<PAGE> 1
As Filed with the Securities and Exchange Commission on _____________ ___, 1998
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
SOUTHSIDE BANCSHARES CORP.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MISSOURI 6022 43-1262037
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
3606 Gravois Avenue
St. Louis, Missouri 63116
(314) 776-7000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
THOMAS M. TESCHNER
President and Chief Executive Officer
Southside Bancshares Corp.
3606 Gravois Avenue
St. Louis, Missouri 63116
(314) 776-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
John K. Pruellage, Esq. Paul M. Aguggia, Esq.
Lewis, Rice & Fingersh, L.C. Breyer & Aguggia
500 N. Broadway, Suite 2000 1300 I Street, N.W., Suite 470 East
St. Louis, Missouri 63102 Washington, D.C. 20005
(314) 444-7600 (202) 737-7900
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF
THE SECURITIES TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS
REGISTRATION STATEMENT AND THE EFFECTIVE TIME OF THE MERGER DESCRIBED
IN THE ENCLOSED PROXY STATEMENT/PROSPECTUS.
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN CONNECTION
WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE WITH GENERAL
INSTRUCTION G, CHECK THE FOLLOWING BOX./ /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price aggregate offering Amount of
registered registered per unit price registration fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, stated
value $1.00 per share 160,000(1) $27.61(2) $4,417,000.00(2) $1,303.02(2)
====================================================================================================================================
</TABLE>
(1) This Registration Statement covers the maximum number of shares of common
stock of the Registrant issuable to holders of common stock of Public
Service Bank, a federal savings bank ("PSB"), in the proposed merger of
PSB with and into South Side National Bank in St. Louis, a national
banking association and wholly-owned subsidiary of the Registrant
("National Bank"), and preferred share purchase rights.
(2) Solely for purposes of calculating the registration fee in accordance
with Rule 457(f)(2), this figure represents, as of December 31, 1997, the
book value of the common stock of PSB to be received by the Registrant in
the proposed merger of PSB into National Bank.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
[On letterhead of PSB]
________ __, 1998
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
of Public Service Bank, a federal savings bank ("PSB"), to be held on ________
__, 1998 at ______________________________, commencing at _____ _.m., local
time.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated February
25, 1998 (the "Merger Agreement"), by and among PSB, South Side National Bank in
St. Louis, a national banking association ("National Bank"), and Southside
Bancshares Corp., a Missouri corporation and parent corporation of National Bank
("Southside"), and the related Agreement to Merge between PSB and National Bank.
The Merger Agreement provides for the merger of PSB with and into National Bank
(the "Merger").
If the Merger is approved and consummated, each share of common stock
of PSB, $1.00 par value per share (the "PSB Common"), issued and outstanding
immediately prior to the consummation of the Merger will be converted into the
right to receive from Southside either (1) cash, (2) a certain number of shares
of common stock of Southside, $1.00 par value per share (the "Southside
Common"), or (3) a combination of cash and shares of Southside Common based on
approximately two times the net book value per share of PSB Common
(approximately $____ per share). If you receive shares of Southside Common in
exchange for your shares of PSB Common, the number of shares will be based on
the market price of Southside Common during a measurement period shortly prior
to the closing of the Merger.
You will have the opportunity to indicate on an election form whether
you wish to receive cash or shares of Southside Common for each share of PSB
Common that you own, subject to the proration procedures described in the
attached Proxy Statement/Prospectus. The allocation of cash and shares of
Southside Common that you receive will depend on the stated preferences of all
PSB shareholders and the proration procedures to be applied. The last reported
bid price of Southside Common on the Nasdaq SmallCap Market on ________ __, 1998
was $_________ per share.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF PSB'S SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE MERGER AGREEMENT AT THE SPECIAL MEETING.
The accompanying Notice and Proxy Statement/Prospectus set forth the
voting rights of holders of PSB Common with respect to these matters and
describe the matters to be acted upon at the Special Meeting. Please review
carefully the attached Proxy Statement/Prospectus, which contains a description
of the Merger Agreement and the Merger. You should note that the federal income
tax consequences of the Merger to you will depend on whether you receive cash,
stock or a combination of cash and stock in exchange for your shares of PSB
Common.
Because of the significance of the Merger to PSB, your participation in
the Special Meeting, in person or by proxy, is especially important.
Accordingly, whether or not you plan to attend the Special Meeting, please sign,
date and mail the enclosed Proxy promptly in the postage-paid envelope that has
been provided to you for your convenience. If you wish to vote in accordance
with the recommendations of the PSB Board of Directors, it is not necessary to
specify your choices; you may merely sign, date and return the enclosed Proxy.
Sincerely,
Robert C. Spinzig
President, Chief Executive Officer and Chairman
<PAGE> 3
PUBLIC SERVICE BANK,
A FEDERAL SAVINGS BANK
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ________ __, 1998
TO THE SHAREHOLDERS OF PUBLIC SERVICE BANK:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Special Meeting") of Public Service Bank, a federal savings bank ("PSB") will
be held on ________ __, 1998, at _____ _.m., local time, at
______________________________________________________________, for the
following purposes:
(1) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated February 25, 1998 (the
"Merger Agreement"), by and among PSB and South Side National
Bank in St. Louis, a national banking association ("National
Bank"), and Southside Bancshares Corp., a Missouri corporation
and parent corporation of National Bank ("Southside"), and the
transactions contemplated thereby, pursuant to which, among other
things, PSB will be merged with and into National Bank (the
"Merger"), upon the terms and conditions set forth in the Merger
Agreement, as more fully described in the accompanying Proxy
Statement/Prospectus, and the related Agreement to Merge between
PSB and National Bank.
(2) To transact such other business as may properly come before the
Special Meeting, or any adjournments, continuations or
postponements thereof. The Board of Directors of PSB is not aware
of any other business to come before the Special Meeting.
A copy of the Merger Agreement is attached as Appendix A to the
accompanying Proxy Statement/Prospectus.
The Board of Directors of PSB has fixed the close of business on _______
__, 1998 as the record date for determination of shareholders entitled to notice
of and to vote at the Special Meeting or at any adjournments, continuations or
postponements thereof.
THE BOARD OF DIRECTORS OF PSB HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF PSB'S
SHAREHOLDERS. THE BOARD, THEREFORE, RECOMMENDS THAT THE SHAREHOLDERS OF PSB VOTE
"FOR" THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
EACH SHAREHOLDER IS URGED TO COMPLETE AND PROMPTLY RETURN THE
ACCOMPANYING PROXY WHETHER OR NOT HE OR SHE PLANS TO ATTEND THE SPECIAL
MEETING. The prompt return of each shareholder's signed proxy will help assure a
quorum and aid PSB in reducing the expense of additional proxy solicitation. The
giving of such proxy does not affect a shareholder's right to vote in person in
the event that such shareholder attends the Special Meeting.
By Order of the Board of Directors
Marie L. Mattingly
Secretary
St. Louis, Missouri
________ __, 1998
<PAGE> 4
PUBLIC SERVICE BANK,
A FEDERAL SAVINGS BANK
PROXY STATEMENT
SOUTHSIDE BANCSHARES CORP.
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the shareholders
of Public Service Bank, a federal savings bank ("PSB") in connection with the
solicitation of proxies by the Board of Directors of PSB for use at the special
meeting of shareholders of PSB (the "Special Meeting") to be held at ________
_.m., local time, on _______________, 1998, at _________________________, and at
any adjournments, continuations or postponements thereof.
At the Special Meeting, shareholders of PSB will consider and vote upon
a proposal to approve and adopt the Agreement and Plan of Merger, dated February
25, 1998 (the "Merger Agreement"), by and among PSB, South Side National Bank in
St. Louis, a national banking association ("National Bank"), and Southside
Bancshares Corp., a Missouri corporation and parent corporation of National Bank
("Southside"), which provides for, among other things, the merger of PSB with
and into National Bank (the "Merger"), and the related Agreement to Merge
between PSB and National Bank (the "Agreement to Merge"). Upon consummation of
the Merger, each issued and outstanding share of common stock of PSB, par value
$1.00 per share ("PSB Common"), (other than shares held by any shareholder
properly exercising dissenters' rights) will be converted into the right to
receive either cash, shares of common stock of Southside, par value $1.00 per
share ("Southside Common"), or a combination of cash and shares of Southside
Common calculated in accordance with the formula set forth in the Merger
Agreement and described in this Proxy Statement/Prospectus. See "THE MERGER --
Merger Consideration."
PSB shareholders will have the opportunity to indicate on a form of
election whether they wish to receive cash or shares of Southside Common for
each share of PSB Common that they own subject to the requirement that 40% of
the total number of shares of PSB Common be converted into the right to receive
cash in the Merger and that 60% of the total number of shares of PSB Common be
converted into the right to receive shares of Southside Common in the Merger.
This Proxy Statement/Prospectus also constitutes a prospectus of
Southside with respect to up to _______ shares of Southside Common issuable in
the Merger to holders of PSB Common. The outstanding shares of Southside Common
are, and the shares of Southside Common to be issued in the Merger will be,
included for quotation on the Nasdaq SmallCap Market. The last reported bid
price of Southside Common on the Nasdaq SmallCap Market on ________ __, 1998 was
$______.
Any proxy given pursuant to this solicitation may be revoked by the
grantor at any time prior to the voting thereof at the Special Meeting. Holders
of PSB Common will be entitled to dissenters' rights in connection with the
Merger as described herein.
This Proxy Statement/Prospectus does not cover any resales of the
Southside Common to be received by the shareholders of PSB deemed to be
"affiliates" of PSB upon consummation of the Merger. No person is authorized to
make use of this Proxy Statement/Prospectus in connection with such resales.
THE SHARES OF SOUTHSIDE COMMON ISSUABLE IN THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF SOUTHSIDE COMMON OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS ________ __, 1998
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION.............................................................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................................................................... 1
FORWARD-LOOKING STATEMENTS......................................................................................... 2
SUMMARY INFORMATION................................................................................................ 3
Introduction............................................................................................... 3
The Parties................................................................................................ 3
Southside.......................................................................................... 3
National Bank...................................................................................... 3
PSB................................................................................................ 4
The Special Meeting........................................................................................ 4
Date, Time and Place of the Special Meeting........................................................ 4
Matters to be Considered........................................................................... 4
Record Date for the Special Meeting................................................................ 4
Vote Required to Approve Merger Agreement.......................................................... 4
Security Ownership of Management................................................................... 4
Revocation of Proxies.............................................................................. 5
The Merger................................................................................................. 5
Effects of Merger.................................................................................. 5
Merger Consideration; Election and Proration....................................................... 5
Value of Merger.................................................................................... 6
Reasons for the Merger and Recommendation of the Board of Directors................................ 6
Opinion of Financial Advisor....................................................................... 6
Conduct of Business Pending the Merger; Dividends.................................................. 6
Conditions to the Merger........................................................................... 7
Regulatory Approvals............................................................................... 7
Effective Time of the Merger....................................................................... 7
Federal Income Tax Consequences.................................................................... 7
Accounting Treatment............................................................................... 8
Interests of Certain Persons in the Merger......................................................... 8
Termination of the Merger Agreement................................................................ 8
Payment Upon Occurrence of Certain Events.......................................................... 9
Dissenters' Rights................................................................................. 9
Comparison of Shareholder Rights........................................................................... 9
COMPARATIVE STOCK PRICES........................................................................................... 11
SELECTED COMPARATIVE PER SHARE DATA................................................................................ 12
SELECTED FINANCIAL DATA............................................................................................ 13
THE SPECIAL MEETING................................................................................................ 16
Date, Time and Place of the Special Meeting................................................................ 16
Matters to be Considered................................................................................... 16
Record Date for the Special Meeting........................................................................ 16
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Vote Required to Approve the Merger Agreement.............................................................. 16
Voting and Revocation of Proxies for the Special Meeting................................................... 16
Solicitation of Proxies for the Special Meeting............................................................ 17
Security Ownership of Management........................................................................... 17
THE PARTIES........................................................................................................ 17
Southside.................................................................................................. 17
National Bank.............................................................................................. 18
PSB ................................................................................................... 19
THE MERGER......................................................................................................... 19
General ................................................................................................... 19
Form of the Merger......................................................................................... 19
Background of the Merger................................................................................... 19
Reasons for the Merger; Recommendation of PSB Board........................................................ 21
Opinion of Financial Advisor............................................................................... 22
Merger Consideration....................................................................................... 25
Election and Prorations.................................................................................... 26
Fractional Shares.......................................................................................... 28
Effective Time; Closing.................................................................................... 28
Conduct of Business Pending the Merger; Dividends.......................................................... 28
Regulatory Approvals....................................................................................... 28
Interests of Certain Persons in the Merger................................................................. 29
Insurance; Indemnification......................................................................... 29
Employee Benefits.................................................................................. 30
Employment Agreement............................................................................... 30
Consulting Agreement............................................................................... 30
Conditions to Consummation of the Merger................................................................... 30
Termination of the Merger Agreement........................................................................ 31
Payment Upon Occurrence of Certain Events.................................................................. 31
Dissenters' Rights......................................................................................... 32
Exchange of PSB Stock Certificates......................................................................... 33
Certain Other Agreements................................................................................... 34
PSB ............................................................................................... 34
Southside.......................................................................................... 35
No Solicitation............................................................................................ 36
Waiver and Amendment....................................................................................... 36
Expenses and Fees.......................................................................................... 36
Certain Federal Income Tax Consequences.................................................................... 36
Resale of Southside Common................................................................................. 38
Accounting Treatment....................................................................................... 39
Management and Operations After the Merger................................................................. 39
Effect on Employee Benefit Plans........................................................................... 39
Accounting Policies........................................................................................ 40
DESCRIPTION OF SOUTHSIDE CAPITAL STOCK............................................................................. 40
General ................................................................................................... 40
Southside Common........................................................................................... 40
Dividend Rights.................................................................................... 40
Voting Rights...................................................................................... 40
Preemptive Rights.................................................................................. 40
</TABLE>
ii
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Liquidation Rights................................................................................. 41
Assessment and Redemption.......................................................................... 41
Transfer Agent..................................................................................... 41
Southside Preferred........................................................................................ 41
COMPARISON OF SHAREHOLDER RIGHTS................................................................................... 41
Shareholder Vote Required for Certain Transactions and Other Matters....................................... 42
Voting Rights.............................................................................................. 44
Special Meetings of Shareholders; Shareholder Action by Written Consent.................................... 45
Notice of Shareholder Nominations of Directors and Proposals............................................... 45
Dissenters' Rights......................................................................................... 46
Takeover Statutes.......................................................................................... 46
Liability of Directors; Indemnification.................................................................... 47
Limitation on Directors' Liability......................................................................... 48
Southside Shareholder Protection Rights Plan............................................................... 49
Consideration of Non-Shareholder Interests................................................................. 52
Liquidation Accounts....................................................................................... 52
INFORMATION ABOUT PSB.............................................................................................. 53
Business of PSB............................................................................................ 53
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 53
Asset/Liability Management......................................................................... 53
Risk Management.................................................................................... 55
Capital Resources.................................................................................. 56
Balance Sheet Analysis............................................................................. 57
Results of Operations.............................................................................. 63
Impact of Inflation................................................................................ 68
Accounting Pronouncements.......................................................................... 69
Security Ownership of Management........................................................................... 69
Security Ownership of Certain Beneficial Owners............................................................ 70
LEGAL AND TAX OPINIONS............................................................................................. 70
EXPERTS ........................................................................................................... 70
Independent Auditors for Southside......................................................................... 70
Independent Auditors for PSB............................................................................... 70
Presence at Special Meeting................................................................................ 70
SHAREHOLDER PROPOSALS.............................................................................................. 70
FINANCIAL STATEMENTS OF PSB........................................................................................ F-1
APPENDICES
Appendix A Agreement and Plan of Merger............................................................... A-1
Appendix B Agreement to Merge......................................................................... B-1
Appendix C Fairness Opinion of Manchester Partners, L.L.C............................................. C-1
Appendix D Code of Federal Regulations, Title 12, Section 552.14 (Dissenters' Rights)................. D-1
Appendix E Southside Bancshares Corp. 1997 Annual Report to Shareholders.............................. E-1
</TABLE>
iii
<PAGE> 8
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION
WITH THE OFFERING DESCRIBED HEREIN AND ANY SUCH INFORMATION OR REPRESENTATION,
IF GIVEN OR MADE, MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SOUTHSIDE
OR PSB. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE A SOLICITATION OR AN
OFFERING OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR IN ANY JURISDICTION TO ANY PERSON TO WHOM IT WOULD BE UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT ANY INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Southside is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "S.E.C."). The reports, proxy statements
and other information can be inspected and copied at the public reference
facilities of the S.E.C., at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the New York Regional Office of the S.E.C.,
located at Suite 1300, 7 World Trade Center, New York, New York 10048, and at
the Chicago Regional Office of the S.E.C., located at Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661, and copies of such
materials can be obtained from the Public Reference Section of the S.E.C., at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The S.E.C. maintains an Internet web site that contains reports, proxy
and information statements and other information regarding issuers who file
electronically with the S.E.C. The address of that site is http://www.sec.gov.
