
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)


<TABLE>
<CAPTION>
                                    (in thousands)
                                         1995
                        --------------------------------------
                                  Gross Unrealized  
                         Amor-        Holding        Estimated
                         tized   ------------------   Market
                         Cost     Gains     Losses     Value
                        -------  --------  --------  ---------
<S>                      <C>        <C>      <C>      <C>                
     U.S. Treasury
        securities and
        obligations of
        U.S. Govern-
        ment agencies
        and corpora-
        tions           $ 7,569      $ 67    $ (27)    $ 7,609
     Obligations of
        states and
        political
        subdivisions        530        13         -        543
     Mortgage-backed
        securities       40,981       205      (448)    40,738
     Other securities     1,260         2         -      1,262
                        -------  --------  --------  ---------
                        $50,340      $287    $ (475)   $50,152
                        =======  ========  ========  =========
</TABLE>

     The amortized cost and estimated market value of debt securities
classified as available for sale at December  31, 1996, by contractual
maturity, are shown below.  Expected maturities may differ from contractual
maturities because borrowers have the right to call or prepay obligations with
or without prepayment penalties.

<TABLE>
<CAPTION>
                                     (in thousands)
                                    AMOR-   ESTIMATED
                                   TIZED     MARKET
                                    COST      VALUE
                                   -------  ---------
<S>                                <C>        <C>
     Due in one year or less       $ 4,844    $ 4,859
     Due after one year through
       five years                   15,225     15,208
     Due after five years through
       ten years                       416        408
     Due after ten years               100        100
     Mortgage-backed securities     46,444     46,075
                                   -------  ---------
                                   $67,029    $66,650
                                   =======  =========
</TABLE>

     The amortized cost and estimated market values of debt securities
classified as held to maturity at December 31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                     (in thousands)
                                           1996
                           -------------------------------------
                                    GROSS UNREALIZED 
                           AMOR-        HOLDING       ESTIMATED 
                           TIZED     ---------------    MARKET
                           COST      GAINS    LOSSES    VALUE
                           --------  ------   ------- ---------
<S>                        <C>       <C>       <C>     <C>
     U.S. Treasury
        securities and
        obligations of
        U.S. Govern-
        ment agencies
        and corpora-
        tions              $ 92,469  $  354    $(427)  $ 92,396
     Obligations of                   
        states and
        political        
        subdivisions         21,709     774      (22)    22,461
     Mortgage-backed
        securities            6,166      73      (19)     6,220
     Other debt
        securities              300       -        -        300
                           --------  ------   ------   --------
                           $120,644  $1,201    $(468)  $121,377
                           ========  ======   ======   ========

<CAPTION>
                                    (in thousands)
                                         1995
                        ---------------------------------------
                                  Gross Unrealized   
                         Amor-         Holding       Estimated 
                         tized    ------------------   Market
                          Cost     Gains     Losses     Value
                        --------  --------  --------  ---------
<S>                        <C>       <C>       <C>     <C>
     U.S. Treasury
        securities and
        obligations of
        U.S. Govern-
        ment agencies
        and corpora-
        tions           $ 83,086    $  433    $(580)   $ 82,939
     Obligations of
        states and
        political
        subdivisions      21,875       973      (26)     22,822
     Mortgage-backed
        securities         4,190        72        -       4,262
     Other debt                                         
        securities           471         -        -         471
                        --------    ------    -----    --------
                        $109,622    $1,478    $(606)   $110,494
                        ========    ======    =====    ========
</TABLE>


     The amortized cost and estimated market value of debt securities
classified as held to maturity at December 31, 1996, by contractual maturity,
are shown below.  Expected maturities may differ from contractual maturities
because borrowers have the right to call or prepay obligations with or without
prepayment penalties.

<TABLE>
<CAPTION>
                                   (in thousands)
                                   AMOR-     ESTIMATED
                                   TIZED     MARKET
                                   COST      VALUE
                                   --------  ---------
<S>                                <C>        <C>
     Due in one year or less       $ 24,428   $ 24,567
     Due after one year through
        five years                   68,307     68,509
     Due after five years through
        ten years                    20,422     20,661
     Due after ten years              1,321      1,421
     Mortgage-backed securities       6,166      6,219
                                   --------  ---------
                                   $120,644   $121,377
                                   ========  =========
</TABLE>

     There were no sales of debt securities during 1996, 1995, and 1994.

     The carrying value of securities pledged to secure deposits and
collateralize borrowings amounted to $56,844,000 and $54,003,000 at December
31, 1996 and 1995, respectively.

NOTE 3 -- LOANS
     Loans, by category, at December 31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                    (in thousands)
                                    1996      1995
                                    ----      ----
<S>                              <C>       <C>
     Commercial, financial,
        and agricultural         $ 62,016  $ 62,214
     Real estate - commercial      82,045    88,321
     Real estate - construction    26,067    15,510
     Real estate - residential     96,039   102,418
     Consumer                      17,304    17,626
     Industrial revenue bonds       6,373     7,789
     Other                          4,619     9,946
                                 --------  --------
                 Total loans      294,463   303,824
     Allowance for loan losses      5,602     5,635
                                 --------  --------
                 Loans, net      $288,861  $298,189
                                 ========  ========
</TABLE>

                                      35
<PAGE>   37
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)


     The Company's banking subsidiaries grant agricultural, commercial,
residential, and consumer loans to customers throughout their service area,
which consists primarily of the eastern portion of Missouri, including the City
of St. Louis and the counties of Franklin, Jefferson, St. Charles, St. Francois,
St. Louis, Ste. Genevieve, and Washington.  The Company has a diversified loan
portfolio, with no particular concentration of credit in any one economic
sector in this service area; however, a substantial portion of the portfolio is
concentrated in and secured by real estate.  The ability of  the Company's
borrowers to honor their contractual obligations is dependent upon the local
economies and their effect on the real estate market.

     The Company's investment in industrial revenue  bonds are classified as
held to maturity.  The estimated market value of these instruments was
$4,649,000 and $7,910,000 at December 31, 1996 and 1995, respectively.

     Transactions in the allowance for possible loan losses for the years ended
December 31, 1996, 1995, and 1994 were as follows:

<TABLE>
<CAPTION>
               <S>                        <C>      <C>      <C>
                                             (in thousands)
                                          1996     1995     1994
                                          ----     ----     ----
              Balance at beginning of
                 year                    $ 5,635  $ 7,144  $ 8,334
              Provision charged
                 to expense                   60       70      193
              Adjustment due to sale of
                 Bay-Hermann-Berger
                 Bank                          -     (327)       -
              Loans charged off           (1,219)  (2,174)  (2,318)
              Recoveries                   1,126      922      935
                                         -------  -------  -------
              Balance at end of year     $ 5,602  $ 5,635  $ 7,144
                                         =======  =======  =======
</TABLE>


     A summary of impaired loans, including nonaccrual loans, at December 31,
1996 and 1995 follows:

                                 

<TABLE>
<CAPTION>
                                                 (in thousands)
                                                  1996    1995
                                                 ------  ------
                <S>                              <C>     <C>

                Nonaccrual loans                 $1,037  $1,811
                Impaired loans continuing
                   to accrue interest             3,528   4,078
                                                 ------  ------
                           Total impaired loans  $4,565  $5,889
                                                 ======  ======

                Allowance for losses on
                   impaired loans                $1,759  $  761
                Impaired loans with no related
                   allowance for loan losses        951   4,078
                Average balance of impaired
                   loans during the year          6,821   5,569
                                                 ======  ======
</TABLE>


     As of January 1, 1995, the Company had impaired loans of $5,248,000 for
which specific reserves of $733,000 were allocated.

     If interest on nonaccrual loans, including amounts computed on principal
balances charged off on such loans, had been accrued, such income would have
been $133,000 and $160,000 for the years ended December 31, 1996 and 1995,
respectively.  The amount recognized as interest income on nonaccrual loans was
$27,000 and $66,000 for the years ended December 31, 1996 and 1995,
respectively.

     The amount recognized as interest income on other impaired loans continuing
to accrue interest was $277,000 and $365,000 for the years ended December 31,
1996 and 1995, respectively.

     There were no restructured loans at December 31, 1996 and 1995.

     Aggregate loan transactions involving executive officers and directors of
the Company and its subsidiaries for the year ended December 31, 1996 are
summarized below (in thousands).  This summary excludes all loans to executive
officers and directors whose indebtedness to the Company and its subsidiaries
did not exceed $60,000 at any time during 1996.

<TABLE>
                 <S>                                    <C>
                 Aggregate balance, December 31, 1995   $ 17,179
                 New loans and advances                   13,885
                 Repayments                              (19,793)
                 Other changes                               813
                                                        --------
                 Aggregate balance, December 31, 1996   $ 12,084
                                                        ========
</TABLE>


     Other changes during 1996 represent existing loans to new individuals 
considered to be executive officers or directors and/or individuals who have
resigned from such capacities during the year, net.  All such loans to
executive officers and directors were made in the normal course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other persons, and
did not involve more than the normal risk of collectibility.  There were no
loans involving executive officers and directors which were on nonaccrual
status or past due 90 days and still accruing interest as of December 31, 1996.

NOTE  4 -- BANK PREMISES AND EQUIPMENT
     Bank premises and equipment at December 31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>

                                                (in thousands)
                                              1996           1995
                                              ----           ----  
             <S>                            <C>            <C>
             Land                           $ 2,804        $ 2,008
             Buildings                        9,841          9,909
             Furniture and equipment          6,033          6,108
                                            -------        -------
                                             18,678         18,025
             Less accumulated depreciation
                and amortization              7,893          7,248
                                            -------        -------
                                            $10,785        $10,777
                                            =======        =======
</TABLE>


                                       36
<PAGE>   38
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

     Depreciation and amortization of bank premises and equipment charged to
noninterest expense amounted to $1,167,000, $960,000, and $886,000 for 1996,
1995, and 1994, respectively.

     Rents collected and credited to net occupancy expense of bank premises
amounted to $137,000, $102,000, and $97,000 for 1996, 1995, and 1994,
respectively.

NOTE  5 -- DEPOSITS

     Deposits, by category, at December 31, 1996 and 1995 and the respective
weighted average interest rates paid thereon for the years then ended are as
follows:


<TABLE>
<CAPTION>
                                      (dollars in thousands)
                                  1996                    1995
                            ------------------      -------------------
                                      AVERAGE                    Average
                            AMOUNT     RATE           Amount      Rate
                            ------     ----           ------      ----
<S>                        <C>        <C>           <C>          <C>
Noninterest-bearing      
  demand deposits          $ 58,046     -  %         $ 60,999        -  %
Interest-bearing                                                     
  demand deposits           128,474    3.33           123,624       3.41
Savings deposits             57,115    2.53            60,134       2.62
Time deposits:      
  Under $100,000            174,102    5.40           176,200       5.36
  $100,000 and over          49,539    5.18            36,610       5.40
                           --------    ====          --------       ====
                           $467,276                  $457,567
                           ========                  ========
</TABLE>

     A summary of time deposits as of December 31, 1996 by time remaining until
maturity is as follows:

<TABLE>
<S>                                       <C>
Due in one year or less                   $148,790
Due after one year through two years        47,978
Due after two years through three years     16,292
Due after three years through four years     7,751
Due after four years through five years      2,830
                                          --------
                                          $223,641
                                          ========
</TABLE>

     Interest paid on deposits consists of the following for the years ended
December 31, 1996, 1995, and 1994:

<TABLE>
<CAPTION>
                                  (in thousands)
                           1996         1995         1994
                          -------     -------       -------
<S>                       <C>         <C>          <C>
Interest-bearing
  demand deposits         $ 4,125     $ 4,095      $ 3,409
Savings deposits            1,529       1,685        1,848
Time deposits:
  Under $100,000            9,462       9,491        8,158

  $100,000 and over         2,148       1,582          679
                          -------     -------      -------
                          $17,264     $16,853      $14,094
                          =======     =======      =======
</TABLE>

NOTE  6 -- SHORT-TERM BORROWINGS
     A summary of short-term borrowings at December 31, 1996 and 1995 is as
follows:

<TABLE>
<CAPTION>
                                        (in thousands)
                                       1996         1995
                                       ----         ----
<S>                                     <C>         <C>
Securities sold under agree-
   ments to repurchase                  $1,623      $307
U.S. Treasury tax and loan notes           -         472
                                        ------      ----
                                        $1,623      $779
                                        ======      ====
</TABLE>

     The average balance of securities sold under agreements to repurchase for
1996, 1995, and 1994 was $893,000, $747,000, and $1,121,000.  The maximum
month-end balance of such borrowings for 1996, 1995, and 1994 was $1,249,000,
$1,988,000, and $1,692,000.

NOTE  7 -- ESOP DEBT

     In April 1995, the Company's Employee Stock Ownership Plan borrowed
$2,987,000 from an unaffiliated financial institution, the proceeds of which
were used to purchase 186,670 shares of the Company's common stock.  As
discussed more fully in note 10, the debt is guaranteed by the Company and thus
is reflected on the Company's consolidated balance sheet.  The note is secured
by the remaining 111,186 shares of unreleased and released but unallocated
shares of the Company's common stock.  The debt agreement requires ten equal
annual installment payments.  During 1996, the first installment payment was
made.  In addition, a supplemental principal payment of $909,000 was made for
the purchase and allocation of 56,814 shares of stock for plan participants
under the 401(k) provisions of the plan.  The note bears interest at the prime
rate, which was 8.25% at December 31, 1996.