In addition, reports, proxy statements and other information concerning
Southside may be inspected at the offices of the National Association of
Securities Dealers, Inc. ("NASD"), 1735 K Street, N.W., Washington, D.C. 20006.
Southside has filed with the S.E.C. a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Southside Common to be issued pursuant to the Merger described herein.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto. Such additional
information may be obtained from the S.E.C.'s principal office in Washington,
D.C. Statements contained in this Proxy Statement/Prospectus or in any document
incorporated in this Proxy Statement/Prospectus by reference as to the contents
of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance where reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement is qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the S.E.C. by Southside (File No.
000-10849) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement/Prospectus:
1. Southside's Annual Report on Form 10-K for the year ended
December 31, 1997.
1
<PAGE> 9
2. The following information contained in the specified pages of
Southside's 1997 Annual Report to Shareholders delivered with
this Proxy Statement/Prospectus is specifically incorporated
herein by reference: (a) audited consolidated financial
statements of Southside, the notes thereto and the report of
independent auditors on pages E-30 through E-48; (b) financial
highlights on page E-7; (c) management's discussion and analysis
of financial condition and results of operations on pages E-8
through E-28; and (d) common stock market price and dividends on
page E-27.
All documents and reports filed by Southside pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act on or after the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference in this Proxy Statement/Prospectus and to
be a part hereof from the dates of filing of such documents or reports. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
RELATING TO SOUTHSIDE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
THESE DOCUMENTS (EXCLUDING EXHIBITS THAT ARE NOT INCORPORATED BY REFERENCE) ARE
AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST
TO JOANNE M. SCHNEIDER, SECRETARY OF THE BOARD, SOUTHSIDE BANCSHARES CORP., 3606
GRAVOIS, ST. LOUIS, MISSOURI 63116 (TELEPHONE NUMBER (314) 776-7000). IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
______________, 1998.
FORWARD-LOOKING STATEMENTS
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING
STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
THE BUSINESS OF SOUTHSIDE AND PSB ON A STAND-ALONE AND PRO FORMA COMBINED BASIS
FOLLOWING THE CONSUMMATION OF THE MERGER. SEE "SELECTED FINANCIAL DATA," "THE
MERGER -- REASONS FOR MERGER; RECOMMENDATION OF PSB BOARD" AND "-- OPINION OF
FINANCIAL ADVISOR." THESE STATEMENTS CONSTITUTE FORWARD LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THESE FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES AND
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE PROJECTIONS. FACTORS THAT MAY
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES:
(1) EXPECTED COST SAVINGS FROM THE MERGER CANNOT BE FULLY REALIZED AND/OR
REVENUES FOLLOWING THE MERGER ARE LOWER THAN EXPECTED AND/OR EXPENSES FOLLOWING
THE MERGER ARE HIGHER THAN EXPECTED; (2) GREATER THAN EXPECTED DEPOSIT ATTRITION
OR CUSTOMER LOSS FOLLOWING THE MERGER; (3) COSTS OR DIFFICULTIES RELATED TO THE
INTEGRATION OF THE BUSINESSES OF SOUTHSIDE AND PSB ARE GREATER THAN EXPECTED;
(4) CHANGES IN THE INTEREST RATE ENVIRONMENT REDUCE MARGINS; (5) LEGISLATION OR
REGULATORY REQUIREMENTS OR CHANGES ADVERSELY AFFECT THE BUSINESSES IN WHICH THE
COMBINED COMPANY WOULD BE ENGAGED; (6) CHANGES IN BUSINESS CONDITIONS AND
INFLATION; (7) GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR REGIONALLY, ARE
LESS FAVORABLE THAN EXPECTED RESULTING IN, AMONG OTHER THINGS, A DETERIORATION
IN CREDIT QUALITY; (8) COMPETITIVE PRESSURES AMONG FINANCIAL INSTITUTIONS
INCREASE SIGNIFICANTLY; AND (9) CHANGES IN THE SECURITIES MARKETS.
2
<PAGE> 10
SUMMARY INFORMATION
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement/Prospectus. Although the following summary
addresses material information regarding the Merger, it is not intended to be
complete and is qualified in all respects by the information appearing elsewhere
herein or incorporated by reference into this Proxy Statement/Prospectus, the
Appendices hereto and the documents referred to herein. All information
contained in this Proxy Statement/Prospectus relating to Southside and its
subsidiaries has been supplied by Southside and all information relating to PSB
has been supplied by PSB. Shareholders are urged to read this Proxy
Statement/Prospectus and the Appendices hereto in their entirety.
INTRODUCTION
This Proxy Statement/Prospectus relates to the Merger Agreement entered
into by and among PSB, National Bank and Southside which provides for, among
other things, the merger of PSB with and into National Bank and the related
Agreement to Merge between PSB and National Bank. Upon consummation of the
Merger, National Bank will be the surviving bank (the "Surviving Bank"), and PSB
will cease to exist as a separate entity. The full text of the Merger Agreement
is attached hereto as Appendix A and is incorporated by reference herein. The
full text of the Agreement to Merge is attached hereto as Appendix B and is
incorporated by reference herein.
THE PARTIES
SOUTHSIDE
Southside 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 "BHCA"). At December 31, 1997, Southside and its subsidiaries had
consolidated total assets of $549,864,000, total deposits of $483,363,000 and
total shareholders' equity of $56,653,000. Southside'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 of
banks of similar size and character. Southside's executive offices are located
at 3606 Gravois Avenue, St. Louis, Missouri 63116 (telephone number (314)
776-7000).
For additional information regarding Southside, see "THE PARTIES --
Southside," the documents listed under "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and Appendix E.
NATIONAL BANK
National Bank is a national banking association and the largest of
Southside's subsidiaries. At December 31, 1997, National Bank had total assets
of $353,316,000, total deposits of $309,297,000, and total shareholders' equity
of $35,973,000. National Bank serves St. Louis City and St. Louis County,
Missouri. National Bank's principal office is located at 3606 Gravois Avenue,
St. Louis, Missouri 63116 (telephone number (314) 776-7000).
For additional information regarding National Bank, see "THE PARTIES --
National Bank," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and Appendix
E.
3
<PAGE> 11
PSB
PSB, which was originally chartered by the State of Missouri in 1914,
operates as a federally-chartered capital stock savings bank. At December 31,
1997, PSB had total assets of $70,173,000, total deposits of $56,748,000 and
total shareholders' equity of $4,417,000. PSB's primary business is the
solicitation of deposit accounts from members of the general public and the
origination of mortgage loans upon the security of single family residences and
other improved real estate located primarily in the City of St. Louis and St.
Louis County, Missouri and surrounding areas. PSB conducts its business through
its main office in St. Louis, Missouri and two branch offices located in St.
Louis County, Missouri. PSB's main office is located at 6025 Chippewa Street,
St. Louis, Missouri 63109 (telephone (314) 351-3355).
For additional information regarding PSB, see "THE PARTIES -- PSB,"
"INFORMATION ABOUT PSB" and "FINANCIAL STATEMENTS OF PSB."
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held at ___________________________________,
on ________ __, 1998, at _____ _.m., local time. See "THE SPECIAL MEETING --
Date, Time and Place of the Special Meeting."
MATTERS TO BE CONSIDERED
At the Special Meeting, holders of PSB Common will be asked to consider
and vote upon a proposal to approve and adopt the Merger Agreement and all of
the transactions contemplated thereby, including the Merger. See "THE SPECIAL
MEETING -- Matters to be Considered."
RECORD DATE FOR THE SPECIAL MEETING
The record date for the Special Meeting is ________ __, 1998 (the
"Record Date"). Only the holders of record of outstanding shares of PSB Common
on the Record Date will be entitled to notice of and to vote at the Special
Meeting. See "THE SPECIAL MEETING -- Record Date for the Special Meeting."
VOTE REQUIRED TO APPROVE MERGER AGREEMENT
The presence, in person or by proxy, of a majority of the outstanding
shares of PSB Common entitled to vote as of the Record Date is necessary to
constitute a quorum at the Special Meeting. Approval of the Merger Agreement
will require the affirmative vote of two-thirds (2/3rds) of the outstanding
shares of PSB Common entitled to vote thereon. Holders of PSB Common will be
entitled to one vote per share. The failure to submit a proxy card (or to vote
in person at the Special Meeting), the abstention from voting at the Special
Meeting and, in the case of shares held in street name, the failure of the
beneficial owner thereof to give specific voting instructions to the broker
holding such shares (broker non-votes) will have the same effect as a vote
against approval of the Merger Agreement. See "THE SPECIAL MEETING -- Vote
Required to Approve the Merger Agreement."
SECURITY OWNERSHIP OF MANAGEMENT
As of the Record Date, 102,182 shares of PSB Common were issued,
outstanding and entitled to vote at the Special Meeting, of which approximately
46,545 shares, or approximately 45.6%, were beneficially owned by directors and
executive officers of PSB and its affiliates. As of the Record Date, neither
Southside
4
<PAGE> 12
nor National Bank nor any of directors and executive officers of Southside or
National Bank, nor any of their affiliates, owned any shares of PSB Common. See
"THE SPECIAL MEETING -- Security Ownership of Management" and "INFORMATION ABOUT
PSB -- Security Ownership of Management."
REVOCATION OF PROXIES
A proxy to vote at the Special Meeting accompanies this Proxy
Statement/Prospectus. Any proxy given pursuant to this solicitation may be
revoked by the grantor thereof at any time prior to the voting of such proxy at
the Special Meeting by filing with the Secretary of PSB a written revocation or
a duly executed proxy bearing a later date. A holder of PSB Common may withdraw
his or her proxy at the Special Meeting at any time before it is exercised by
electing to vote in person; however, attendance at the Special Meeting will not
in and of itself constitute a revocation of the proxy. See "THE SPECIAL MEETING
- -- Voting and Revocation of Proxies for the Special Meeting."
THE MERGER
The following summary of the Merger is qualified in its entirety by
reference to the full text of the Merger Agreement, which is attached as
Appendix A hereto and incorporated herein by reference.
EFFECTS OF MERGER
At the time that the Merger is consummated (the "Effective Time"), PSB
will merge with and into National Bank, and PSB's corporate identity and
existence, separate and apart from National Bank, will cease. National Bank will
be the Surviving Bank in the Merger. No changes in the Charter or Bylaws of
National Bank will be effected by the Merger, and the name of the Surviving Bank
will continue to be South Side National Bank in St. Louis. The business of the
Surviving Bank will be that of a national banking association. The Surviving
Bank's business will be conducted at its main office, which will continue to be
located at 3606 Gravois Avenue, St. Louis, Missouri 63116, and its legally
established branches, which will initially include all of the existing locations
of PSB. See "THE MERGER -- Form of the Merger" and "-- Management and Operations
After the Merger."
MERGER CONSIDERATION; ELECTION AND PRORATION
Each PSB shareholder has the opportunity to indicate whether such PSB
shareholder prefers to receive shares of Southside Common or cash for each share
of PSB Common that such PSB shareholder owns (the "Merger Consideration"). All
such preference elections will, however, be subject to the requirement that 40%
of the total number of shares of PSB Common be converted into the right to
receive cash in the Merger and that 60% of the total number of shares of PSB
Common be converted into the right to receive Southside Common in the Merger.
Each PSB shareholder as of the Record Date has been sent appropriate forms and
other transmittal materials for the purpose of permitting such PSB shareholder
to elect to receive shares of Southside Common or cash in exchange for such PSB
shareholder's shares of PSB Common or to indicate that such PSB shareholder
makes no election. In the event that the preference elections made by PSB
shareholders do not result in the required proportions of shares of Southside
Common and cash being payable, the Merger Agreement provides for an allocation
method to reach the required result. The election procedures, which are set
forth in detail in the Merger Agreement, are intended to permit each PSB
shareholder to choose whether to receive shares of Southside Common or cash for
his or her shares of PSB Common. TO MAKE AN EFFECTIVE ELECTION, A PSB
SHAREHOLDER WILL BE REQUIRED TO RETURN A PROPERLY COMPLETED ELECTION FORM (AN
"ELECTION FORM") TO U.M.B. BANK, N.A., SECURITIES TRANSFERS DIVISION, KANSAS
CITY, MISSOURI (THE "EXCHANGE AGENT"), NOT LATER THAN 7 DAYS FOLLOWING THE DATE
OF THE SPECIAL MEETING (THE "ELECTION DEADLINE"). AN ELECTION FORM WILL BE
CONSIDERED PROPERLY COMPLETED ONLY IF IT IS ACCOMPANIED BY CERTIFICATES
REPRESENTING ALL SHARES OF PSB COMMON COVERED THEREBY. For a more
5
<PAGE> 13
complete discussion of the election and proration procedures, see "THE MERGER --
Merger Consideration" and "-- Election and Proration."
VALUE OF MERGER
The Merger Consideration will equal two times the stockholders' equity
of PSB as of the end of the quarter preceding the month in which the closing
occurs, subject to certain adjustments. As of _________ __, 1998, the
approximate total value of the Merger Consideration to be paid to the holders of
PSB Common was $___________, which results in a per share value to the holders
of PSB Common of $__.__ per share, to be received in cash, shares of Southside
Common, or a combination of cash and shares of Southside Common. The total value
of the Merger Consideration as stated above may increase or decrease depending
upon PSB's stockholders' equity. See "THE MERGER -- Merger Consideration."
REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The PSB Board of Directors (the "PSB Board") believes that the terms of
the Merger Agreement are fair to and in the best interest of the PSB
shareholders. The terms of the Merger Agreement were reached on the basis of
arm's length negotiations between Southside and PSB. In the course of reaching
its decision to approve the Merger Agreement, the PSB Board consulted with its
financial advisor, Manchester Partners, L.L.C. ("Manchester Partners") regarding
the financial terms of the Merger Agreement and the fairness of the Merger
Consideration to the holders of PSB Common from a financial point of view. See
"THE MERGER -- Opinion of Financial Advisor."
THE PSB BOARD RECOMMENDS THAT THE PSB SHAREHOLDERS VOTE FOR APPROVAL OF
THE MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER.
For a discussion of the background of the Merger and the factors
considered by the PSB Board in reaching its decision to approve the Merger
Agreement, see "THE MERGER -- Background of the Merger" and "-- Reasons for the
Merger; Recommendation of PSB Board."
OPINION OF FINANCIAL ADVISOR
Manchester Partners, PSB's financial advisor, has rendered its opinion
(the "Manchester Partners' Opinion") to the PSB Board that the terms of the
Merger are fair, from a financial point of view, to the PSB shareholders. See
"THE MERGER -- Opinion of Financial Advisor." The Manchester Partners' Opinion,
attached as Appendix C to this Proxy Statement/Prospectus, sets forth the
matters considered in rendering such opinion and should be read by PSB
shareholders in its entirety.
CONDUCT OF BUSINESS PENDING THE MERGER; DIVIDENDS
Pursuant to the Merger Agreement, PSB has agreed that it and its
subsidiaries will carry on business in the usual, regular and ordinary course in
substantially the same manner as conducted prior to the execution of the Merger
Agreement. The Merger Agreement provides that after the date of the Merger
Agreement PSB shall continue to declare and pay dividends and make other
distributions to PSB shareholders in such amounts and at such times as are in
accordance with PSB's historical practices. See "THE MERGER -- Conduct of
Business Pending the Merger; Dividends."
6
<PAGE> 14
CONDITIONS TO THE MERGER
The Merger is subject to various conditions including, among other
things: (i) approval of the Merger Agreement by the requisite two-thirds
(2/3rds) of the shareholders of PSB; (ii) receipt of all necessary regulatory
approvals; (iii) receipt by Southside of an opinion from PSB's counsel and
receipt by PSB of an opinion from Southside's counsel; (iv) the absence of a
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction; (v) each party complying in all
material respects with its agreements and obligations under the Merger
Agreement; and (vi) the receipt by PSB of an opinion of its counsel as to
certain federal income tax consequences of the Merger. The conditions described
in items (i), (ii) and (iv) above (the receipt of shareholder and regulatory
approvals and absence of a court order prohibiting the Merger) may not be waived
by any party. Although the remaining conditions to effect the Merger may be
waived by any party entitled to the benefit thereof, neither Southside nor PSB
intends to waive any such conditions except in those circumstances where the
Board of Directors of either Southside or PSB, as the case may be, deems such
waiver to be in the best interests of Southside or PSB, as the case may be, and
its respective shareholders. There can be no assurances as to when and if such
conditions will be satisfied (or, where permissible, waived) or that the Merger
will be consummated. See "THE MERGER -- Conditions to Consummation of the
Merger."