NOTE  8 -- SUBORDINATED CAPITAL NOTES

     On April 17, 1995, the Company retired, prior to scheduled maturity,
$4,190,000 of 9.65% subordinated capital notes with a stated maturity of
October 23, 1995 (Notes), which represented all of the outstanding Notes.  In
accordance with the provisions of the Notes, the funds necessary to liquidate
the securities were provided through the issuance of capital securities in a
private placement of the Company's common stock.  A total of 266,680 shares of
the Company's $1 par value common stock were issued at $16.00 per share.

                                      37
<PAGE>   39
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE  9 -- FEDERAL INCOME TAXES

     The current and deferred portions of Federal income tax expense for 1996,
1995, and 1994 are as follows:

<TABLE>
<CAPTION>
                                      (in thousands)      
                              1996         1995          1994       
                             ------       -------       -------    
<S>                          <C>          <C>           <C>                    
Current                      $2,127        $2,163        $1,240    
Deferred tax expense             50           395           565    
                             ------        ------        ------    
    Federal income tax                                             
      expense                $2,177        $2,558        $1,805    
                             ======        ======        ======    
</TABLE>

     A reconciliation of reported Federal income tax expense to income tax
expense computed by applying the federal statutory rate of 34% in 1996, 1995,
and 1994 to income before Federal income tax expense is as follows:

<TABLE>
<CAPTION>
                                         (in thousands)
                                 1996         1995          1994
                                 ------       -------       -------
<S>                              <C>          <C>           <C>           
Computed income tax                 
   expense                       $2,834        $3,159        $2,318
Tax-exempt interest income         (674)         (562)         (575)
Other, net                           17           (39)           62
                                 ------        ------        ------
   Federal income tax               
      expense                    $2,177        $2,558        $1,805
                                 ======        ======        ====== 
</TABLE>

     The components of deferred tax assets and liabilities at December 31, 1996
and 1995 are as follows:

<TABLE>
<CAPTION>
                                                    (in thousands)
                                                1996            1995        
                                               -------         -------     
<S>                                            <C>             <C>
Deferred tax assets:                                                       
   Allowance for possible loan losses          $1,905          $1,916     
   Deferred expense                               214             123     
   Write-down of available for sale                                        
     securities                                   123              63     
   Other, net                                      28               -     
                                               ------          ------     
        Total deferred tax assets               2,270           2,102     
                                               ------          ------     
Deferred tax liabilities:                                                  
   Depreciation of premises and                                            
     equipment                                   (390)           (326)     
   Discount on debt securities, net              (111)            (60)     
   Deferred loan fees                            (163)            (84)     
   Other, net                                       -             (36)     
                                               ------          ------     
        Total deferred tax liabilities           (664)           (506)     
                                               ------          ------     
        Net deferred tax assets                $1,606          $1,596     
                                               ======          ======     
</TABLE>

     The Company has not established a valuation allowance for deferred tax
assets as of December 31, 1996 or 1995 due to management's belief that all
criteria for recognition of the assets have been met.

NOTE  10 -- EMPLOYEE BENEFIT PLANS

PENSION
     The Company has a noncontributory pension plan which covers substantially
all of its employees.  The Company accrues and makes contributions designed to
fund normal service costs on a current basis using a projected unit credit cost
method and to amortize unfunded past service costs over a period of 30 years.

     Accumulated plan benefit information, as estimated by the consulting
actuary, and plan net assets determined as of and for the years ended December
31, 1996 and 1995 are as follows:


<TABLE>
<CAPTION>
                                           (in thousands)
                                         1996          1995
                                         ----          ----
<S>                                     <C>           <C>
 Actuarial present value of
    benefit obligations:
       Vested benefit obligations       $  790        $  705
                                        ======        ======
       Accumulated benefit
         obligations                    $  834        $  737
                                        ======        ======
       Projected benefit obligation      1,397         1,246
 Plan assets at fair value                 879           856
                                        ------        ------
 Projected benefit obligation in
    excess of plan assets                 (518)         (390)
 Unrecognized portion of net
    transition obligation                  120           148
 Unrecognized net gain                       -          (102)
                                        ------        ------
 Accrued pension cost                   $ (398)       $ (344)
                                        ======        ======
</TABLE>

<TABLE>
<CAPTION>
                                               (in thousands)
                                          1996       1995    1994
                                          ----       ----    ----
<S>                                        <C>       <C>    <C>
 Net pension cost included the
    following  components:
       Service cost - benefits
         earned during period              $139      $124   $ 142
       Interest cost on projected
         benefit obligation                  87        89     111
       Return on plan assets                (60)      (52)   (103)
       Net amortization and
         deferral                            22        26      20
                                           ----      ----   -----
               Net periodic pen-
                 sion cost                 $188      $187   $ 170
                                           ====      ====   =====

 Assumptions used were as follows:

<CAPTION>
                                          1996       1995    1994
                                          ----       ----    ----
<S>                                        <C>       <C>    <C>
 Discount rate in determining
    benefit obligations                     7.0%      7.0%    7.5%
 Rate of increase in compensa-
    tion levels                             4.5       4.5     5.0
 Expected long-term rate on assets          7.0       7.0     7.5
                                            ===       ===     ===
</TABLE>       
       
ESOP
  The Company's Board of Directors authorized the adoption of an employee
stock ownership plan with 401(k) provisions (ESOP) for substantially all
employees of the Company's subsidiary banks.  Effective
during 1996, the provisions of the Company's 401(k) thrift plan were combined
under the ESOP plan.
       
  In April 1995, the Company leveraged the ESOP plan through a $2,987,000
borrowing from an unaffiliated financial institution, the proceeds of which
were used to purchase 186,670 shares of the Company's common stock.  The
Company now makes annual contributions to the ESOP equal to the ESOP's debt
service less dividends received by the ESOP.  All dividends on unallocated
shares received by the ESOP are used to pay debt service.  As the debt is
repaid, shares are released from collateral and allocated to active employees,
based on the proportion of debt 
       

                                      38
<PAGE>   40
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

service paid in the year.  The Company accounts for its ESOP in accordance with 
Statement of Position 93-6.  Accordingly, the debt of the ESOP is recorded as 
debt and the shares pledged as collateral are reported as unearned ESOP shares
in the consolidated balance sheet.  As shares are released from collateral, the 
Company reports compensation expense equal to the current market price of the 
shares, and the shares become outstanding for earnings-per-share computations.
Dividends on allocated ESOP shares are recorded as a reduction of retained 
earnings; dividends on unallocated ESOP shares are recorded as a reduction of 
debt and accrued interest. ESOP compensation expense was $251,000, $356,000, 
and $230,000 for the years ended December 31, 1996, 1995, and 1994, 
respectively. The ESOP shares as of December 31, 1996 were as follows:

<TABLE>
                 <S>                                 <C>
                 Allocated shares                       377,134
                 Shares released for allocation          12,354
                 Unreleased shares                       98,832
                                                     ----------
                 Total ESOP shares                      488,320
                                                     ==========
                 Fair value of unreleased shares at
                    December 31, 1996                $2,248,000
                                                     ==========
</TABLE>

     In addition, under the 401(k) provisions the ESOP provides for a fifty
percent matching contribution by the Company on employee elective deferral
amounts up to six percent of annual compensation.  The matching contributions
charged to expense for the years 1996, 1995, and 1994 were $99,000, $78,000,
and $94,000, respectively.