REGULATORY APPROVALS
The Merger requires the approval of the Office of the Comptroller of the
Currency (the "OCC"). The Merger may not be consummated until the 30th day after
approval has been obtained from the OCC; provided, however, that the Merger may
be consummated after the 15th day following the date of OCC approval if the OCC
has not received any adverse comments from the United States Department of
Justice (the "DOJ") relating to the competitive aspects of the transaction and
the DOJ has consented to such shorter waiting period. An application for the
required regulatory approval of the Merger from the OCC has been filed and is
pending. It is anticipated that OCC approval will be received on or about
________ __, 1998 but no assurance can be given that this timetable will be met.
See "THE MERGER -- Regulatory Approvals."
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that the Merger will become effective upon
compliance with any and all requirements and/or conditions contained in the
approved order issued by the OCC. It is presently anticipated that the Merger
will be consummated during the ___________ quarter of 1998, but no assurance can
be given that such timetable will be met. See "THE MERGER -- Effective Time;
Closing."
FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned upon, among other things, the
receipt by PSB of an opinion from its counsel to the effect that if the Merger
is consummated in accordance with the terms set forth in the Merger Agreement
(i) the Merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) no
gain or loss will be recognized by the holders of PSB Common to the extent that
they receive shares of Southside Common in exchange for their shares of PSB
Common, (iii) the basis of the shares of Southside Common received by the PSB
shareholders will be the same as the basis of shares of PSB Common exchanged
therefor, and (iv) the holding period of the shares of Southside Common received
by such PSB shareholders will include the holding period of the shares of PSB
Common exchanged therefor, provided that such shares of PSB Common were held as
capital assets as of the Effective Time. See "THE MERGER -- Certain Federal
Income Tax Consequences."
7
<PAGE> 15
The federal income tax consequences to each PSB shareholder (including
whether or not the transaction is taxable to such shareholder) will depend on
whether the shareholder receives stock, cash, or a combination thereof and
certain other facts which are described in further detail in "THE MERGER --
Certain Federal Income Tax Consequences." The actual federal income tax
consequences to each PSB shareholder of making a "Cash Election," a "Stock
Election" or a "Non-Election" (all as defined herein) will not be ascertainable
at the time the election is made because shareholders of PSB will not know at
such time if, or to what extent, the proration procedures described herein will
apply.
EACH PSB SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO SUCH PSB SHAREHOLDER.
ACCOUNTING TREATMENT
The Merger will be accounted for by Southside under the purchase method
of accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended. Under this method of accounting, the
purchase price will be allocated to assets acquired and liabilities assumed
based on their estimated fair values at the Effective Time. The consolidated
financial statements of Southside will include the results of operations of PSB
subsequent to the Effective Time. See "THE MERGER -- Accounting Treatment."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of PSB's management and the PSB Board have interests in
the Merger that are in addition to, and separate from, the interests of PSB
shareholders generally. These include, among others, provisions in the Merger
Agreement relating to director and officer indemnification and employee benefits
after the Merger. In addition, as described herein, Southside has agreed that
the Merger will constitute a "change of control," as that term is defined in the
Employment Agreement between Robert Spinzig, PSB's President, Chairman, and
Chief Executive Officer, and PSB and that Mr. Spinzig will be deemed to have
suffered a termination of employment under his Employment Agreement as of the
Effective Time thereby entitling him to certain severance benefits. See "THE
MERGER -- Interests of Certain Persons in the Merger."
For information about the percentage of PSB Common owned by the
directors and executive officers of PSB, see "INFORMATION ABOUT PSB -- Security
Ownership of Management." None of the directors or executive officers of PSB
would own, on a pro forma basis giving effect to the Merger, more than 1% of the
issued and outstanding shares of Southside Common.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Closing
Date (as defined herein): (i) by mutual written agreement of the parties,
regardless of whether approval of the Merger Agreement and the transaction
contemplated thereby had been previously obtained from the PSB shareholders;
(ii) by any party in the event of a material breach by the other party of any of
its representations and warranties or agreements under the Merger Agreement that
is not cured within 30 days after notice of such breach is given by the
non-breaching party; (iii) by any party in the event that all the conditions to
its obligations are not satisfied or waived (and not cured within any applicable
cure period); (iv) if any regulatory application filed in connection with the
Merger should be finally denied or disapproved by the respective regulatory
authority; (v) by Southside or PSB if the Merger Agreement and the Merger are
not approved by the requisite vote of the shareholders of PSB; (vi) by Southside
or PSB, as the case may be, in the event that Southside or PSB
8
<PAGE> 16
or any of their subsidiaries becomes a party or subject to any regulatory
enforcement action or proceeding which would have a material adverse effect upon
the financial condition, business or results of operations of Southside, PSB and
their subsidiaries as a whole; or (vii) by Southside or PSB if the Closing Date
of the Merger does not occur on or prior to February 25, 1999. See "THE MERGER
- -- Termination of the Merger Agreement."
PAYMENT UPON OCCURRENCE OF CERTAIN EVENTS
The Merger Agreement provides that PSB must pay to Southside the sum of
$425,000 upon the occurrence of one or more of the following events: (i)
termination of the Merger Agreement by Southside upon a breach thereof by PSB
(including, without limitation, the entering into of an agreement between PSB
and any third party which is inconsistent with the transactions contemplated by
the Merger Agreement); (ii) the failure of the PSB shareholders to approve the
Merger Agreement and the Merger at the Special Meeting (provided that, upon the
occurrence of an event described in clause (i) or (ii) above, an event described
in clause (iii) or (iv) below will have occurred within 18 months of the
occurrence of either of the foregoing events); (iii) any person or group of
persons (other than Southside) acquires, or has the right to acquire, 20% or
more of the outstanding shares of PSB Common (exclusive of any shares of PSB
Common sold directly or indirectly to such person or group of persons by
Southside); or (iv) PSB enters into an agreement or other understanding with a
person or group of persons (other than Southside and/or its affiliates) which
provides for such person or group of persons to acquire, merge or consolidate
with PSB or any of its subsidiaries or to purchase or acquire PSB or any of its
subsidiaries or all or substantially all of PSB's or any of its subsidiaries'
assets.
In addition, the Merger Agreement provides that Southside must pay to
PSB the sum of $200,000 should the Merger Agreement be terminated by PSB and the
Merger not consummated on account of a willful material breach by Southside or
National Bank of a representation, warranty or covenant contained in the Merger
Agreement. See "THE MERGER -- Payment Upon Occurrence of Certain Events."
DISSENTERS' RIGHTS
In connection with the vote on the Merger, PSB shareholders who fully
comply with the requirements of Code of Federal Regulations, Title 12, Section
552.14 ("Section 552.14") will have the right to receive from Southside the
appraised value of such shareholders' shares of PSB Common instead of the Merger
Consideration. The appraised value of the PSB Common will be based upon the fair
market value, as of the Effective Date, exclusive of any element of value
arising from the consummation, or expectation, of the Merger and will be
determined under the direction of the Office of Thrift Supervision ("OTS"). See
"THE MERGER -- Dissenters' Rights" for a statement of the rights of dissenting
shareholders and a fuller description of the procedures required to be followed
to exercise such rights. All references to and summaries of Section 552.14 in
this Proxy Statement/Prospectus are qualified in their entirety by reference to
the text of Section 552.14, which is attached hereto as Appendix D.
COMPARISON OF SHAREHOLDER RIGHTS
The rights of the shareholders of PSB Common and Southside Common differ
in certain respects. The rights of the shareholders of PSB who receive shares of
Southside Common in the Merger will be governed by the corporate law of
Missouri, the state in which Southside is incorporated, and by Southside's
Restated Articles of Incorporation, Restated Bylaws and other corporate
documents. The material differences between PSB Common and Southside Common from
the perspective of shareholders, as described in more detail under "COMPARISON
OF SHAREHOLDER RIGHTS," include shareholder votes required for certain business
combinations, removal of directors, amendments to articles of incorporation,
amendments to bylaws, the availability of special meetings of shareholders,
notice requirements for
9
<PAGE> 17
shareholder nominations of directors and proposals, dissenters' rights, certain
rights pursuant to Southside's shareholder rights plan, and rights of Southside
and its shareholders pursuant to certain corporate takeover statutes. See
"DESCRIPTION OF SOUTHSIDE CAPITAL STOCK" and "COMPARISON OF SHAREHOLDER RIGHTS."
10
<PAGE> 18
COMPARATIVE STOCK PRICES
Shares of Southside Common are traded on the Nasdaq SmallCap Market
under the symbol SBCO. The following table sets forth the high and low closing
bid price of Southside Common for the periods indicated, as reported on Nasdaq
SmallCap Market. The bid prices for such shares reflect interdealer prices,
without retail markup, markdowns or commission and do not necessarily represent
actual transactions.
There is no established market in which shares of PSB Common are
regularly traded nor are there any uniformly quoted prices for such shares.
Management of PSB does not have knowledge of the prices paid in all transactions
involving its shares and has not verified the prices indicated in the table with
both parties to the relevant transaction. Because of the lack of an established
public market for shares of PSB Common, the prices indicated may not reflect the
prices that would be paid for such shares in an active market.
<TABLE>
<CAPTION>
Southside Common PSB Common
--------------------------------------- ----------------------------------------
Cash Cash
High Low Dividend High Low Dividend
Calendar Year Bid Bid Declared Bid Bid Declared
------------- --- --- -------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
1996 First Quarter........... 21.00 19.00 .10 (1) (1) .25
Second Quarter.......... 20.00 19.00 .12 (1) (1) .25
Third Quarter........... 20.50 20.25 .13 15.00 15.00 .25
Fourth Quarter.......... 22.75 20.50 .15 17.00 17.00 .25
1997 First Quarter........... 25.00 22.75 .16 (1) (1) .25
Second Quarter.......... 37.00 21.50 .17 (1) (1) .25
Third Quarter........... 40.50 33.50 .18 (1) (1) .25
Fourth Quarter.......... 35.50 33.25 .19 (1) (1) .25
1998 First Quarter........... 37.75 34.25 .20 (1) (1) .25
</TABLE>
- --------------------------------------------
(1) Although there may have been private trades of PSB Common during these
periods, PSB was not a party to such transactions, and, therefore,
management of PSB does not have knowledge of the prices paid in such
transactions.
The following table sets forth the closing price per share for
Southside Common, as reported on the Nasdaq SmallCap Market, and the equivalent
pro forma per share for PSB Common on February 25, 1998, the last full trading
day prior to the public announcement of the execution of the Merger Agreement,
and on __________ __, 1998, which is the most recent date for which it was
practicable to obtain market price data prior to the printing of this Proxy
Statement/Prospectus. PSB shareholders are urged to obtain current market
quotations for Southside Common.
<TABLE>
<CAPTION>
February 25, 1998 , 1998
----------------- -----------------
<S> <C> <C>
Average of the closing bid and ask
price per share of
Southside Common ............................. $ 35.625
Equivalent pro forma per share of
PSB Common ................................... $ 82.37
</TABLE>
On ________ __, 1998, there were approximately ____ and ____ holders of
record of Southside Common and PSB Common, respectively.
11
<PAGE> 19
SELECTED COMPARATIVE PER SHARE DATA
The following summary presents, for the period indicated, selected
comparative historical, pro forma combined and pro forma equivalent per share
data for Southside and PSB. The pro forma amounts assume that the Merger had
been effective during the period presented and has been accounted for under the
purchase method of accounting. For a description of the purchase method of
accounting with respect to the Merger, see "THE MERGER -- Accounting Treatment."
The amounts designated "Historical" represent, the historical financial
results of Southside and PSB, respectively. The amounts designated "Pro Forma
Combined Per Southside Share" represent the pro forma results of the Merger, and
the amounts designated "Equivalent Pro Forma Per PSB Share" are computed by
multiplying the "Pro Forma Combined Per Southside Share" amount by an exchange
ratio of 2.312 to reflect the Merger Consideration to be paid by Southside. The
2.312 exchange ratio results from dividing the estimated per share value to
holders of PSB Common of $82.37 based on the transaction value at December 31,
1997 by the average of the closing bid and ask prices of Southside Common on
February 25, 1998 of $35.625. The actual exchange ratio will be based on
stockholders' equity of PSB at a later date and on the market price of Southside
Common over a measurement period prior to the Effective Time, and, therefore,
may be more or less than 2.312.
The data presented should be read in conjunction with the more detailed
information and financial statements included herein or incorporated by
reference in this Proxy Statement/Prospectus and with the unaudited pro forma
financial data schedule included elsewhere in this Proxy Statement/Prospectus.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "FINANCIAL STATEMENTS OF
PSB," and Appendix E.
<TABLE>
<CAPTION>
Year Ended
December 31, 1997(1)
--------------------
<S> <C>
NET INCOME PER COMMON SHARE:
Historical:
Basic:
Southside ..................................... $ 2.30
PSB ........................................... 2.62
Diluted:
Southside ..................................... $ 2.25
PSB ........................................... 2.62
Pro forma combined per Southside share:
Basic ......................................... 2.28
Diluted ....................................... 2.24
Equivalent pro forma per PSB share:
Basic ......................................... 5.27
Diluted ....................................... 5.18
DIVIDENDS PER COMMON SHARE:
Historical:
Southside ..................................... $ .70
PSB ........................................... 1.00
Pro forma combined per Southside share ................. .70
Equivalent pro forma per PSB share ..................... 1.62
BOOK VALUE PER COMMON SHARE (PERIOD END):
Historical:
Southside ..................................... $ 20.90
PSB ........................................... 42.71
Pro forma combined per Southside share ................. 20.98
Equivalent pro forma per PSB share ..................... 48.51
</TABLE>
- ------------------------------------
(1) The pro forma financial information of PSB is for the year ended
September 30, 1997 and has not been restated to conform with
Southside's fiscal year end of December 31, as the results are not
materially different.
12
<PAGE> 20
SELECTED FINANCIAL DATA
The following tables present selected consolidated historical financial
data for Southside, selected consolidated historical financial data for PSB and
pro forma combined amounts reflecting the Merger. The pro forma amounts assume
that the Merger had been effective during the periods presented. The data
presented is derived from the consolidated financial statements of Southside and
the consolidated financial statements of PSB and should be read in conjunction
with the more detailed information and financial statements included herein or
incorporated by reference in this Proxy Statement/Prospectus. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE," "FINANCIAL STATEMENTS OF PSB" and
Appendix E.
SOUTHSIDE BANCSHARES CORP.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Summarized Income Statement:
Net Interest Income ................................................ $ 21,112 $ 20,342 $ 19,928 $ 19,630 $ 19,993
Provision for Loan Losses .......................................... 60 60 70 193 2,608
Noninterest Income ................................................. 2,797 2,670 4,753 2,873 3,161
Noninterest Expense ................................................ 15,239 14,617 15,319 15,491 16,701
Income Tax Expense ................................................. 2,308 2,177 2,558 1,805 804
Net Income ......................................................... 6,302 6,158 6,734 5,014 3,041
Per Common Share Data:
Net Income
Basic ........................................................... $ 2.30 $ 2.27 $ 2.55 $ 1.93 $ 1.17
Diluted ......................................................... 2.25 2.26 2.54 1.93 1.17
Cash Dividends Paid ................................................ .70 .50 .365 .18 .165
Financial Position at Period End:
Total Assets ....................................................... $549,864 $527,907 $512,908 $517,118 $530,649
Total Loans ........................................................ 326,437 294,463 303,824 301,397 308,231
Deposits ........................................................... 483,363 467,276 457,567 468,093 484,308
Borrowed Money ..................................................... 5,333 3,402 3,766 3,378 3,678
Stockholders' Equity ............................................... 56,653 52,841 47,300 38,002 36,102
Selected Financial Ratios:
Return on Average Assets ........................................... 1.18% 1.20% 1.33% .97% .57%
Return on Average Total Equity ..................................... 11.44 12.27 15.47 13.48 8.86
Nonperforming Assets as % of Total Loans and Foreclosed Property ... 1.38 .69 1.26 2.34 5.62
Nonperforming Loans as % of Total Loans ............................ 1.07 .40 1.08 1.74 4.30
Loan Reserve as % of Total Loans ................................... 1.87 1.90 1.85 2.37 2.70
Net Charge-Offs as % of Average Loans .............................. (1) .03 .42 .47 1.29
Average Equity to Average Assets ................................... 10.28 9.75 8.62 7.19 6.48
Tier 1 Risk-Based Capital .......................................... 16.12 16.62 14.94 12.73 10.97
Total Risk-Based Capital ........................................... 17.38 17.88 16.20 15.33 13.55
</TABLE>
- --------------------------------
(1) Ratio is not applicable for 1997, as recoveries exceeded charge-offs for the
year.
13
<PAGE> 21
PUBLIC SERVICE BANK
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended
December 31(1) Year Ended September 30,
------------------- -------------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
------- ------- -------- ---------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Summarized Income Statement:
Net Interest Income ................... $ 454 $ 445 $ 1,777 $ 1,514 $ 1,614 $ 1,806 $ 1,670
Provision for Loan Losses ............. 6 6 24 24 24 24 24
Noninterest Income .................... 140 78 357 303 163 125 192
Noninterest Expense ................... 461 438 1,674 1,993 1,600 1,415 1,329
Income Tax Expense (Benefit) .......... 49 28 168 (84) 47 157 145
Cumulative Effect of Change in
Accounting Principle ................ -- -- -- -- -- -- (29)
Net Income (Loss) ..................... 78 51 268 (116) 106 335 335
Per Common Share Data:
Net Income (Basic & Diluted) .......... $ .76 $ .50 $ 2.62 $ (1.14) $ 1.04 $ 3.28 $ 3.28
Cash Dividends Paid ................... .25 .25 1.00 1.00 1.00 .95 .90
Financial Position at Period End:
Total Assets .......................... $70,173 $68,876 $ 70,470 $ 71,798 $ 62,517 $60,624 $64,005
Loans, Net of Allowance for Loan
Losses ............................ 48,223 46,092 47,635 49,215 44,977 42,690 38,813
Deposits .............................. 56,748 54,227 55,544 53,194 54,238 53,385 56,979
Stockholders' Equity .................. 4,417 4,224 4,364 4,198 4,417 4,413 4,175
Selected Financial Ratios:
Return on Average Assets(2) ........... .44% .29% .38% (.18%) .17% .54% .51%
Return on Average Total Equity(2) .... 7.11 4.84 6.25 (2.69) 2.40 7.80 8.26
Non-Performing Assets as % of total
Loans and Foreclosed Property ..... 1.58 1.64 1.80 2.12 .31 .62 .80
Nonperforming Loans as % of
total Loans ....................... .25 .13 .45 2.12 .31 .28 .31
Loan Loss Reserve as % of total
Loans ............................. .20 .25 .19 .22 .19 .14 .09
Net Charge-Offs as % of
Average Loans ..................... -- -- .09 -- -- -- .10
Dividend Payout Ratio ................. 32.89 50.00 38.17 (3) 96.15 28.96 27.44
Average Equity to Average Assets ...... 6.24 5.98 6.02 6.41 7.21 6.89 6.22
Tier 1 Risk-Based Capital ............. 14.53 14.38 14.44 13.61 16.04 16.78 16.00
Total Risk-Based Capital .............. 14.84 14.77 14.73 13.96 16.35 17.01 16.19
</TABLE>
- -------------------------------------
(1) Unaudited. Financial data as of and for the three months ended December 31,
1997 and 1996 have been prepared on the same basis as the historical information
derived from audited financial statements and, in the opinion of management,
contain all adjustments, consisting of normal recurring accruals, necessary for
the fair presentation of results of operations for such periods.
(2) Ratios have been annualized for the interim periods presented.
(3) Ratio is not applicable as 1996 earnings were negative.
14
<PAGE> 22
SOUTHSIDE BANCSHARES CORP.
AND
PUBLIC SERVICE BANK
PRO FORMA COMBINED SELECTED FINANCIAL DATA(1)
(unaudited)
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-------------------------------------
(in thousands, except per share data)
<S> <C>
Summarized Income Statement:
Net Interest Income............................................................. $ 22,718
Provision for Loan Losses....................................................... 60
Noninterest Income.............................................................. 3,104
Noninterest Expense............................................................. 16,610
Income Tax Expense.............................................................. 2,581
Net Income...................................................................... 6,571
Per Common Share Data:
Net Income:.....................................................................
Basic........................................................................ $ 2.28
Diluted...................................................................... 2.24
Cash Dividends Paid............................................................. .70
Financial Position at Period End:
Total Assets.................................................................... $ 620,957
Loans, Net of Allowance for Loan Losses......................................... 367,778
Deposits........................................................................ 539,509
Borrowed Money.................................................................. 14,763
Stockholders' Equity............................................................ 61,640
Selected Financial Ratios:
Nonperforming Assets as % of Total Loans and Foreclosed Property................ 1.44
Nonperforming Loans as % of Total Loans......................................... .99
Loan Reserve as % of Total Loans................................................ 1.66
Net Charge-Offs as % of Average Loans........................................... N/A
Average Equity to Average Assets................................................ 9.88
Tier 1 Risk-Based Capital....................................................... 15.40
Total Risk-Based Capital........................................................ 16.63
</TABLE>
- ---------------------------
(1) The information for PSB is for the year ended September 30, 1997 and has
not been restated to conform with Southside's fiscal year end of
December 31, as the results are not materially different.
15
<PAGE> 23
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to PSB shareholders
in connection with the solicitation of proxies by the PSB Board for use at the
Special Meeting to be held at ___________________________ on ________ __, 1998,
at ____ _.m., local time, and at any adjournment, continuation or postponement
thereof.
MATTERS TO BE CONSIDERED
At the Special Meeting, the holders of PSB Common will be asked to
approve the Merger Agreement which provides for, among other things, the merger
of PSB with and into National Bank, and the Agreement to Merge between PSB and
National Bank.
Management of PSB knows of no matters to be brought before the Special
Meeting other than those referred to herein. If any other business should
properly come before the Special Meeting, the persons named in the proxy will
vote in accordance with their best judgment.
RECORD DATE FOR THE SPECIAL MEETING
The close of business on ________ __, 1998 is the Record Date for the
determination of holders of PSB Common entitled to receive notice of and to vote
at the Special Meeting. On the Record Date, there were 102,182 shares of PSB
Common outstanding. Only holders of record of PSB Common on the Record Date are
entitled to notice of and to vote at the Special Meeting. No shares of PSB
Common can be voted at the Special Meeting unless the record holder is present
in person or represented by proxy.
VOTE REQUIRED TO APPROVE THE MERGER AGREEMENT
The presence in person or by proxy of a majority of the outstanding
shares of PSB Common entitled to vote on the Record Date is necessary to
constitute a quorum at the Special Meeting. The affirmative vote of two-thirds
(2/3rds) of the outstanding shares of PSB Common entitled to vote thereon is
required to approve the Merger Agreement and the transactions contemplated
thereby, including the Merger. Each holder of PSB Common is entitled to one vote
per share of PSB Common held by him or her on the Record Date. Proxies marked as
abstentions and shares held in street name, which have been designated by
brokers on proxy cards as not voted, will not be counted as votes cast and, as a
result, will have the same effect as a vote against approval of the Merger
Agreement and the Merger. Proxies marked as abstentions or as broker non-votes
will, however, be treated as shares present for purposes of determining whether
a quorum is present.
VOTING AND REVOCATION OF PROXIES FOR THE SPECIAL MEETING
A proxy to vote at the Special Meeting accompanies this Proxy
Statement/Prospectus. A PSB shareholder may use his or her proxy if he or she is
unable to attend the Special Meeting in person or wishes to have his or her
shares of PSB Common voted by proxy even if he or she attends the Special
Meeting. Shares of PSB Common represented by a proxy properly signed and
returned to PSB at, or prior to, the Special Meeting, unless subsequently
revoked, will be voted at the Special Meeting in accordance with instructions
thereon. If a proxy is properly signed and returned and the manner of voting is
not indicated on the proxy, all shares of PSB Common represented by such proxy
will be voted FOR approval and
16
<PAGE> 24
adoption the Merger Agreement and the transactions contemplated thereby,
including the Merger, and FOR any proposal regarding any adjournment,
continuation or postponement of the Special Meeting. The failure to submit a
proxy card (or to vote in person) at the Special Meeting, the abstention from
voting at the Special Meeting and, in the case of shares held in street name,
the failure of the beneficial owner thereof to timely give specific voting
instructions to the broker holding such shares (broker non-votes) will have the
same effect as a vote against approval and adoption of the Merger Agreement.
Any proxy given pursuant to this solicitation may be revoked by its
grantor at any time prior to the voting thereof on the matters to be considered
at the Special Meeting by filing with the Secretary of PSB a written revocation
or a duly executed proxy bearing a later date. A holder of PSB Common who
previously signed and returned a proxy and who elects to attend the Special
Meeting and vote in person may withdraw his or her proxy at any time before it
is exercised by giving notice of such revocation to the Secretary of PSB at the
Special Meeting and voting in person by ballot at the Special Meeting; however,
attendance at the Special Meeting will not in and of itself constitute a
revocation of the proxy.
The persons named as proxies by a PSB shareholder may propose and vote
for one or more adjournments, continuations or postponements of the Special
Meeting to permit further solicitation of proxies in favor of such proposal;
provided, however, that no proxy which is voted against the proposal to approve
and adopt the Merger Agreement will be voted in favor of any such adjournment,
continuation or postponement of the Special Meeting.
SOLICITATION OF PROXIES FOR THE SPECIAL MEETING
In addition to solicitation of proxies from holders of PSB Common by use
of the mail, proxies also may be solicited by personal interview, telephone and
wire by directors, officers and employees of PSB, who will not be specifically
compensated for such services.
SECURITY OWNERSHIP OF MANAGEMENT
As of the Record Date, the executive officers and directors of PSB and
their affiliates have the power to vote 46,545 shares (approximately 45.6% of
the shares outstanding) of PSB Common, all of which the management of PSB
expects to be voted in favor of the Merger Agreement. For information regarding
the shares of PSB Common beneficially owned, directly or indirectly by each
director and executive officer of PSB, and by all directors and officers of PSB
as a group, see "INFORMATION ABOUT PSB -- Security Ownership of Management." As
of the Record Date, Southside and its subsidiaries, and the directors and
executive officers of Southside and its subsidiaries, did not beneficially own
any shares of PSB Common.
THE PARTIES
SOUTHSIDE
Southside was incorporated in 1982 and has operated as a registered bank
holding company since 1983 under the BHCA. Southside and its subsidiaries had
consolidated total assets of $549,864,000 at December 31, 1997. The following
table shows the total assets at December 31, 1997, before elimination of
intercompany accounts, of each of Southside's subsidiary banks, all of which are
located in Missouri.
17
<PAGE> 25
<TABLE>
<CAPTION>
TOTAL ASSETS AT
DECEMBER 31, 1997
SUBSIDIARY BANKS (IN THOUSANDS)
------------------------------------- --------------
<S> <C>
South Side National Bank in St. Louis $ 353,316
State Bank of Jefferson County 57,683
Bank of Ste. Genevieve 84,805
The Bank of St. Charles County 54,120
</TABLE>
Southside'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 of banks of similar size and
character.
Customers of Southside's subsidiary banks are also offered fiduciary
services through the trust department of National Bank. At December 31, 1997,
the combined market value of fiduciary and custodial assets under management of
the trust department was approximately $307,000,000. These assets are not
reflected in the consolidated financial statements of Southside, as they do not
represent assets of Southside.
The responsibility for the management of the Southside's subsidiary
banks remains with the officers and directors of the respective banks. Southside
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 has nine officers, the majority of whom are also officers of
National Bank. The principal executive office of Southside is located at 3606
Gravois, St. Louis, Missouri, 63116 (telephone (314) 776-7000).
For additional information regarding Southside and its subsidiaries, see
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and Appendix E.
NATIONAL BANK
National Bank, a national banking organization, is Southside's leading
subsidiary bank. The main office of National Bank in St. Louis is located at
3606 Gravois Avenue, St. Louis, Missouri 63116 (telephone (314) 776-7000).
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. National Bank has
20 drive-in windows and eight 24-hour automated teller machines. National Bank
is a member of the Honor and CIRRUS automated teller networks. National Bank
serves St. Louis City and St. Louis County, Missouri.
At December 31, 1997, the total assets of National Bank were
$353,316,000; the total deposits of National Bank were $309,297,000; and the
total loans of National Bank were $197,175,000.
For additional information regarding National Bank, see "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE" and Appendix E.
18
<PAGE> 26
PSB
PSB, originally chartered by the State of Missouri in 1914, operates as
a federally-chartered capital stock savings bank. At December 31, 1997, PSB had
total assets of $70,173,000, total deposits of $56,748,000 and total
shareholders' equity of $4,417,000. PSB's primary business is the solicitation
of deposit accounts from members of the general public and the origination of
mortgage loans, upon the security of single family residences and other improved
real estate located primarily in the City of St. Louis and St. Louis County,
Missouri and surrounding areas. PSB conducts its business through its main
office in St. Louis, Missouri, located at 6025 Chippewa Street, St. Louis,
Missouri, 63109 (telephone (314) 351-3355), and two branch offices located in
St. Louis County, Missouri.
THE MERGER
GENERAL
This section of the Proxy Statement/Prospectus describes certain aspects
of the Merger, including the principal provisions of the Merger Agreement. The
following information relating to the Merger Agreement and the Merger is
qualified in its entirety by reference to the other information contained
elsewhere in this Proxy Statement/Prospectus, including the Appendices hereto
and the documents incorporated herein by reference. A copy of the Merger
Agreement is attached hereto as Appendix A and is incorporated by reference
herein. Reference is made thereto for a complete description of the terms of the
Merger. ALL SHAREHOLDERS OF PSB ARE URGED TO READ THE MERGER AGREEMENT IN ITS
ENTIRETY.
FORM OF THE MERGER
The Merger Agreement provides that, subject to the satisfaction or
waiver (where permissible) of the conditions set forth therein, at the Effective
Time, PSB will merge with and into National Bank, and National Bank will be the
Surviving Bank in the Merger. Upon consummation of the Merger, National Bank
will continue to be a wholly owned subsidiary of Southside, and the corporate
identity and existence of PSB, separate and apart from National Bank, will
terminate. No changes in the Charter or Bylaws of National Bank will be effected
by the Merger, and the name of the Surviving Bank will continue to be South Side
National Bank in St. Louis. All assets as they exist at the Effective Time will
pass to and vest in the Surviving Bank without any conveyance or other transfer.
The business of the Surviving Bank will be that of a national banking
association. The Surviving Bank's business will be conducted at its main office,
which will continue to be located at 3606 Gravois Avenue, St. Louis, Missouri
63116 and its legally established branches, which will initially include all of
the existing locations of PSB. See "-- Management and Operations After the
Merger." The present Board of Directors of National Bank will continue to serve
as the Board of Directors of the Surviving Bank until its next annual meeting or
until such time as their successors have been elected and have qualified. Each
share of common stock, par value $1.00 per share, of National Bank will remain
outstanding and unaffected by the Merger. Each share of Southside Common will
remain outstanding and unaffected by the Merger.
BACKGROUND OF THE MERGER
Over the course of 1996 and early 1997, Robert C. Spinzig, President,
Chairman and Chief Executive Officer of PSB, was approached by several financial
institutions to determine PSB's interest in a potential sale or merger of PSB.
During this period of time, Mr. Spinzig consulted formally and
19
<PAGE> 27
informally with the PSB Board regarding PSB's future and how to best enhance
value for PSB shareholders. Given the recent positive earnings performance of
PSB, the PSB Board concluded that management should continue its efforts at
expanding PSB's operations and increasing the volume of mortgage originations in
a further effort to grow PSB's operating profits.
As 1997 continued, the pace of consolidation in the financial services
industry accelerated as acquirors continued to increase the prices paid for
banks and thrifts. Additionally, PSB was again approached by several financial
institutions about PSB's interest in a business combination. After considering
these initial expressions of interest, the PSB Board concluded that PSB should
retain financial advisors to assist in determining the future direction of PSB.
In July 1997, PSB retained Manchester Partners as its financial advisor in order
to assess its strategic alternatives with the objective of enhancing value to
PSB shareholders.
Over the ensuing months, Manchester Partners analyzed PSB's alternatives
of continuing as a stand-alone organization and pursuing its strategic plan or
choosing a larger bank or thrift institution with which it could combine. As
part of this effort, Manchester Partners evaluated the premiums being paid for
thrifts in the St. Louis and Missouri markets. On August 27, 1997, Manchester
Partners presented its initial findings to the PSB Board. After its initial
report to the PSB Board, Manchester Partners was instructed to approach various
financial institutions to determine whether a business combination could be
achieved at a price to PSB's shareholders that would provide a better
alternative than PSB's pursuit of its own strategic plan.