STOCK OPTIONS
     The Company maintains a nonqualified stock option plan under which options
to purchase up to 200,000 shares of common stock could be granted to certain
executive officers of the Company and its subsidiary banks.  Options granted
under the plan vest on a pro rata basis over a five-year period and expire at
the end of ten years from the date of grant.  In 1994, 25,000 options were
granted at $11.00 per share.  Of the options granted, 2,400 have been 
exercised, 5,600 have been forfeited, and 17,000 are still outstanding.  There
were no options granted during 1995.  In 1996, 75,000 options were granted at 
$19.00 per share, all of which remain outstanding as of December 31, 1996, and
100,000 options remain available for future grants.

     The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for the stock option
plans.  Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant date for awards in 1996
consistent with the provisions of SFAS 123, the Company's net income and 
earnings per common share would have been the pro forma amounts indicated below:

<TABLE>
                    <S>                          <C>
                    NET INCOME - AS REPORTED     $6,158,000
                    NET INCOME - PRO FORMA        6,115,000
                    EARNINGS PER COMMON SHARE -
                       AS REPORTED                  2.27
                    EARNINGS PER COMMON SHARE -
                       PRO FORMA                    2.25
                                                 ==========
</TABLE>

     Pro forma net income reflects only options granted in 1996. Therefore, the
full impact of calculating compensation cost for stock options under SFAS 123 
is not reflected in the pro forma net income amounts presented above because 
compensation cost is reflected over the options' vesting period of five years 
and compensation cost for options granted prior to January 1, 1996 is not
considered.

     The fair value of each option grant for 1996 is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants:  expected volatility of 30.0%, risk-free
interest rate of 6%, expected life of five years, and an expected dividend
yield of 2.6%.

     The pro forma information is provided for informational purposes only and
is not necessarily indicative of the results of operations that would have
occurred or of the future anticipated results of operations of the Company.

NOTE 11 -- SUPERVISION AND
REGULATION
     The Company's subsidiary banks are required to maintain certain daily
reserve balances on hand in accordance with regulatory requirements.
Restricted funds used to meet regulatory reserve requirements amounted to
$3,131,000 and $3,837,000 at December 31, 1996 and 1995, respectively.

     The Company is registered with and subject to supervision and regulation
by the Board of Governors of the Federal Reserve System pursuant to the Bank
Holding Company Act of 1956 as amended.  The Company is also subject to
periodic reporting requirements and regulation by the Securities and Exchange
Commission.  All subsidiary banks are subject to regulation by the Board of
Governors of the Federal Reserve System and, in addition, they are also members
of and subject to regulation by the FDIC.  The state-chartered subsidiary banks
are subject to supervision and regulation by the Missouri Division of Finance.
The national bank subsidiary is subject to supervision and regulation by the
Office of the Comptroller of the Currency (OCC).


                                      39
<PAGE>   41
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

     The earnings of the subsidiary banks are affected not only by competing
financial institutions and general economic conditions, but also by the
policies of various governmental regulatory authorities and state and federal
laws, particularly as they relate to powers authorized to banks and bank
holding companies.  The Company and all subsidiary banks are also subject to
the provisions of the Community Reinvestment Act.

     Subsidiary bank dividends are the principal source of funds for the
payment of dividends by the Company to its shareholders.  By regulation, the
Company's national banking subsidiary is prohibited from paying dividends in
excess of its current year's net income plus its retained net income from the
preceding two years, unless prior regulatory approval is obtained.  The
subsidiary banks are also required to maintain certain minimum capital ratios,
which further limit their ability to pay dividends to the Company.  At December
31, 1996, $14,845,000 was available for dividends to the Company without
reducing capital of the subsidiary banks below minimum standards.

     The Company's subsidiary banks are subject to various regulatory capital
requirements administered by the federal banking agencies.  Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company's subsidiary banks must meet specific capital
guidelines that involve quantitative measures of the Company's subsidiary
banks' assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices.  The Company's subsidiary banks' capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.

     Quantitative measures established by regulations to ensure capital
adequacy require the Company and its subsidiary banks to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier I capital
(as defined in the regulations) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined).  Management
believes, as of December 31, 1996, the Company and its subsidiary banks meet
all capital adequacy requirements to which they are subject.

     As of the most recent notification from regulatory authorities, the
subsidiary banks were categorized as well capitalized under the regulatory
framework for prompt corrective action.  To be categorized as well capitalized,
the subsidiary banks must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table.  There are no conditions
or events since that notification that management believes have changed the
subsidiary banks' categories.

     The Company and subsidiary banks' actual and required capital amounts and
ratios as of December 31, 1996 are as follows:


<TABLE>
<CAPTION>
                                                                          To Be
                                                                    Well Capitalized
                                                                          Under
                                                                    Prompt Corrective
                                                  For Capital            Action
                                 Actual        Adequacy Purposes       Provisions
                             ---------------  --------------------  -----------------
                             Amount   Ratio    Amount      Ratio     Amount     Ratio
                             ------   -----    ------      -----     ------     -----
<S>                          <C>      <C>       <C>        <C>      <C>       <C>
TOTAL CAPITAL (TO RISK-
   (WEIGHTED ASSETS)
      COMPANY                $56,767   17.88%   $25,400     8.00%   $   -        -  %
      South Side National
          Bank in St. Louis   36,406   18.32     15,897     8.00     19,871    10.00
      State Bank of DeSoto     5,929   18.09      2,621     8.00      3,277    10.00
      Bank of Ste.
          Genevieve            9,752   19.77      3,945     8.00      4,931    10.00
      The Bank of
          St. Charles
          County               4,565   14.57      2,506     8.00      3,133    10.00
TIER I CAPITAL (TO RISK-
   (WEIGHTED ASSETS)
      COMPANY                $52,778   16.62%   $12,700     4.00%   $   -        -  %
      South Side National
          Bank in St. Louis   33,906   17.06      7,949     4.00     11,923     6.00
      State Bank of DeSoto     5,518   16.84      1,311     4.00      1,966     6.00
      Bank of Ste.
          Genevieve            9,133   18.52      1,973     4.00      2,959     6.00
      The Bank of
          St. Charles
          County               4,171   13.31      1,253     4.00      1,880     6.00
TIER I CAPITAL (TO ADJUSTED
   (AVERAGE ASSETS)
      COMPANY                $52,778   10.12%   $15,646     3.00%   $   -        -  %
      South Side National
          Bank in St. Louis   33,906   10.19      9,980     3.00     16,633     5.00
      State Bank of DeSoto     5,518   10.22      1,621     3.00      2,701     5.00
      Bank of Ste.
          Genevieve            9,133   10.52      2,604     3.00      4,340     5.00
      The Bank of
          St. Charles
          County               4,171    9.46      1,323     3.00      2,205     5.00
</TABLE>

NOTE 12 -- CONDENSED FINANCIAL 
INFORMATION OF PARENT COMPANY
     Following are condensed financial statements of Southside Bancshares Corp.
(parent company only) for the periods indicated:

                            CONDENSED BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
                                 (in thousands)

<TABLE>
<CAPTION>
                           ASSETS                1996     1995
                                                -------  -------
               <S>                              <C>      <C>

               Cash                             $   297  $   806
               Investment in subsidiary banks    53,349   49,442
               Other assets                       1,490      299
                                                -------  -------
                      TOTAL ASSETS              $55,136  $50,547
                                                =======  =======

                           LIABILITIES AND
                       SHAREHOLDERS' EQUITY

               ESOP debt                        $ 1,779  $ 2,987
               Other liabilities                    516      260
               Shareholders' equity              52,841   47,300
                                                -------  -------
                      TOTAL LIABILITIES AND
                          SHAREHOLDERS' EQUITY  $55,136  $50,547
                                                =======  =======
</TABLE>



                                      40
<PAGE>   42
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

                         CONDENSED STATEMENTS OF INCOME
                 YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
                                 (in thousands)

<TABLE>
<CAPTION>
                                             1996    1995    1994
                                            ------  ------  ------
<S>                                         <C>     <C>     <C>
REVENUE:
   Dividends received from
     subsidiary banks                       $3,000  $  239  $1,771
   Gain on sale of Bay-             
     Hermann-Berger Bank                         -     825       -
   Other                                       297      91      98
                                            ------  ------  ------
     Total revenue                           3,297   1,155   1,869
                                            ------  ------  ------
EXPENSES:             
   Interest expense                            170     351     609
   Other                                     1,558     623     829
                                            ------  ------  ------
     Total expenses                          1,728     974   1,438
                                            ------  ------  ------
     Income before income             
       tax benefit and un-             
       distributed earnings             
       of subsidiary banks                   1,569     181     431
Income tax benefit                             431      52     405
                                            ------  ------  ------
     Income before             
       undistributed earnings             
       of subsidiary banks                   2,000     233     836
Undistributed earnings of             
   subsidiary banks                          4,158   6,501   4,178
                                            ------  ------  ------
     NET INCOME                             $6,158  $6,734  $5,014
                                            ======  ======  ======
</TABLE>             
             

                       CONDENSED STATEMENTS OF CASH FLOWS
                 YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
                                 (in thousands)

<TABLE>
<CAPTION>
                                            1996      1995      1994
                                            ----      ----      ----
<S>                                      <C>       <C>       <C>            
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                             $ 6,158   $ 6,734  $ 5,014
   Adjustments to reconcile net income
      to net cash provided by (used in)
      operating activities:
        Undistributed earnings
          of subsidiary banks              (4,158)   (6,501)  (4,178)
        Gain on sale of Bay-
          Hermann-Berger Bank                 -        (825)    -
        Other operating activities, net       688       479      134
                                          -------   -------  -------

              NET CASH PROVIDED
                 BY (USED IN)
                 OPERATING ACTIVITIES       2,688      (113)     970
                                          -------   -------  -------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of life insurance           (1,250)      -       -
      Proceeds from the sale
        of Bay-Hermann-Berger Bank            -       3,145     -
                                          -------   -------  -------

              NET CASH PROVIDED
                 BY (USED IN)
                 INVESTING ACTIVITIES      (1,250)    3,145     -
                                          -------   -------  -------

CASH FLOWS FROM FINANCING  ACTIVITIES:
   Payments for ESOP debt                    (299)      -       -
   Principal reductions
      on notes payable                        -      (6,440)    (420)
   Proceeds from issuance of
      common stock                            -       4,279     -
   Payments to acquire treasury stock        (283)     (167)    -
   Cash dividends paid                     (1,365)     (969)    (467)
                                          -------   -------  -------

              NET CASH USED IN
                 FINANCING ACTIVITIES      (1,947)   (3,297)    (887)
                                          -------   -------  -------

              NET INCREASE (DE-
                 CREASE) IN CASH             (509)     (265)      83
Cash, beginning of year                       806     1,071      988
                                          -------   -------  -------
Cash, end of year                         $   297   $   806  $ 1,071
                                          =======   =======  =======

Supplemental disclosures of cash
   flow information - cash paid
   during the year for:
      Interest on subordinated
        capital notes  and debt           $   170   $   351  $   609
      Income taxes                          2,497     2,026    1,000
      Guarantee of ESOP debt                 -        2,987     -
                                          =======   =======    ======
</TABLE>

NOTE 13 -- CONTINGENCIES
     In the normal course of business, the Company had certain litigation
pending at December 31, 1996.  In the opinion of management, after consultation
with legal counsel, none of this litigation will have a material adverse effect
on the consolidated financial condition of the Company.

NOTE 14 -- DISCLOSURES ABOUT
FINANCIAL INSTRUMENTS
     The Company is party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit.  Those instruments may involve, to varying degrees, elements
of credit and interest rate risk in excess of the amounts recognized in the
consolidated balance sheets.  The amounts of those instruments reflect the
extent of involvement the Company has in particular classes of financial
instruments.

     The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of those
instruments.  The Company uses the same credit policies in making commitments
and conditional obligations as it does for financial instruments included on
the consolidated balance sheets.

     Following is a summary of the Company's off-balance-sheet financial
instruments at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                                 (in thousands)
                                               Contractual Amount
                                               --------------------
                                                 1996       1995
                                               ---------  ---------
            <S>                                <C>        <C>
            Financial instruments whose
               contractual amounts represent:
                 Commitments to extend
                    credit                      $60,599    $47,070
                 Standby letters of credit        1,984      2,967
                                                =======    =======
</TABLE>

     Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee.  Of the total commitments to extend credit at
December 31, 1996 and 1995, $8,121,000 and $5,904,000 represent fixed rate loan
commitments.  Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent 
future cash requirements.  The Company evaluates each customer's 
creditworthiness on a case-by-case basis.


                                      41
<PAGE>   43
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)


     The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
counterparty.  Collateral held varies, but includes residential or
income-producing commercial property, marketable securities, inventory,
accounts receivable, and premises and equipment.