During the period from September through October 1997, Manchester
Partners approached approximately twelve financial institutions that had
expressed an interest in PSB or were considered by Manchester Partners to be
potential merger partners, including Southside. The PSB Board was updated on the
activities and discussions at its meetings on September 24, 1997 and October 22,
1997. On November 8, 1997, Manchester Partners presented to the PSB Board the
results of its discussions with interested parties. Of the institutions
contacted, several expressed limited or no interest. Five of the institutions
contacted expressed interest at prices ranging from approximately 130% to
approximately 200% of PSB's book value per share at September 30, 1997. The
parties indicated interest in acquiring PSB using cash, stock, or combinations
of cash and stock. At its November 8, 1997 special meeting, the PSB Board, upon
the advice of Manchester Partners, authorized its representatives to enter into
discussions with Southside for the purpose of negotiating a definitive merger
agreement. The indication of interest by Southside represented the highest value
of the indications expressed.
During the ensuing discussions, Southside indicated a willingness to
structure an offer on an all stock basis, but a preference to include a cash
component. The offering prices under each of the structures proposed by
Southside were adjusted to increase the transaction value as the cash component
of the purchase price was increased. The final pricing structure of 60% stock
and 40% cash was determined by the PSB Board at its meeting on November 20, 1997
to provide the most value for PSB shareholders. The offer was structured to
allow PSB shareholders to choose the portion of their respective purchase price
to be paid in cash or stock, with a requirement that the overall stock and cash
components be 60% and 40%, respectively.
In early December 1997, as PSB was negotiating the terms of a definitive
merger agreement with Southside, PSB was reapproached by one of the institutions
whose earlier expression of interest was considered inferior to that of
Southside. The institution indicated a willingness to pay a higher than
previously indicated price, but stated that it would require PSB to negotiate
exclusively for a period of ninety days. The prices indicated to PSB during this
discussion were at a level that PSB's advisors believed required further
investigation. On December 17, 1997, Manchester Partners informed the PSB Board
of
20
<PAGE> 28
this recent development, made a comparison of the terms offered and conditions
required by the respective parties, and discussed the unresolved issues
associated with each offer, including the requirement for an exclusive
negotiating period by one of the interested institutions. The PSB Board then
instructed Manchester Partners to investigate the new offer more thoroughly.
Subsequent to the PSB Board meeting, Manchester Partners met with the
representatives of the other institution to clarify certain aspects of their
offer before advising the PSB Board about the merits of the offer and of
agreeing to the condition of an exclusive negotiating period.
On January 21, 1998, Manchester Partners presented the results of its
further investigation to the PSB Board. After considering the relative merits of
the respective offers, including the prices offered for PSB, the relative value
of stock being used for the purchase, and the transaction risk associated with
the respective offers, the PSB Board concluded that pursuing a transaction with
one party would be in the best interests of PSB shareholders and that PSB should
continue its discussions with Southside with the objective of negotiating a
definitive merger agreement.
Representatives of PSB and Southside continued discussions between
January 22, 1998 and February 24, 1998. During this period, details of the
definitive merger agreement were negotiated and the progress of the discussions
were reported to the members of the PSB Board by Chairman Spinzig. A draft of
the merger agreement was provided to each PSB Board member on February 18, 1998,
and on February 25, 1998 the PSB Board met to review its contents and the text
and scope of the Manchester Partners fairness opinion with special counsel,
Breyer & Aguggia, and Manchester Partners. At such meeting, the PSB Board voted
unanimously to approve the Merger Agreement.
REASONS FOR THE MERGER; RECOMMENDATION OF PSB BOARD
The PSB Board believes that the terms of the Merger Agreement, which are
the product of arm's length negotiations between representatives of Southside
and PSB, are fair and in the best interests of PSB and its shareholders. In the
course of reaching its determination, the PSB Board consulted with legal counsel
with respect to its legal duties, the terms of the Merger Agreement and the
issues related thereto; with its financial advisor with respect to the financial
aspects and fairness of the transaction; and with senior management regarding,
among other things, operational matters.
In reaching its determination to approve the Merger Agreement, the PSB
Board considered all factors it deemed material, which are the following:
(a) The PSB Board analyzed information with respect to the financial
condition, results of operations, cash flow, businesses and prospects of PSB. In
this regard, the PSB Board analyzed the options of selling PSB or continuing on
a stand-alone basis. The range of values on a sale of control basis were
determined to generally exceed the present value of PSB shares on a stand-alone
basis under business strategies which could be reasonably implemented by PSB.
(b) The PSB Board considered the written opinion of Manchester Partners
that, as of February 25, 1998, the consideration to be received by holders of
PSB Common pursuant to the Merger Agreement was fair to PSB shareholders from a
financial point of view. See "-- Opinion of Financial Advisor."
(c) The PSB Board considered the current operating environment,
including, but not limited to, the continued consolidation and increasing
competition in the banking and financial services industries and the prospect
for further changes in these industries.
21
<PAGE> 29
(d) The PSB Board considered the other terms of the Merger Agreement and
exhibits, including the opportunity for PSB shareholders to receive shares of
Southside Common, which are listed on the Nasdaq SmallCap Market, in a tax free
exchange.
(e) The PSB Board considered the detailed financial analyses, pro forma
and other information with respect to PSB and Southside discussed by Manchester
Partners, as well as the PSB Board's own knowledge of PSB, Southside and their
respective businesses. In this regard, the latest publicly-available financial
and other information for PSB and Southside were analyzed, including a
comparison to publicly-available financial and other information for other
similar financial institutions.
(f) The PSB Board considered the results of the contacts and discussions
between PSB and its financial advisor and various third parties and the belief
of the PSB Board and management that the Merger offered the best transaction
available to PSB and its shareholders.
(g) The PSB Board considered the likelihood of the Merger and related
transactions being approved by the appropriate regulatory authorities, including
factors such as market share analyses, Southside's Community Reinvestment Act
("CRA") rating at that time and the estimated pro forma financial impact of the
transaction on Southside. See "-- Regulatory Approvals."
(h) The PSB Board considered the ability of Southside to pay the Merger
Consideration. PSB's Board reviewed Southside's liquidity and capital position
as reflected in Southside's latest shareholder reports in evaluating the ability
of Southside to pay the Merger Consideration.
(i) The PSB Board considered the fact that the Merger Agreement
prohibits PSB from initiating or encouraging discussions with third parties
relating to alternative transactions and requires the payment of a termination
fee of $450,000 to Southside in certain events, and the fact that Southside
required such provisions as a condition to entering into the Merger Agreement.
The foregoing discussion of the information and factors considered by
the PSB Board is not intended to be exhaustive, but constitutes the material
factors considered by the PSB Board. In reaching its determination to approve
and recommend the Merger Agreement, the PSB Board did not assign any relative or
specific weights to the foregoing factors, and individual directors may have
weighed factors differently.
For the reasons set forth above, the PSB Board has unanimously approved
the Merger Agreement as advisable and in the best interests of PSB and PSB
shareholders and recommends that the shareholders of PSB vote FOR the approval
of the Merger Agreement.
OPINION OF FINANCIAL ADVISOR
The PSB Board retained Manchester Partners in July 1997 to provide
certain financial advisory and investment banking services to PSB, with the
objective of assessing PSB's strategic alternatives to enhance shareholders
value. Such services included undertaking a search process to ascertain the
interest in an acquisition of PSB by regional and local financial institutions,
including those that previously expressed interest in acquiring PSB, and, if
necessary, assisting PSB and the PSB Board in negotiating financial terms with
prospective acquirors and rendering its opinion with respect to the fairness of
the Merger consideration from a financial point of view to PSB shareholders in
the event PSB entered into an agreement to be acquired. In requesting Manchester
Partners' advice and opinion, the PSB Board did not give any special
instructions to Manchester Partners, nor did it impose any limitations upon the
scope of the investigation which Manchester Partners might wish to conduct to
enable it to give its opinion.
22
<PAGE> 30
Manchester Partners was selected by PSB to act as its financial advisor
because of Manchester Partners' expertise in the valuation of businesses and
their securities for a variety of purposes, including its expertise in
connection with mergers and acquisitions of savings and loan associations,
savings banks, savings and loan holding companies, commercial banks and bank
holding companies. Pursuant to a letter agreement dated and executed by PSB on
June 30, 1997 (the "Engagement Letter"), Manchester Partners estimates that it
will receive from PSB total professional fees of approximately $171,000, of
which $12,000 has been paid to date, plus reimbursement of certain out-of-pocket
expenses, for its services in connection with the Merger. In addition, PSB has
agreed to indemnify Manchester Partners against certain liabilities, including
liabilities under the federal securities laws. Manchester Partners' fee is not
conditioned upon its conclusions with respect to the fairness of the Merger
Consideration.
On February 25, 1998, at the meeting in which the PSB Board approved and
adopted the Merger Agreement and the transactions contemplated thereby,
Manchester Partners rendered its opinion to the PSB Board that, as of such date,
the Merger Consideration was fair to holders of PSB Common from a financial
point of view. That opinion was updated as of the date of this Proxy
Statement/Prospectus.
The full text of the Manchester Partners' Opinion, which sets forth the
assumptions made, procedures followed, matters considered and limits on the
review undertaken, is attached as Appendix C to this Proxy Statement/Prospectus
and is incorporated herein by reference. The description of the Manchester
Partners' Opinion set forth herein is qualified in its entirety by reference to
Appendix C. PSB shareholders are urged to read the Manchester Partners' Opinion
in its entirety. The Manchester Partners' Opinion is addressed only to the PSB
Board and is directed only to the Merger Consideration to be received in the
Merger by the holders of PSB Common and does not constitute a recommendation to
any PSB shareholders as to how such PSB shareholders should vote at the Special
Meeting.
In rendering its fairness opinion, Manchester Partners reviewed and
analyzed the following: (1) the Merger Agreement, dated February 25, 1998,
including exhibits; (2) the following information for PSB--(a) audited financial
statements as of, and for the fiscal years ended, September 30, 1995, 1996 and
1997, incorporated in the respective Annual Reports to stockholders, (b)
regulatory and internal financial and other reports through ________________ and
(c) the most recent proxy statement for PSB dated December 31, 1997; (3) the
results of discussions with PSB's management and directors regarding past and
current business, operations, financial condition as of ______________, and
future prospects; (4) PSB's latest publicly-available financial statements,
operating results and market pricing characteristics relative to those
publicly-traded savings institutions with characteristics deemed by Manchester
Partners to be relatively comparable; (5) competitive, economic and demographic
characteristics in PSB's market area; (6) the potential impact of regulatory and
legislative changes on savings institutions; (7) the financial terms of other
recently completed and pending acquisitions of savings institutions, regionally
and nationally, with characteristics deemed by Manchester Partners to be
relatively comparable; (8) expressions of interest by third parties; (9)
Southside's financial condition through _________________ to assess Southside's
resources and its ability to complete the Merger from a cash and capital
perspective; and (10) Southside's most recent CRA rating.
In rendering its opinion, Manchester Partners relied, without
independent verification, on the accuracy and completeness of the information
concerning PSB and Southside as furnished by PSB and Southside, respectively, to
Manchester Partners, as well as publicly-available information regarding other
financial institutions and competitive, economic and demographic data. PSB did
not restrict Manchester Partners as to the material it was permitted to review.
Manchester Partners did not perform or obtain any independent appraisals or
evaluations of the assets and liabilities and potential and/or contingent
liabilities of PSB.
23
<PAGE> 31
Manchester Partners expresses no opinion on matters of a legal,
regulatory, tax or accounting nature of the ability of the Merger as set forth
in the Merger Agreement to be consummated. In rendering its opinion, Manchester
Partners assumed that in the course of obtaining the necessary regulatory and
governmental approvals for the proposed Merger, no restriction will be imposed
on Southside that would have a material adverse effect on the ability of the
Merger to be consummated as set forth in the Merger Agreement.
The Manchester Partners' Opinion was based solely upon the information
available to it and the economic, market and other circumstances as they existed
as of February 25, 1998, and the date of this Proxy Statement/Prospectus; events
occurring after February 25, 1998 and after the date of this Proxy
Statement/Prospectus could materially affect the assumptions used in preparing
its opinion.
In connection with rendering its opinion dated February 25, 1998, and
updated as of the date of this Proxy Statement/Prospectus, Manchester Partners
performed a variety of financial analyses which are summarized below. Although
the evaluation of the fairness, from a financial point of view, of the Merger
Consideration was to some extent subjective based on the experience and judgment
of Manchester Partners, and not merely the result of mathematical analyses of
financial data, Manchester Partners principally relied on the financial analyses
summarized below in its determinations. The preparation of a fairness opinion is
a complex process and is not necessarily susceptible to partial analyses or
summary description. Manchester Partners believes its analyses must be
considered as a whole and that selecting portions of such analyses and factors
considered by Manchester Partners without considering all such analyses and
factors could create an incomplete view of the process underlying the Manchester
Partners' Opinion. In its analyses, Manchester Partners took into account its
assessment of general business, market, monetary, financial and economic
conditions, industry performance and other matters, many of which are beyond the
control of PSB and Southside, as well as Manchester Partners' experience in
securities valuation, its knowledge of financial institutions and its
principals' experience in similar transactions. With respect to the comparable
transactions analysis described below, no public company utilized as a
comparison is identical to PSB and such analyses necessarily involve complex
considerations and judgments concerning the differences in financial and
operating characteristics of the companies and other factors that could affect
the acquisition values of the companies concerned. The analyses were prepared
solely for the purpose of Manchester Partners' providing its opinion as to the
fairness to the holders of PSB Common from a financial point of view, of the
Merger Consideration and do not purport to be appraisals or necessarily reflect
the prices at which businesses or securities actually may be sold. Any estimates
contained in Manchester Partners' analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable than
such estimates. None of the analyses performed by Manchester Partners was
assigned a greater significance by Manchester Partners than any other.
Manchester Partners compared the Merger on the basis of stated multiples
of reported earnings, tangible book value and assets of PSB implied by the
Merger consideration to be paid to the holders of PSB Common with the same
ratios in pending and completed acquisition of Missouri savings and loan
associations, savings banks and savings and loan holding companies deemed by
Manchester Partners to be comparable.
The Missouri institutions with completed or pending acquisitions since
the beginning of 1995 included a total of eleven institutions. The acquisition
pricing ratios of this group were: (i) price/earnings ratios ranging from 12.79
to 60.68 times, with a median of 28.91 times; (ii) price/tangible book ratios
ranging from 117% to 212%, with a median of 136%; and (iii) price/assets ratios
ranging from 8.90 to 36.47%, with a median of 20.96%.
24
<PAGE> 32
In comparison, PSB was generally smaller, lower capitalized and less
profitable as measured by return on average assets. Further, PSB acquisition
pricing ratios pursuant to the terms of the Merger Agreement for price/earnings
and prices/tangible book exceeds the median ratios of this group, while the
pricing ratio for price/assets falls below the medians of this group.
Specifically, the Merger Consideration of $82.37 indicated the following
acquisition pricing ratios for shares of PSB Common, based on financial
statements as of or for the year ended September 30, 1997: 31.44 times
annualized earnings, 190.93% of tangible book value, and 11.99% of assets.
No company or transaction used in this composite is identical to PSB or
the Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies involved and other factors that could affect the trading values of the
securities of the company or companies to which they are being compared.
As described above, Manchester Partners' opinion and presentation to the
PSB Board was one of many factors taken into consideration by the PSB Board in
making its determination to approve the Merger Agreement and the transactions
contemplated thereby. Although the foregoing summary describes the material
components of the analyses presented by Manchester Partners to the PSB Board on
February 25, 1998, and updated as of the date of this Proxy
Statement/Prospectus, in connection with its opinion as of these dates, it does
not purport to be a complete description of all the analyses performed by
Manchester Partners and is qualified by reference to the written opinion of
Manchester Partners set forth as Appendix C hereto, which PSB's shareholders are
urged to read in its entirety.
THE FULL TEXT OF THE MANCHESTER PARTNERS' OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT/PROSPECTUS
AND IS INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE MANCHESTER
PARTNERS' OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
APPENDIX C. PSB SHAREHOLDERS ARE URGED TO READ THE MANCHESTER PARTNERS' OPINION
IN ITS ENTIRETY. THE MANCHESTER PARTNERS' OPINION IS ADDRESSED ONLY TO THE PSB
BOARD AND IS DIRECTED ONLY TO THE MERGER CONSIDERATION TO BE RECEIVED IN THE
MERGER BY THE HOLDERS OF PSB COMMON AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY PSB SHAREHOLDERS AS TO HOW SUCH PSB SHAREHOLDER SHOULD VOTE AT THE SPECIAL
MEETING.