     Standby letters of credit written are conditional commitments issued by
the Company to guarantee the performance of a customer to a third party.  Those
guarantees are primarily issued to support public and private borrowing
arrangements.  The Company's policy is to issue letters of credit which have a
maximum expiration date of one year.  The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loans
to customers.

     Following is a summary of the carrying amounts and fair values of the
Company's financial instruments which were on the consolidated balance sheets
at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                             (in thousands)
                                        1996                1995
                                 ------------------  ------------------
                                 CARRYING   FAIR     Carrying   Fair
                                  AMOUNT    VALUE     Amount   Value
                                 --------  --------  --------  --------
         <S>                     <C>       <C>       <C>       <C>
         Balance sheet assets:
            Cash and due
               from banks        $ 17,156  $ 17,156  $ 16,912  $ 16,912
            Federal funds
               sold                13,500    13,500    19,100    19,100
            Investments in
               debt securities:
                Available
                  for sale         66,650    66,650    50,152    50,152
                Held to
                  maturity        120,644   121,377   109,622   110,494
            Loans, net            288,861   294,982   298,189   305,373
                                 ========  ========  ========  ========
         Balance sheet
            liabilities:
               Deposits          $467,276  $466,572  $457,567  $458,004
               Short-term
                borrowings          1,623     1,623       779       779
               ESOP debt            1,779     1,779     2,987     2,987
                                 ========  ========  ========  ========
</TABLE>

     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

CASH AND OTHER SHORT-TERM INSTRUMENTS
     Cash and due from banks, federal funds sold (purchased), securities sold
under agreements to repurchase, U.S. Treasury tax and loan notes, and other
short-term borrowings are either demand instruments or reprice in a short time
period.  Accordingly, the carrying amount is a reasonable estimate of fair
value.

DEBT SECURITIES
     The fair value of debt securities in which the Company has invested to
hold to maturity and investments available for sale are based on quoted market
prices or dealer quotes.

LOANS
     The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.

DEPOSITS
     The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date.  The
fair value of fixed maturity time deposits is estimated using the rates
currently offered for deposits of similar remaining maturities.

ESOP DEBT AND SUBORDINATED CAPITAL NOTES
     The estimate of the fair value of ESOP debt and subordinated capital notes
is the carrying value of the instruments.  Due to the interest rates and risk
characteristics, carrying value is a reasonable approximation of fair value.

COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
     The fair value of commitments to extend credit and standby letters of
credit is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements, the
likelihood of the counterparties drawing on such financial instruments, and the
present creditworthiness of such counterparties.  The Company believes such
commitments have been made on terms which are competitive in the markets in
which it operates; however, no premium or discount is offered thereon and,
accordingly, the Company has not assigned a value to such instruments for
purposes of this disclosure.

LIMITATIONS
     Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument.  Because no market exists for a significant portion of
the Company's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors.  These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be determined with
precision.  Changes in assumptions could significantly affect the estimates.

     Fair value estimates are based on existing on- and off-balance-sheet
financial instruments without attempting to estimate the value of anticipated
future

                                      42

<PAGE>   44
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)


business and the value of assets and liabilities that are not considered
financial instruments.  For example, the Company has a trust department that
contributes net fee income annually.  The trust department is not considered a
financial instrument, and its value has not been incorporated into the fair
value estimates.  Other assets and liabilities that are not considered
financial assets or liabilities include property, equipment, and goodwill.  In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in many of the estimates.

NOTE 15 -- SHAREHOLDER
PROTECTION RIGHTS PLAN
     On May 27, 1993, the Company's Board of Directors adopted a Shareholder
Protection Rights Plan (the Plan).

     Under the terms of the Plan, one Preferred Share Purchase Right (Right) is
attached to each share of common stock and trades automatically with such
shares.  The Rights, which can be redeemed by the Company's Board of Directors
in certain circumstances and expire by their terms on May 27, 2003, have no
voting rights.

The Rights become exercisable and will trade separately from the common stock
10 days after a person or a group either becomes the beneficial owner or
announces an intention to commence a tender offer for 25% or more of the
Company's outstanding common stock.  When exercisable, each Right entitles the
registered holder to purchase from the Company 1/100th of a share of a new
series of Junior Participating Preferred Stock, Series D, substantially equal
to one share of common stock without voting rights, at an exercise price of
$37.50 per unit.

     In the event a person acquires beneficial ownership of 25% or more of the
Company's common stock, holders of Rights (other than the acquiring person or
group) may purchase, at the Rights' then current exercise price, common stock
or its equivalent of the Company having a value at that time equal to twice the
exercise price.  In the event the Company merges into or otherwise transfers
50% or more of its assets or earnings power to any person after the Rights
become exercisable, holders of Rights may purchase, at the then current
exercise price, common stock or its equivalent of the acquiring entity having a
value at that time equal to twice the exercise price.


                                      43

<PAGE>   45




                  SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
                             DIRECTORS AND OFFICERS

SOUTHSIDE BANCSHARES CORP.
     The name and principal occupation or employment of each director and
officer of Southside Bancshares Corp. and the name and principal business of
any organization by which such person is employed is set forth below:

                               BOARD OF DIRECTORS

JOSEPH W. BEETZ
   President
   Joseph H. Beetz Plumbing Company, Inc.
   Director
   South Side National Bank in St. Louis
RALPH CRANCER, JR.
   Deputy Sheriff
   St. Louis County, Missouri
   Former President
   South Side Furniture Co.
   Director
   South Side National Bank in St. Louis
HOWARD F. ETLING
   Publisher Emeritus
   Journal Newspaper
   Former President
   South County Publications, Inc.
   Chairman of the Board
   Southside Bancshares Corp.
   Chairman of the Board
   South Side National Bank in St. Louis
DOUGLAS P. HELEIN
   Insurance Broker
   Welsch, Flatness & Lutz, Inc.
   Director
   South Side National Bank in St. Louis
EARLE J. KENNEDY, JR.
   Former President
   Westway Services, Inc.
   Former President
   Continental Boiler Works, Inc.
   Director
   South Side National Bank in St. Louis

   NORVILLE K. MCCLAIN
   President
   Essex Contracting, Inc.
   Director
   South Side National Bank in St. Louis
DANIEL J. QUEEN
   President
   Highland Diversified
   Director
   South Side National Bank in St. Louis
   Director
   State Bank of DeSoto
RICHARD G. SCHROEDER, SR.
   President
   St. Louis Fabrication Services, Inc.
THOMAS M. TESCHNER
   President and Chief Executive Officer
   Southside Bancshares Corp.
   President and Chief Executive Officer
   South Side National Bank in St. Louis
   Director
   South Side National Bank in St. Louis
   Director
   Bank of Ste. Genevieve
   Director
   State Bank of DeSoto
   Director
   The Bank of St. Charles County




                                    OFFICERS


<TABLE>
<S>                          <C>                           <C>
    THOMAS M. TESCHNER            CAROLE A. MATT                   LAURA L. THOMAS
 President and Chief           Vice President/Compliance   Assistant Secretary to the Board     
   Executive Officer             STEVEN D. VOSS                    NEIL P. FINNEGAN
     JOSEPH W. POPE           Vice President and Auditor        Assistant Vice President/
 Senior Vice President and        JOANNE M. SCHNEIDER                Loan Review
  Chief Financial Officer      Secretary to the Board             NANETTE M. BELLER
     DAVID J. ABELN                                               Assistant Auditor   
 Vice President/Investments      
</TABLE>


                                      44

<PAGE>   46

     The following is a summary description of the four subsidiary banks of
Southside Bancshares Corp.