MERGER CONSIDERATION
Pursuant to the Merger, each share of PSB Common issued and outstanding
as of the Effective Time, other than any shares of PSB the holders of which have
duly exercised and perfected their dissenters' rights under the regulations of
the OTS, will be converted into the right to receive from Southside either (1)
cash, without interest ("Per Share Cash Amount"), in an amount (rounded to the
nearest cent) equal to the Exchange Ratio (as defined below) multiplied by the
Southside Average Price (as defined below), or (2) that number of shares of
Southside Common equal to the Exchange Ratio, or (3) a combination of shares of
Southside Common and cash; provided, however, that the total number of shares of
PSB Common to be converted into the right to receive cash in the Merger will
equal 40% of the total number of shares of PSB Common outstanding immediately
prior to the Effective Time (the "Cash Election Number") and the total number of
shares of PSB Common to be converted into the right to receive Southside Common
will equal 60% of the total number of shares of PSB Common outstanding
immediately prior to the Effective Time (the "Stock Election Number").
25
<PAGE> 33
The "Exchange Ratio" will equal the quotient (rounded to the nearest
one-thousandth) of (x) two times the Capital (as defined below) of PSB divided
by the number of outstanding shares of PSB Common at the Effective Time, divided
by (y) the Southside Average Price. The "Capital" of PSB equals total
stockholders' equity of PSB as reflected in the consolidated balance sheet of
PSB as of the last day of the quarter immediately preceding the month in which
the Effective Time occurs minus any and all attorneys' fees, accounting fees,
and financial services/brokerage fees incurred by PSB in connection with the
Merger that have been or will be paid or accrued by PSB and not expensed on the
financial statements of PSB. The "Southside Average Price" will be the average
(rounded to the nearest one-thousandth) of the average of the closing bid and
ask prices per share of Southside Common reported by the Nasdaq SmallCap Market
during the period of ten trading days which ends on the fifth trading day prior
to the Closing Date.
As of __________ __, 1998, the approximate total value of the Merger
Consideration to be paid to the holders of PSB Common was $________, which
results in a per share value to the holders of PSB Common of $_______. The total
value of the Merger Consideration as stated above may increase or decrease
depending upon PSB's Capital.
On __________, 1998, the most recent date for which it was practicable
to obtain information prior to the printing of this Proxy Statement/Prospectus,
the closing price per share of Southside Common, as reported on the Nasdaq
SmallCap Market, was $_____. PSB shareholders should note, however, that the
market price of the Southside Common they receive will continue to be subject to
market fluctuations, as well as the future results of operations and financial
condition of Southside, among other factors, and therefore may be worth more or
less than such amount as of the end of the measurement period for determining
the Exchange Ratio or the date they receive their Southside Common certificates.
ELECTION AND PRORATIONS
Subject to the proration procedures to be applied, each holder of PSB
Common will be entitled (1) to elect to receive cash for all of his or her
shares of PSB Common (a "Cash Election"); (2) to elect to receive shares of
Southside Common for all of his or her shares of PSB Common (a "Stock
Election"); (3) to elect to receive shares of Southside Common for a stated
percentage of his or her shares of PSB Common (a "Partial Stock Election") and
to receive cash for the balance of such shares (a "Partial Cash Election"); or
(4) to indicate that he or she has no preference as to the receipt of cash or
shares of Southside Common (a "Non-Election"). All such elections must be made
on the Election Form.
Elections may be made by holders of PSB Common by mailing the Election
Form to the Exchange Agent. To be effective, an Election Form must be properly
completed, signed and submitted by the PSB shareholder (or by an appropriate
trust company in the United States or a member of a registered national
securities exchange or the NASD) together with the certificate or certificates
representing the shares of PSB Common for which an election is made to the
Exchange Agent by the Election Deadline. Southside will have the discretion,
which it may delegate in whole or in part to the Exchange Agent, to determine
whether Election Forms have been properly completed, signed and submitted and to
disregard immaterial defects in Election Forms. The decision of Southside or the
Exchange Agent as to such matters will be conclusive and binding. Neither
Southside nor the Exchange Agent will be under any obligation to notify any
person of any defect in an Election Form submitted to the Exchange Agent. The
Exchange Agent also will make all computations contemplated above and all such
computations will be conclusive and binding on the holders of PSB Common.
A holder of PSB Common who does not submit a properly completed Election
Form that is received by the Exchange Agent prior to the Election Deadline will
be deemed to have made a Non-Election. If
26
<PAGE> 34
Southside or the Exchange Agent determine that any purported Cash Election,
Partial Cash Election, Stock Election or Partial Stock Election was not properly
made, such purported election will be deemed to be of no force and effect and
the PSB shareholder making such purported Cash Election, Partial Cash Election,
Stock Election or Partial Stock Election will be deemed to have made a
Non-Election.
If the sum of the number of shares covered by Cash Elections and Partial
Cash Elections ("Cash Election Shares") exceeds 40% of the total number of
shares of PSB Common outstanding immediately prior to the Effective Time, all
shares of PSB Common covered by Stock Elections and Partial Stock Elections
("Stock Election Shares") and all shares of PSB Common covered by Non-Elections
("Non-Election Shares") will be converted into the right to receive shares of
Southside Common, and the Cash Election Shares will be converted into the right
to receive shares of Southside Common and cash in the following manner:
Each Cash Election Share will be converted into the right to receive (i)
an amount in cash (rounded to the nearest cent), without interest, equal
to the product of (x) the Per Share Cash Amount and (y) a fraction
("Cash Fraction"), the numerator of which will be the Cash Election
Number and the denominator of which will be the total number of Cash
Election Shares, and (ii) a number of shares of Southside Common equal
to the product (rounded to the nearest one-thousandth) of (x) the
Exchange Ratio and (y) a fraction equal to one minus the Cash Fraction.
If the aggregate number of Stock Election Shares exceeds 60% of the
total number of shares of PSB Common outstanding immediately prior to the
Effective Time, all Cash Election Shares and all Non-Election Shares will be
converted into the right to receive cash, and all Stock Election Shares will be
converted into the right to receive shares of Southside Common and cash in the
following manner:
Each Stock Election Share will be converted into the right to receive
(i) a number of shares of Southside Common equal to the product (rounded
to the nearest one-thousandth) of (x) the Exchange Ratio and (y) a
fraction ("Stock Fraction"), the numerator of which will be the Stock
Election Number and the denominator of which will be the total number of
Stock Election Shares, and (ii) an amount in cash (rounded to the
nearest cent), without interest, equal to the product of (x) the Per
Share Cash Amount and (y) a fraction equal to one minus the Stock
Fraction.
In the event that the number of shares covered by Cash Elections and
Partial Cash Elections does not exceed 40% of the total number of shares of PSB
Common outstanding immediately prior to the Effective Time and the number of
Stock Election Shares does not exceed 60% of the total number of shares of PSB
Common outstanding immediately prior to the Effective Time, all Cash Election
Shares will be converted into the right to receive cash, all Stock Election
Shares will be converted into the right to receive shares of Southside Common,
and the Non-Election Shares will be converted into the right to receive cash and
shares of Southside Common in the following manner:
Each Non-Election Share will be converted into the right to receive (i)
an amount in cash (rounded to the nearest cent), without interest, equal
to the product of (x) the Per Share Cash Amount and (y) a fraction
("Non-Election Fraction") the numerator of which will be the excess of
the (a) Cash Election Number over (b) the number of Cash Election Shares
and the denominator of which will be the excess of (A) the number of
shares of PSB Common outstanding immediately prior to the Effective Time
over (B) the sum of the total number of Cash Election Shares and (ii) a
number of shares of Southside Common equal to the product
27
<PAGE> 35
(rounded to the nearest one-thousandth) of (x) the Exchange Ratio and
(y) a fraction equal to one minus the Non-Election Fraction.
Any shares of PSB Common held by a holder of PSB Common who dissents
from the Merger in accordance with Section 552.14 and becomes entitled to obtain
payment for the fair value of such shares of PSB Common pursuant to such
regulation will not, after the Effective Time, be entitled to vote for any
purpose or receive any dividends or other distributions and will be entitled
only to such rights as are afforded in respect of Dissenting Shares pursuant to
OTS regulations. See "THE MERGER -- Dissenters' Rights" for a statement of the
rights of dissenting shareholders and a fuller description of the procedures
required to be followed to exercise such rights.
All elections may be revoked until the Election Deadline. Holders of
record of shares of PSB Common who hold such shares as nominees, trustees or in
any other representative capacities ("Representative") may submit multiple
Election Forms, provided that such Representative certifies that each such
Election Form covers the shares of PSB Common Stock held by each Representative
for a particular beneficial owner.
FRACTIONAL SHARES
No fractional shares of Southside Common will be issued in the Merger.
Instead, Southside will pay to each holder of PSB Common who would otherwise be
entitled to a fractional share an amount in cash determined by multiplying such
amount by the Southside Average Price.
EFFECTIVE TIME; CLOSING
The Merger Agreement provides that the Effective Time will occur upon
compliance with any and all requirements and/or conditions contained in the
approval order issued by the OCC. The date (the "Closing Date") of closing of
the Merger (the "Closing") will take place upon the receipt of all necessary
regulatory approvals, consents, authorizations and other approvals, including
approval of the Merger Agreement by the PSB shareholders, required by law for
consummation of the Merger and all waiting periods required by law have expired.
Assuming that the Merger is approved by the requisite vote of the PSB
shareholders and that the other conditions to the Merger are satisfied or waived
(where permissible), it is presently anticipated that the Merger will be
consummated during the ________________ quarter of 1998, but no assurance can be
given that such timetable will be met.
CONDUCT OF BUSINESS PENDING THE MERGER; DIVIDENDS
Pursuant to the Merger Agreement, PSB has agreed that it and each of its
subsidiaries will carry on their business in the usual, regular and ordinary
course in substantially the same manner as conducted prior to the execution of
the Merger Agreement. The Merger Agreement provides that PSB shall declare and
pay dividends and make other distributions to holders of PSB Common in such
amounts and at such times as are consistent with PSB's historical practices.
REGULATORY APPROVALS
The Merger is subject to the prior approval of the OCC. The Bank Merger
Act ("BMA") requires that the OCC take into consideration the financial and
managerial resources and future prospects of the existing and proposed
institutions and the convenience and needs of the communities to be served. The
BMA also prohibits the OCC from approving the Merger if it would result in a
monopoly or be in
28
<PAGE> 36
furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States, or its
effect in any section of the country may be substantially to lessen competition
or to tend to create a monopoly, or if it would in any other manner be a
restraint of trade, unless the OCC finds that the anticompetitive effects are
clearly outweighed by the public interest served by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served. The OCC also has the authority to deny an application if it concludes
that the combined organization would have an inadequate capital position.
Under the BMA, the Merger may not be consummated until the 30th day
following the date of OCC approval, during which time the DOJ may challenge the
Merger on antitrust grounds; provided, however, that the Merger may be
consummated after the 15th day following the date of OCC approval if the OCC has
not received any adverse comments from the DOJ relating to the competitive
aspects of the transaction, and the DOJ has consented to such shorter waiting
period. The commencement of an antitrust action would stay the effectiveness of
OCC approval unless a court specifically orders otherwise. An application for
the required regulatory approval from the OCC is pending. It is anticipated that
OCC approval will be received on or about _________ ___, 1998, but no assurances
can be given that this timetable will be met.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of management of PSB and the PSB Board may be deemed to
have interests in the Merger in addition to their interests as shareholders of
PSB generally. For information about the percentage of PSB Common owned by the
directors and executive officers of PSB, see "INFORMATION ABOUT PSB -- Security
Ownership of Management." None of the directors or executive officers of PSB
would own, on a pro forma basis giving effect to the Merger, more than 1% of the
issued and outstanding shares of Southside Common.
INSURANCE; INDEMNIFICATION
The Merger Agreement provides that Southside (and any successor) will
indemnify, defend and hold harmless the present and former directors, officers
and employees of PSB against all liabilities, claims, losses, damages or
judgements, or amounts paid in settlement with the approval of Southside (which
approval will not be unreasonably withheld) of any claim, action, or suit
arising out of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by the Merger
Agreement) regardless of whether such matter is asserted or claimed prior to, at
or after the Effective Time, to the fullest extent such persons may be
indemnified under Missouri Law as in effect on the date of the Merger Agreement,
including provisions relating to the advancement of expenses incurred in the
defense of any litigation. Southside will use its reasonable best efforts to
cause the persons serving as officers and directors of PSB immediately prior to
the Effective Time to be covered for a period of three years from the Effective
Time by single (one-time) premium tail coverage under the directors' and
officers' liability insurance policy maintained by PSB (provided that Southside
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are not materially less advantageous than
such policy) with respect to acts or omissions occurring prior to the Effective
Time which were committed by such officers and directors in their capacity as
such; provided, however, that in no event will Southside be required to expend
in the aggregate more than 150% of the annual amount currently expended by PSB
(the "Insurance Amount") to maintain or procure insurance coverage pursuant to
the Merger Agreement and further provided that if Southside is unable to
maintain or obtain the insurance otherwise called for by the Merger Agreement,
Southside will use its reasonable best efforts to obtain as much comparable
insurance as is available for the Insurance Amount.
29
<PAGE> 37
EMPLOYEE BENEFITS
The Merger Agreement contains certain provisions regarding employee
benefits which are described below under "THE MERGER -- Effect on Employee
Benefit Plans."
EMPLOYMENT AGREEMENT
Under the Merger Agreement, Southside has agreed that the Merger will
constitute a "change in control" as that term is defined in the Employment
Agreement between Robert Spinzig, the Chairman, President and Chief Executive
Officer of PSB, and PSB. Accordingly, Mr. Spinzig will be deemed to have
suffered a termination of employment as of the Effective Time, thereby entitling
Mr. Spinzig to certain severance benefits under his Employment Agreement. Based
upon Mr. Spinzig's current salary, the amount to which Mr. Spinzig will be
entitled to under his Employment Agreement is approximately $271,051.
CONSULTING AGREEMENT
In conjunction with the Merger, Southside has entered into an agreement
(the "Consulting Agreement") with Mr. Spinzig which provides that for a period
of two years beginning with the Effective Time, National Bank will retain Mr.
Spinzig as a consultant to provide various advisory services. The Consulting
Agreement provides that Southside will pay Mr. Spinzig $4,000 per month for 24
months in consideration for his advisory and consulting services.
CONDITIONS TO CONSUMMATION OF THE MERGER
The Merger is subject to various conditions. Specifically, as set forth
in the Merger Agreement, the obligations of each party to effect the Merger are
subject to the fulfillment or waiver (where permissible) by each of the parties,
at or prior to the Closing Date, of the following conditions: (i) the
representations and warranties of the respective parties to the Merger Agreement
as set forth therein will be true and correct in all material respects on and as
of the Closing Date; (ii) each of the respective parties to the Merger Agreement
will have performed and complied in all material respects with all of its
obligations and agreements required to be performed prior to the Closing Date;
(iii) no party to the Merger Agreement will be subject to any temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction which enjoins or prohibits consummation of
the Merger nor will there be any action taken, or any statute, rule, regulation
or order enacted, entered, enforced or deemed applicable to the Merger which
would make consummation of the Merger illegal; (iv) all necessary regulatory
approvals and consents required to consummate the Merger, including the approval
of the PSB shareholders, will have been obtained and all waiting periods in
respect thereof will have expired; (v) PSB will have received all required
documents from Southside and National Bank, in a form and substance reasonably
satisfactory to PSB; (vi) the Registration Statement relating to the Southside
Common to be issued pursuant to the Merger will have become effective, and no
stop order suspending the effectiveness of the Registration Statement will have
been issued and no proceedings for that purpose will have been initiated or
threatened by the S.E.C.; (vii) PSB will have received an opinion from its
counsel with respect to certain federal income tax consequences of the Merger;
(viii) Southside will have deposited with the Exchange Agent an amount of cash
sufficient to satisfy its obligations to PSB shareholders; (ix) PSB will have
received from Manchester Partners a fairness opinion, in form and substance
reasonably satisfactory to PSB, to the effect that the consideration to be
received by PSB shareholders pursuant to the Merger Agreement is fair, from a
financial point of view, to the PSB shareholders; and (x) each party will have
received a legal opinion from counsel to the other party.
30
<PAGE> 38
The conditions described in items (iii) and (iv) above (the absence of
any restraining orders and the receipt of PSB shareholder and regulatory
approvals) may not be waived by any party. Although the remaining conditions to
effect the Merger may be waived by the party entitled to the benefit thereof,
neither Southside, National Bank nor PSB intend to waive any such conditions
except in those circumstances where the Board of Directors of either Southside,
National Bank or PSB, as the case may be, deems such waiver to be in the best
interests of Southside, National Bank or PSB, as the case may be, and their
respective shareholders.
No assurance can be provided as to if or when all of the foregoing
conditions precedent to the Merger will be satisfied or waived (where
permissible) by the party permitted to do so. If the Merger is not effected by
February 25, 1999, the Merger Agreement may be terminated by Southside or PSB
unless the failure of the Closing to occur by such date is due to the failure of
the party seeking to terminate this Agreement to perform or observe the
covenants and agreements of such party set forth in the Merger Agreement. See
"-- Termination of the Merger Agreement."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Closing
Date: (i) by mutual written agreement of the parties, regardless of whether
approval of the Merger Agreement and the transaction contemplated thereby had
been previously obtained from the PSB shareholders; (ii) by any party in the
event of a material breach by the other of any of its representations and
warranties or agreements under the Merger Agreement not cured within 30 days
after notice of such breach is given by the non-breaching party, regardless of
whether approval of the Merger Agreement and the transactions contemplated
thereby had been previously obtained from the PSB shareholders; (iii) by any
party in the event that all the conditions to its obligations are not satisfied
or waived (and not cured within any applicable cure period); (iv) if any
regulatory application filed in connection with the Merger should be finally
denied or disapproved by the respective regulatory authority; (v) by Southside
or PSB if the Merger Agreement and the Merger are not approved by the requisite
vote of the PSB shareholders at the Special Meeting; (vi) by Southside or PSB,
as the case may be, in the event that Southside or PSB or any of their
subsidiaries becomes a party or subject to any new or amended written agreement,
memorandum of understanding, cease and desist order, imposition of civil money
penalties or other regulatory enforcement action or proceeding which would have
a material adverse effect upon the financial condition, business or results of
operations of Southside, PSB and their subsidiaries as a whole; or (vii) by
Southside or PSB if the Closing Date does not occur on or prior to February 25,
1999 unless the failure of the Closing to occur by such date is due to the
failure of the party seeking to terminate this Agreement to perform or observe
the covenants and agreements of such party set forth in the Merger Agreement.
PAYMENT UPON OCCURRENCE OF CERTAIN EVENTS
The Merger Agreement provides that PSB must pay to Southside the sum of
$425,000 upon the occurrence of one or more of the following events: (i)
termination of the Merger Agreement by Southside upon a breach thereof by PSB
(including, without limitation, the entering into of an agreement between PSB
and any third party which is inconsistent with the transactions contemplated by
the Merger Agreement) not cured within 30 days after written notice of such
breach is given by Southside to PSB; (ii) the failure of the PSB shareholders to
approve the Merger Agreement and the Merger at the Special Meeting (provided
that, upon the occurrence of an event described in clause (i) or (ii) above, an
event described in clause (iii) or (iv) below will have occurred within 18
months of the occurrence of either of the foregoing events); (iii) any person or
group of persons (other than Southside) acquires, or has the right to acquire,
20% or more of the outstanding shares of PSB Common (exclusive of any shares of
PSB Common sold directly or indirectly to
31
<PAGE> 39
such person or group of persons by Southside); or (iv) PSB enters into an
agreement or other understanding with a person or group of persons (other than
Southside and/or its affiliates) which provides for such person or group of
persons to acquire, merge or consolidate with PSB or any of its subsidiaries or
to purchase or acquire PSB or any of its subsidiaries or all or substantially
all of PSB's or any of its subsidiaries' assets.
In addition, the Merger Agreement provides that Southside must pay to
PSB the sum of $200,000 should the Merger Agreement be terminated by PSB and the
Merger not consummated on account of a willful material breach by Southside or
National Bank of a representation, warranty or covenant contained in the Merger
Agreement.
DISSENTERS' RIGHTS
THE FOLLOWING IS A SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS
PURSUANT TO SECTION 552.14 AND DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF
THE PROVISIONS THEREOF. AS A RESULT, THE FOLLOWING SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SECTION 552.14, A COPY OF WHICH IS
INCLUDED AS APPENDIX D TO THIS PROXY STATEMENT/PROSPECTUS. HOLDERS OF PSB COMMON
INTENDING TO REQUEST PAYMENT OF THE FAIR OR APPRAISED VALUE OF THEIR SHARES IN
ACCORDANCE WITH SECTION 552.14 ARE URGED TO REVIEW CAREFULLY APPENDIX D AND TO
CONSULT WITH THEIR LEGAL COUNSEL SO AS TO BE IN STRICT COMPLIANCE THEREWITH.
FAILURE TO DO SO COULD AFFECT A PSB SHAREHOLDER'S ABILITY TO EXERCISE
DISSENTERS' RIGHTS.
If the Merger is consummated, PSB shareholders who properly dissent
therefrom will be entitled, pursuant to Section 552.14, to receive from
Southside the fair or appraised value of their shares of PSB Common. Pursuant to
Section 552.14, this value is determined to be the fair market value of such
shares of PSB Common, as of the Effective Date of the Merger, exclusive of any
element of value arising from the accomplishment or expectation of the Merger.
The rights of a dissenting PSB shareholder to receive this value in place of the
Merger Consideration are referred to in this Proxy Statement as "Dissenters'
Rights."
In order to be entitled to exercise Dissenters' Rights, a dissenting PSB
shareholder must take certain actions specified in Section 552.14. First, the
PSB shareholder, before voting on the Merger, must deliver to PSB a writing
identifying himself or herself and stating his or her intention to demand
appraisal of and payment for his or her shares of PSB Common. This demand must
be in addition to, and separate from, any proxy that the PSB shareholder
delivers in connection with the Special Meeting. Such notices should be directed
to PSB's Corporate Secretary at the executive offices of PSB. In addition to
delivering such notice to PSB, the PSB shareholder must not vote in favor of the
Merger. NO PSB SHAREHOLDER WHO VOTES (EITHER IN PERSON OR BY PROXY) IN FAVOR OF
THE MERGER WILL BE ENTITLED TO EXERCISE DISSENTERS' RIGHTS.
Within sixty days after the Effective Date, a dissenting PSB shareholder
must also submit to Southside's stock transfer agent his or her stock
certificates for notation that an appraisal and payment have been demanded with
respect to that stock and that appraisal proceedings are pending. Southside's
stock transfer agent is UMB Bank, St. Louis, Missouri.
Within ten days after the Effective Date, Southside is required to do
the following: (i) give written notice of the Effective Date by mail to PSB
shareholders that have complied with the procedures for exercising Dissenters'
Rights, and have not voted in favor of the Merger; (ii) make a written offer to
each such PSB shareholder to pay for his or her shares at a specified price
deemed by Southside to be the fair value of the shares; and (iii) inform such
PSB shareholders that, within 60 days after the Effective Date, certain
requirements of Section 552.14 must be satisfied. This notice and offer will be
accompanied by a balance sheet and statement of income of PSB for the fiscal
year ending September 30, 1997, together with
32
<PAGE> 40
the latest available interim financial statements. If Southside and a dissenting
PSB shareholder agree on a fair value for such PSB shareholder's shares of PSB
Common within 60 days of the Effective Date, then Southside must pay the
agreed-upon price within 90 days of the Effective Date. If Southside and a
dissenting PSB shareholder do not agree on a fair value within the 60-day
period, the PSB shareholder may then file a petition with the OTS demanding a
determination of the fair market value of his or her shares of PSB Common.
Upon receipt of this petition, the OTS must determine the fair market
value of the dissenting PSB shareholder's shares of PSB Common, as of the
Effective Date, exclusive of any element of value arising from the
accomplishment or expectation of the Merger. The OTS may have its staff
undertake this appraisal or may select one or more independent persons to do so.
Upon conclusion of an appraisal satisfactory to the OTS, the OTS will direct the
surviving entity to make payment in cash to the dissenting shareholder, upon
surrender of the certificates representing his or her stock, together with
interest from the Effective Date at a rate determined by the OTS.
The costs and expenses of the appraisal process under Section 552.14
will be apportioned by the OTS, as it may deem equitable among some or all of
the parties. In making this determination, the OTS will consider whether any
party has acted arbitrarily, vexatiously, or not in good faith in respect to the
rights provided by Section 552.14. Any costs and expenses allocated to a
dissenting PSB shareholder will reduce the amount that such PSB shareholder will
receive from Southside in exchange for his or her shares of PSB Common.
EXCHANGE OF PSB STOCK CERTIFICATES
On the Closing Date, the Exchange Agent will mail to each holder of PSB
Common who submitted a properly completed Election Form together with all
certificates representing the shares of PSB Common ("Certificates") covered by
such Election Form the cash and/or shares of Southside Common to which such PSB
shareholder is entitled pursuant to the terms of the Merger Agreement. As soon
as practicable after the Closing Date, each holder of record of Certificates who
has not previously submitted a properly completed Election Form accompanied by
all Certificates representing the shares of PSB Common held of record by such
shareholder will be instructed to tender such Certificates to the Exchange Agent
pursuant to a letter of transmittal that Southside will deliver or cause to be
delivered to such shareholder. Such letter of transmittal will specify that risk
of loss and title to Certificates will pass only upon acceptance of such
Certificates by the Exchange Agent. Upon surrender to the Exchange Agent of a
Certificate, together with a letter of transmittal duly executed and any other
required documents, the holder of such Certificate will be entitled to receive
in exchange therefor solely the consideration payable with respect to the shares
of PSB Common represented thereby. No interest on the consideration issuable
upon the surrender of the Certificates will be paid or accrued for the benefit
of holders of Certificates. If the cash and/or shares of Southside Common is to
be issued to a person other than a person in whose name a surrendered
Certificate is registered, it will be a condition of issuance that the
surrendered Certificate be properly endorsed or otherwise in proper form for
transfer and that the person requesting such issuance pay to the Exchange Agent
any required transfer taxes or other taxes or establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable.
At any time following six months after the Closing Date, Southside will
be entitled to terminate the Exchange Agent relationship, and thereafter holders
of Certificates will be entitled to look only to Southside (subject to abandoned
property, escheat or other similar laws) with respect to the cash and/or shares
of Southside Common issuable upon surrender of their Certificates. No dividends
that are otherwise payable on shares of Southside Common will be paid to persons
entitled to receive such shares of Southside Common
33
<PAGE> 41
until such persons surrender their Certificates. Upon such surrender, Southside
will pay any dividends that have become payable with respect to such shares of
Southside Common (without interest and less the amount of taxes, if any, which
may have been imposed thereon) between the Effective Time and the time of such
surrender. After the Effective Time, there will not be any transfers on the
stock transfer books of PSB of any shares of PSB Common.
CERTAIN OTHER AGREEMENTS
PSB
Business of PSB in Ordinary Course. Pursuant to the Merger Agreement,
PSB has agreed, among other things, that it will cause itself and each of its
subsidiaries to (1) continue to carry on its respective business and the
discharge or incurrence of obligations and liabilities, only in the usual,
regular and ordinary course of business, (2) continue to fund the loan loss
reserve in accordance with its past practices, and (3) use reasonable best
efforts to maintain and preserve intact its respective business organization,
employees and advantageous business relationships and retain the services of its
officers and key employees. In addition, the Merger Agreement provides that PSB
and each of its subsidiaries will not, without the prior written consent of
Southside, which consent may not be withheld unreasonably: (i) issue additional
shares of PSB Common or other capital stock, options, warrants or other rights
to subscribe for or purchase shares of PSB Common, or any other capital stock or
any other securities convertible into or exchangeable for any capital stock of
PSB or any of its subsidiaries; (ii) directly or indirectly redeem, purchase or
otherwise acquire PSB Common or any other capital stock of PSB or its
subsidiaries; (iii) effect a reclassification, recapitalization, splitup,
exchange of shares, readjustment or other similar change in any capital stock or
otherwise reorganize or recapitalize; (iv) change its Charter or Bylaws unless
so requested by a regulatory authority; (v) grant any increase (other than
ordinary and normal increases consistent with past practices) in the
compensation payable or to become payable to officers or salaried employees,
grant any stock options or, except as required by law, adopt or change any
bonus, insurance, pension, or other PSB Employee Plan (as defined herein),
payment or arrangement made to, for or with any such officers or employees; (vi)
borrow or agree to borrow any amount of funds other than in the ordinary course
of business or directly or indirectly guarantee or agree to guarantee any
obligations of others; (vii) make or commit to make any new loan or letter of
credit or any new or additional discretionary advance under any existing line of
credit, in excess of $300,000, or that would increase the aggregate credit
outstanding to any one borrower or group of affiliated borrowers to more than
$500,000 without the prior written consent of Southside; (viii) purchase or
otherwise acquire any investment security including without limitation any
derivative security for its own account except for United States government
issued or guaranteed obligations; (ix) increase or decrease the rate of interest
paid on time deposits or certificates of deposit except in accordance with past
practices; (x) enter into any agreement, contract or commitment out of the
ordinary course of business having a term in excess of three months other than
letters of credit, loan agreements, and other lending, credit and deposit
agreements and documents made in the ordinary course of business; (xi) mortgage,
pledge, subject to lien or charge or otherwise encumber any of its assets or
properties except in the ordinary course of business; (xii) cancel, accelerate
or waive any material indebtedness, claims or rights owing to PSB or its
subsidiaries except in the ordinary course of business; (xiii) sell or otherwise
dispose of any real property or material amount of any tangible or intangible
personal property other than properties acquired in foreclosure or otherwise in
the ordinary collection of indebtedness to PSB and its subsidiaries; (xiv)
foreclose or otherwise take title to or possess any real property, other than
single family residential real estate without first obtaining a phase one
environmental report which indicates that the property is free of pollutants,
contaminants or hazardous or toxic waste materials; (xv) commit any act or fail
to do any act which will result in a material breach of any agreement, contract
or commitment which will materially adversely affect the business, financial
condition or results of operations of PSB or its subsidiaries; (xvi) violate any
law,
34
<PAGE> 42
statute, rule, governmental regulation or order which will materially adversely
affect the business, financial condition or results of operations of PSB or its
subsidiaries taken as a whole; (xvii) purchase any real or personal property or
make any capital expenditure in excess of $5,000; (xviii) take any action which
would adversely affect or delay the ability of either Southside or PSB to obtain
any necessary approvals of any regulatory agency or other governmental authority
required for the transactions contemplated by this Agreement or to perform its
covenants and agreements under this Agreement; or (xix) purchase or otherwise
acquire any participation or any other interest in loans made by other financial
institutions or lenders.
Other PSB Agreements. In addition, PSB has agreed to: (i) give Southside
prompt written notice of any occurrence, or impending or threatened occurrence,
of any event or matter which would cause or constitute a failure of any
condition precedent to any party's obligation to effect the Merger or breach of
any of PSB's representations or agreements in the Merger Agreement, or of the
occurrence of any matter or event known to and directly involving PSB (not
including changes in conditions that affect the savings bank or thrift industry
generally) that is materially adverse to the business, operations, or financial
condition of PSB or its subsidiaries; (ii) use its best efforts to obtain all
necessary consents with respect to any material leases, licenses, contracts,
instruments and rights which require the consent of another person for their
transfer or assumption pursuant to the Merger; (iii) use its best efforts to
perform and fulfill all conditions and obligations to be performed or fulfilled
under the Merger Agreement and to effect the Merger; (iv) permit Southside
during the period prior to the Effective Time reasonable access to PSB's
properties, books, contracts, commitments and records and to provide a copy of
each report, schedule and other document filed or received by PSB during such
period pursuant to the requirements of federal and state securities laws and all
other information concerning its business, properties and personnel as Southside
may reasonably request; (v) from and after July 1, 1998, if the Closing has not
yet occurred, continue to accrue for its obligations with respect to the
Financial Institutions Retirement Fund in an amount equal to one-twelfth of the
amount funded in the previous fiscal year for each month thereafter until and
including the month in which the Closing Date occurs; (vi) cause the Special
Meeting of the PSB Shareholders to be held on a date mutually selected by
Southside and PSB and in connection therewith mail this Proxy
Statement/Prospectus to the PSB shareholders; and (vii) until the Effective
Time, provide to Southside its unaudited (or, if available, audited) financial
statements as of the PSB fiscal quarter last ended.
SOUTHSIDE
Pursuant to the Merger Agreement, Southside and National Bank have
agreed, as applicable, among other things, to: (i) file all regulatory
applications required in order to consummate the Merger and to keep PSB
reasonably informed as to the status of such applications; (ii) file the
Registration Statement with the S.E.C. and use its best efforts to cause the
Registration Statement to become effective; (iii) timely file all documents
required to obtain all necessary permits and approvals under applicable state
securities laws; (iv) prepare and file any other filings required under the
Exchange Act, relating to the Merger and related transactions; (v) promptly
notify PSB in writing should Southside have knowledge of any event or condition
which would cause or constitute a breach of any of its representations or
agreements contained in the Merger Agreement; (vi) use their respective best
efforts to perform and fulfill all conditions and obligations to be performed or
fulfilled under the Merger Agreement and to effect the Merger; and (vii) permit
PSB reasonable access during the period prior to the Effective Time to their
properties, books, contracts, commitments and records and, during such period,
furnish promptly to PSB (a) a copy of each report, schedule or other document
filed or received by it during such period pursuant to the requirements of
federal and state securities laws and (b) all other information concerning its
business, properties and personnel as PSB may reasonably request. In addition,
the Merger Agreement provides that Southside will provide certain employee
benefit plans and programs to the employees of PSB who continue their employment
after the Effective Time. See "THE MERGER -- Effect on Employee Benefit Plans."