SOUTH SIDE NATIONAL BANK IN ST. LOUIS

     The main office of South Side National Bank in St. Louis is located at
3606 Gravois Avenue, St. Louis, Missouri 63116.  Facilities are located at 3420
Iowa Street, St. Louis, Missouri 63118; 9914 Kennerly Road, St. Louis County, 
Missouri 63128; 8440 Morganford, St. Louis County, Missouri 63123; 
4666 Lansdowne, St. Louis, Missouri 63116; 10385 West Florissant,
Ferguson, Missouri 63136; and 11330 Gravois, St. Louis, Missouri 63126.  A
24-hour automated teller machine is maintained at St. Anthony's Medical Center,
10010 Kennerly Road, St. Louis County, Missouri 63128.  The Bank has 20
drive-in windows and eight 24-hour automated teller machines.  The Bank is a
member of the BankMate and CIRRUS automated teller networks.  The Bank serves
St. Louis City and St. Louis County.

     The total assets of the Bank at December 31, 1996 were $338,077,000.
Total deposits at December 31, 1996 were $299,586,000.  Total loans at December
31, 1996 were $172,877,000.

                               BOARD OF DIRECTORS

    HOWARD F. ETLING          DOUGLAS P. HELEIN       DANIEL J. QUEEN
 Chairman of the Board        EARLE J. KENNEDY, JR.   RICHARD G. SCHROEDER, SR.
    JOSEPH W. BEETZ           NORVILLE K. MCCLAIN     THOMAS M. TESCHNER
   RALPH CRANCER, JR.      

                         ADVISORY BOARD OF DIRECTORS

TIM DRURY                      GENE SCHWARTZ              FLOYD E. WRIGHT
THOMAS H. ETLING               FRANCIS G. SLACK           THOMAS M. TESCHNER
SAMUEL D. ORLANDO, SR.         MALCOLM J. SWEET, JR.      JOSEPH S. WEINMANN
STEVEN C. ROBERTS       

                                   OFFICERS


THOMAS M. TESCHNER
   President and Chief Executive 
   Officer
WILLIAM E. MUHLKE
   Senior Vice President and 
   Comptroller
LAURIE A. PENNYCOOK
   Senior Vice President and Cashier
STEVEN L. RAY
   Senior Vice President and Senior 
   Trust Officer
MARK D. SKORNIA
   Senior Vice President and Senior 
   Loan Officer
KENNETH E. MARSCHUETZ
   Senior Vice President
JOSEPH W. POPE
   Senior Vice President
CAROLE A. MATT
   Vice President and Compliance 
   Officer
DAVID J. ABELN
   Vice President/Investments
DIANE FRAIN
   Vice President/Human Resources
RAYMOND H. BAYER
   Vice President
JAMES A. DEGUIRE
   Vice President
BARBARA E. GLIEDT
   Vice President
COLETTE A. LETENDRE
   Vice President
JUDI M. SCHULZ
   Vice President
DONALD A. SEILER
   Vice President
JEFF BERRY
   Assistant Vice President
GAIL DICKSON
   Assistant Vice President
D.   SUE  DOERING
   Assistant Vice President
CRISTA ELLIOTT
   Assistant Vice President
DONNA M. FELDMANN
   Assistant Vice President
LISA M. FRICK
   Assistant Vice President
CYNTHIA L. GOLDSCHMIDT
   Assistant Vice President
DANNY C. GRAHAM
   Assistant Vice President
PAMELA A. HALE
   Assistant Vice President
DOLORES G. HENSEL
   Assistant Vice President
CONNIE HORNAK
   Assistant Vice President
BRENDA L. HUDDLESTON
   Assistant Vice President
CAROL KAMINSKI
   Assistant Vice President
ELIZABETH A. MCCLANAHAN
   Assistant Vice President
ANNA SMITH-CRAFT
   Assistant Vice President
PAUL L. STEUBE
   Assistant Vice President
LAURA L. STUMPF
   Assistant Vice President
JACQUELINE A. YOCHIM
   Assistant Vice President
JOANNE M. SCHNEIDER
   Secretary to the Board
LAURA L. THOMAS
   Assistant Secretary to the Board

                                      45

<PAGE>   47

STATE BANK OF DESOTO
     The main office of State Bank of DeSoto is located at 224 S. Main Street,
DeSoto, Missouri 63020, and a facility is located at 2000 Rock Road, DeSoto,
Missouri 63020.  The Bank has two drive-in windows at each location and a
24-hour automated teller machine at the Rock Road facility.  The Bank is a
member of the BankMate and CIRRUS automated teller networks.  The Bank serves
Jefferson County, part of Franklin County, Washington County, and St. Francois
County.

     The total assets of the Bank at December 31, 1996 were $54,340,000.  Total
deposits at December 31, 1996 were $48,449,000.  Total loans at December 31,
1996 were $38,049,000.

                               BOARD OF DIRECTORS

          ROBERT G. PURCELL                        CLARENCE M. JONES
            Chairman of the Board                  DANIEL J. QUEEN
          CLAUDE J. COOK                           STEVAN H. ROWE
          PAUL F. DICKINSON                        THOMAS M. TESCHNER
          RICHARD B. FRANCIS                       MICHAEL J. WHALEY

                                    OFFICERS

RICHARD B. FRANCIS             TERRY SMITH                    DIANE HUMPHREY
 President and Chief            Assistant Vice President       Assistant Cashier
Executive Officer               and Compliance Officer        PAULINE WILLIAMSON
MARGARET A. ARMBRUSTER         KEVIN L. BOREN                  Assistant Cashier
 Vice President                 Assistant Vice President      
BARBARA A. DONTRICH            PHYLLIS POOLE                 
 Vice President, Cashier, and   Assistant Vice President and  
 Security Officer               Secretary to the Board        

BANK OF STE. GENEVIEVE
     The main office of Bank of Ste. Genevieve is located at Second and Market
Streets in Ste. Genevieve, Missouri 63670, and a facility, Plaza Bank, is
located at 710 Parkwood Drive in Ste. Genevieve, Missouri 63670.  The Bank has
two drive-in windows at the main office and three drive-in windows and a
24-hour automated teller machine at the Plaza Bank location.  The Bank is a
member of the CIRRUS, Shazam, and PLUS automated teller networks.  The Bank
serves Ste. Genevieve County.

     The total assets of the Bank at December 31, 1996 were $89,490,000.  Total
deposits at December 31, 1996 were $79,897,000.  Total loans at December 31,
1996 were $51,686,000.

                               BOARD OF DIRECTORS

                         
       HAROLD J. UDING                            CLARENCE J. KERTZ   
        Chairman of the Board                     ROY J. PANCHOT
       PATRICK J. UDING                           KENNETH J. REHM  
        Secretary to the Board                    THOMAS M. TESCHNER 
                                                  GERALD J. TRAUTMAN

                                   OFFICERS



<TABLE>
<S>                                       <C>                               <C>
PATRICK J. UDING                          JERRY V. BERGTHOLDT               ANTHONY R. MCNABB
 President & Chief Executive Officer       Assistant Vice President          Assistant Vice President
WILLIAM E. MILES                           and Security Officer             MARY ANN BAUMAN
 Senior Vice President and                MONICA J. KREITLER                 Assistant Cashier
 CRA Officer                               Assistant Vice President and     MARY ELLEN CABRAL      
STEPHEN J. ABTS                            Compliance Officer                Executive Secretary    
 Vice President and Cashier                 
</TABLE>


                                      46
<PAGE>   48

THE BANK OF ST. CHARLES COUNTY
     The main office of The Bank of St. Charles County is located at 6004
Highway 94 South, Weldon Springs, Missouri 63304, and a facility is located at
750 First Capitol Drive, St. Charles, Missouri 63301.  The Bank has a 24-hour
automated teller machine at each location, three drive-in windows in Weldon
Spring, and one drive-in window at 750 First Capitol Drive.  The Bank is a
member of the BankMate and CIRRUS automated teller networks.  The Bank services
St. Charles County.

     The total assets of the Bank at December 31, 1996 were $44,286,000.  Total
deposits at December 31, 1996 were $39,732,000.  Total loans at December 31,
1996 were $31,851,000.


                               BOARD OF DIRECTORS

          LARRY RICHARDSON                  WILLIAM O. MULLINS
           Chairman of the Board            ALAN D. POHLMAN    
          TERRY E. ALEXANDER                DR. HUGO STIERHOLZ    
          MAX E. MCGOWAN                    THOMAS M. TESCHNER    
          FREDERICK W. DRAKESMITH  

                                   OFFICERS

<TABLE>
<S>                                            <C>                              <C>
ALAN D. POHLMAN                                JUDY M. BRADY                    LARRY W. NOLTE
  President and Chief                           Vice President and               Assistant Vice President
  Executive Officer                             Security Officer                SUSAN P. FLEMING
CRAIG D. WOOD                                  KAREN A. HOPPER                   Assistant Vice President  
  Senior Vice President, Cashier, and           Vice President and   
  Secretary to the Board                        Compliance Officer    
DON R. HAYNES                          
  Vice President                         
</TABLE>


                                      47

<PAGE>   1



                                                                   EXHIBIT 21
                              LIST OF SUBSIDIARIES


<TABLE>
<CAPTION>
                    SUBSIDIARY                             JURISDICTION OF INCORPORATION
                    ----------                             -----------------------------
      <S>                                                <C>
       South Side National Bank in St. Louis                     National Bank
       State Bank of Desoto                                      Missouri State Bank

       Bank of Ste. Genevieve                                    Missouri State Bank

       The Bank of St. Charles County                            Missouri State Bank

</TABLE>

<PAGE>   1



                                                                   EXHIBIT 23

                         INDEPENDENT AUDITORS' CONSENT


The Board of Directors
Southside Bancshares Corp.:

   We consent to incorporation by reference in the Registration Statements on
Form S-8 (No. 33-78454 and No. 333-00579) of Southside Bancshares Corp. of our
report dated February 21, 1996, relating to the consolidated balance sheets of
Southside Bancshares Corp. and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996, which report appears in the December 31, 1996 annual report on Form 10-K
of Southside Bancshares Corp.

                 /S/ KPMG PEAT MARWICK LLP

ST. LOUIS, MISSOURI
March 28, 1997

<TABLE> <S> <C>

<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
Southside Bancshares Corporation's Annual Report on Form 10-K and is qualified
in its entirety by reference to such Financial Statements.
</LEGEND>
<RESTATED> 
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               DEC-31-1996
<CASH>                                          17,156
<INT-BEARING-DEPOSITS>                               0
<FED-FUNDS-SOLD>                                13,500
<TRADING-ASSETS>                                     0
<INVESTMENTS-HELD-FOR-SALE>                     66,650
<INVESTMENTS-CARRYING>                         120,644
<INVESTMENTS-MARKET>                           121,377
<LOANS>                                        294,463
<ALLOWANCE>                                      5,602
<TOTAL-ASSETS>                                 527,907
<DEPOSITS>                                     467,276
<SHORT-TERM>                                     1,623
<LIABILITIES-OTHER>                              4,388
<LONG-TERM>                                      1,779<F1>
                                0
                                          0
<COMMON>                                         2,859
<OTHER-SE>                                      49,982
<TOTAL-LIABILITIES-AND-EQUITY>                 527,907
<INTEREST-LOAN>                                 26,691
<INTEREST-INVEST>                               10,183
<INTEREST-OTHER>                                   994
<INTEREST-TOTAL>                                37,868
<INTEREST-DEPOSIT>                              17,264
<INTEREST-EXPENSE>                              17,526
<INTEREST-INCOME-NET>                           20,342
<LOAN-LOSSES>                                       60
<SECURITIES-GAINS>                                   0
<EXPENSE-OTHER>                                 14,872
<INCOME-PRETAX>                                  8,335
<INCOME-PRE-EXTRAORDINARY>                       8,335
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     6,158
<EPS-PRIMARY>                                     2.27
<EPS-DILUTED>                                     2.27
<YIELD-ACTUAL>                                    4.42
<LOANS-NON>                                      1,037
<LOANS-PAST>                                       146
<LOANS-TROUBLED>                                     0
<LOANS-PROBLEM>                                      0
<ALLOWANCE-OPEN>                                 5,635
<CHARGE-OFFS>                                    1,219
<RECOVERIES>                                     1,126
<ALLOWANCE-CLOSE>                                5,602
<ALLOWANCE-DOMESTIC>                                 0
<ALLOWANCE-FOREIGN>                                  0
<ALLOWANCE-UNALLOCATED>                              0
<FN>
<F1>Represents debt of the Company's Employee Stock Ownership Plan, which is
reflected on the Company's Financial Statement according to Generally Accepted
Accounting Principles.
</FN>
        

</TABLE>


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