35
<PAGE> 43
NO SOLICITATION
The Merger Agreement provides that, unless and until the Merger
Agreement has been terminated, PSB and its subsidiaries will not authorize or
permit any of their respective officers, directors, employees or agents to
solicit, encourage or initiate any inquiries with respect to or (subject to the
fiduciary duties of its directors as advised by counsel) hold discussions or
negotiations with or provide any information to any person in connection with
any proposal from any person relating to the acquisition of all or a substantial
portion of the business, assets or PSB Common or other securities of PSB or its
subsidiaries. PSB is required to promptly advise Southside of its receipt of,
and the substance of, any such proposal or inquiry.
WAIVER AND AMENDMENT
At any time before or after the PSB shareholders approve the Merger
Agreement, any provision of the Merger Agreement, including, without limitation,
the conditions to consummation of the Merger, may be (i) waived, to the extent
permitted under law, in writing by the party which is entitled to the benefits
thereof; or (ii) amended at any time by written agreement of the parties,
provided, however, that no amendment or modification will decrease the amount or
change the form of Merger Consideration to be received by the PSB shareholders.
It is anticipated that any given condition to the obligations of PSB and
Southside to consummate the Merger would be waived only in those circumstances
where the Board of Directors of PSB or Southside, as the case may be, deems such
waiver to be in the best interests of such company and its shareholders.
EXPENSES AND FEES
In the event that the Merger Agreement is terminated or the Merger is
abandoned, all costs and expenses incurred in connection with the Merger
Agreement will be paid by the party incurring such costs and expenses, and no
party will have any liability to the other party for costs, expenses, damages or
otherwise, except that: (i) in the event the Merger Agreement is terminated on
account of a willful breach of any of the representations or warranties therein
or any breach of the agreements set forth therein, the non-breaching party is
entitled to seek damages against the breaching party; and (ii) upon the
occurrence of certain events, PSB will be required to pay a fee of $425,000 to
Southside, and Southside will be required to pay a fee of $200,000 to PSB. See
"THE MERGER -- Payment Upon Occurrence of Certain Events."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the Merger that are generally applicable to PSB shareholders.
This discussion is based on currently existing provisions of the Code, existing
regulations thereunder (including final, temporary or proposed) and current
administrative rulings and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences described herein. The following discussion is intended only as a
general summary of the material federal income tax consequences of the Merger
and does not purport to be a complete analysis or listing of all potential tax
effects relevant to a decision on whether to vote in favor of approval of the
Merger Agreement.
Consummation of the Merger is conditioned upon the receipt by Southside
and PSB of an opinion of Breyer & Aguggia, special counsel to PSB, to the effect
that if the Merger is consummated in accordance with the terms set forth in the
Merger Agreement (i) the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, (ii) no gain or loss will be recognized
by PSB shareholders to the extent they receive shares of Southside Common in
exchange for their shares of PSB Common, (iii) the basis
36
<PAGE> 44
of shares of Southside Common received by the shareholders of PSB will be the
same as the basis of shares of PSB Common exchanged therefor, and (iv) the
holding period of the shares of Southside Common received by shareholders of PSB
will include the holding period of the shares of PSB Common exchanged therefor,
provided such shares of PSB Common shares were held as capital assets as of the
Effective Time. Southside and PSB may waive receipt of such tax opinion as a
condition to consummating the Merger; provided, however, that if the anticipated
material federal income tax consequences of the Merger are significantly
different than those described herein, PSB will resolicit the approval of its
shareholders.
RECEIPT OF SOUTHSIDE COMMON IN EXCHANGE FOR PSB COMMON
No gain or loss will be recognized by a holder of PSB Common who
receives solely shares of Southside Common (except for cash received in lieu of
fractional shares, as discussed below) in exchange for all of his or her shares
of PSB Common. The tax basis of the shares of Southside Common received by a
holder of PSB Common in such exchange will be equal (except for the basis
attributable to any fractional shares of Southside Common, as discussed below)
to the basis of the PSB Common surrendered in exchange therefor. The holding
period of the Southside Common received will include the holding period of
shares of PSB Common surrendered in exchange therefor, provided that such shares
of PSB Common were held as capital assets of the holder at the Effective Time of
the Merger.
RECEIPT OF CASH IN EXCHANGE FOR PSB COMMON
A holder of PSB Common who receives solely cash in exchange for all of
his or her shares of PSB Common (and is not treated as constructively owning
Southside Common after the Merger under the circumstances referred to below
under "-- Certain Federal Income Tax Consequences -- Possible Dividend
Treatment") will recognize gain or loss for federal income tax purposes equal to
the difference between the cash received and such holder's tax basis in the PSB
Common surrendered in exchange therefor. Such gain or loss will be a capital
gain or loss, provided that such shares were held as capital assets of the
holder at the Effective Time of the Merger. Such gain or loss will be long-term
capital gain or loss if the holder's holding period is more than eighteen months
at the Effective Time of the Merger or mid-term capital gain if held for more
than one year, but less than eighteen months at the Effective Time. The Code
contains limitations on the extent to which a holder may deduct capital losses
from ordinary income.
RECEIPT OF SOUTHSIDE COMMON AND CASH IN EXCHANGE FOR PSB COMMON
A holder of PSB Common who receives a combination of Southside Common
and cash in exchange for his or her PSB Common will not be permitted to
recognize any loss for federal income tax purposes. Such a holder will recognize
gain, if any, equal to the lesser of (i) the amount of cash received or (ii) the
amount of gain "realized" in the transaction. The amount of gain a holder
"realizes" will equal the amount by which (a) the cash plus the fair market
value at the Effective Time of the Merger of the Southside Common received
exceeds (b) the holders' basis in the PSB Common to be surrendered in the
exchange therefor. Any recognized gain could be taxed as a capital gain or a
dividend, as described below. The tax basis of the shares of Southside Common
received by such holder of PSB Common will be the same as the basis of the
shares of PSB Common surrendered in exchange therefor, adjusted as provided in
Section 358(a) of the Code for the cash received in exchange for such shares of
PSB Common. The holding period for shares of Southside Common received by such
holder will include such holder's holding period for the PSB Common surrendered
in exchange therefor, provided that such shares were held as capital assets of
the holder at the Effective Time of the Merger.
37
<PAGE> 45
A holder's federal income tax consequences will also depend on whether
his or her shares of PSB Common were purchased at different times at different
prices. If they were, the holder could realize gain with respect to some of the
shares of PSB Common and loss with respect to other shares. Such holder would
have to recognize such gain to the extent such holder receives cash with respect
to those shares in which the holder's adjusted tax basis is less than the amount
of cash plus the fair market value at the Effective Time of the Merger of the
Southside Common received, but could not recognize loss with respect to those
shares in which the holder's adjusted tax basis is greater than the amount of
cash plus the fair market value at the Effective Time of the Merger of the
Southside Common received. Any disallowed loss would be included in the adjusted
basis of the Southside Common. Such a holder is urged to consult his or her own
tax advisor respecting the tax consequences of the Merger on that holder.
POSSIBLE DIVIDEND TREATMENT
In certain circumstances, a holder of PSB Common who receives solely
cash or a combination of cash and Southside Common in the Merger may receive
ordinary income, rather than capital gain, treatment on all or a portion of the
gain recognized by that holder if the receipt of cash "has the effect of the
distribution of a dividend." The determination of whether a cash payment has
such effect is based on a comparison of the holder's proportionate interest in
Southside after the Merger with the proportionate interest the holder would have
had if the holder had received solely Southside Common in the Merger. For
purposes of this comparison, the holder may be deemed to constructively own
shares of Southside Common held by certain members of the holder's family and
certain entities in which the holder has an ownership or beneficial interest and
certain stock options may be aggregated with the holder's shares of Southside
Common. The amount of the cash payment that may be treated as a dividend is
limited to the holder's ratable share of the accumulated earnings and profits of
PSB at the Effective Time of the Merger. Any gain that is not treated as a
dividend will be taxed as a capital gain, provided that the holder's shares were
held as capital assets at the Effective Time of the Merger. Because the
determination of whether a cash payment will be treated as having the effect of
a dividend depends primarily upon the facts and circumstances of each holder,
holders are urged to consult their own tax advisors regarding the tax treatment
of any cash received in the Merger.
CASH IN LIEU OF FRACTIONAL SHARES
A holder who holds PSB Common as a capital asset and who receives in the
Merger, in exchange for such shares of PSB Common, solely Southside Common and
cash in lieu of a fractional share interest in Southside Common will be treated
as having received such cash in full payment for such fractional share of stock,
and as capital gain or loss, notwithstanding the dividend rules discussed above.
THE FOREGOING IS A GENERAL SUMMARY OF ALL OF THE MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER TO PSB SHAREHOLDERS, WITHOUT REGARD TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX SITUATION AND
STATUS. BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, EACH PSB SHAREHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR REGARDING SUCH SHAREHOLDER'S SPECIFIC TAX
SITUATION AND STATUS, INCLUDING THE SPECIFIC APPLICATION AND EFFECT OF STATE,
LOCAL AND FOREIGN LAWS TO SUCH SHAREHOLDER AND THE POSSIBLE EFFECT OF CHANGES IN
FEDERAL AND OTHER TAX LAWS.
RESALE OF SOUTHSIDE COMMON
The shares of Southside Common issued pursuant to the Merger will be
freely transferable under the Securities Act, except for shares issued to any
PSB shareholder who may be deemed to be an "affiliate" of PSB or Southside for
purposes of Rule 145 under the Securities Act. The Merger Agreement provides
that
38
<PAGE> 46
each such affiliate will enter into an agreement with Southside providing that
such affiliate will not transfer any shares of Southside Common received in the
Merger except in compliance with the Securities Act. This Proxy
Statement/Prospectus does not cover resales of shares of Southside Common
received by any person who may be deemed to be an affiliate of PSB. Persons who
may be deemed to be affiliates of PSB generally include individuals who, or
entities which, control, are controlled by or are under common control with PSB
and will include directors and certain executive officers of PSB and may include
principal shareholders of PSB.
ACCOUNTING TREATMENT
The Merger will be accounted for by Southside under the purchase method
of accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended. Under this method of accounting, the
purchase price will be allocated to assets acquired and liabilities assumed
based on their estimated fair values at the Effective Time. The consolidated
financial statements of Southside will include the results of operations of PSB
subsequent to the Effective Time.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
National Bank will be the Surviving Bank in the Merger. It is not
anticipated that the Board of Directors or officers of Southside or the Board of
Directors or officers of National Bank will be affected by the Merger. It is
anticipated that as soon as practicable after the Effective Time, Southside will
close PSB's Kennerly Center branch.
EFFECT ON EMPLOYEE BENEFIT PLANS
The Merger Agreement provides that each employee of PSB who continues as
an employee of National Bank following the Closing Date (each a "Continued
Employee") will be entitled, as a new employee of a subsidiary of Southside, to
participate in whatever employee benefits or other non-qualified employee plans
that may be in effect generally for employees of Southside's subsidiaries from
time to time (the "Southside Plans"), if such Continued Employee is eligible for
participation therein and otherwise will not be participating in a similar plan
maintained by PSB after the Effective Time. Continued Employees will be eligible
to participate on the same basis as similarly situated employees of other
Southside subsidiaries. All such participation will be subject to such terms of
such plans as may be in effect from time to time, and the Continued Employees
will not have any rights or privileges superior to those of other employees of
Southside's subsidiaries. Southside may terminate or modify all employee benefit
plans of PSB except insofar as benefits thereunder have accrued or vested on the
Closing Date, and Southside's obligations will not be deemed or construed so as
to provide duplication of similar benefits.
For purposes of vesting and eligibility to begin participation with
respect to any Southside Plans in which Continued Employees may participate,
each Continued Employee will be credited with the lesser of (i) one (1) year of
service or (ii) his or her term of service with PSB. With respect to vacation
policies, each Continued Employee will be credited with his or her full term of
service with PSB. It is National Bank's intention to employ all existing
personnel of PSB on the Closing Date. Should any termination due to
eliminating/streamlining of positions occur after the Effective Time, Southside
will pay severance in accordance with its severance policy. Southside's
severance policy provides that employees with three years or more of service
will receive one week of pay for each year of service up to a maximum of ten
weeks pay. Those employees with less than three years of service do not receive
severance. Southside's severance policy does not include any personnel with
employment contracts. For purposes of the severance policy, Continued Employees
will be given credit for their term of service with PSB.
39
<PAGE> 47
ACCOUNTING POLICIES
At the request of Southside after all of the conditions to the Closing
have been satisfied or waived, PSB will establish and take such reserves and
accruals as Southside may reasonably request to conform PSB's loan, accrual and
reserve policies to Southside's policies and will establish and take such
accruals, reserves and charges in order to implement such policies in respect of
excess facilities and equipment capacity, severance costs, litigation matters,
write-off or write-down of various assets and other appropriate accounting
adjustments, and to recognize for financial accounting purposes such expenses of
the Merger and restructuring charges related to or to be incurred in connection
with the Merger, in each case at such times as are mutually agreeable to
Southside and PSB. Such write-downs, reserves and accruals will not be deemed to
reduce capital for the purposes of determining the Merger Consideration.
DESCRIPTION OF SOUTHSIDE CAPITAL STOCK
GENERAL
The Restated Articles of Incorporation of Southside (the "Southside
Articles") currently authorize the issuance of _________ shares of common stock,
par value $1.00 per share (previously defined herein as the "Southside Common"),
and _________ shares of cumulative preferred stock, without par value
("Southside Preferred"), of which Southside has authorized an issue of a series
of 30,000 shares designated as "Junior Participating Preferred Stock, Series D,"
stated value $37,500 per share (the "Southside Series D Preferred Stock").
As of ______ __, 1998, 2,792,670 shares of Southside Common were issued
and outstanding, and 30,000 shares of Southside Series D Preferred Stock were
reserved for issuance with no shares outstanding.
SOUTHSIDE COMMON
DIVIDEND RIGHTS
The holders of Southside Common are entitled to share ratably in
dividends when, as and if declared by the Southside Board from funds legally
available therefor, after full cumulative dividends have been paid, or declared
and funds sufficient for the payment thereof set apart, on all shares of
Southside Preferred and any other class or series of preferred stock ranking
superior as to dividends to Southside Common. The ability of Southside's
subsidiary banks to pay cash dividends, which are expected to be Southside's
principal source of income, is restricted by applicable banking laws.
VOTING RIGHTS
Each holder of Southside Common has one vote for each share held on
matters presented for consideration by the Southside shareholders.
PREEMPTIVE RIGHTS
Holders of Southside Common have no preemptive right to acquire any
additional unissued shares of Southside Common.
40
<PAGE> 48
LIQUIDATION RIGHTS
In the event of a liquidation, dissolution or winding up of Southside,
whether voluntary or involuntary, each holder of shares of Southside Common will
be entitled to share ratably in any of its assets or funds that are available
for distribution to its shareholders after the satisfaction of its liabilities
(or after adequate provision is made therefor) and after preferences on any
outstanding Southside Preferred.
ASSESSMENT AND REDEMPTION
Shares of Southside Common are, when issued, fully paid and
nonassessable.
TRANSFER AGENT
UMB Bank, St. Louis, Missouri, is the transfer agent and registrar for
the Southside Common.
SOUTHSIDE PREFERRED
The Southside Board is authorized to issue serial preferred stock and to
fix and state the stated value of the shares of such series, the dates on which
dividends (which shall be cumulative) on the shares of such series will be
payable, and any other designations, preferences, qualifications, limitations,
restrictions and special or relative rights applicable to the shares of such
series which the Southside Board is permitted by law to fix and determine.
Each holder of Southside Preferred has no voting rights. However, in the
event that the equivalent of six quarterly dividends payable on any series of
Southside Preferred are in default, then the number of directors on the
Southside Board must be increased by two and the holders of the Southside
Preferred, voting together as a class without regard to series, will be entitled
to elect the two additional members of the Southside Board at the next Southside
annual meeting. Such voting right will continue until such time as all dividends
in default have been paid to the holders of the Southside Preferred, whereupon
the number of members of the Southside Board will return to the number specified
in the Southside Articles.
COMPARISON OF SHAREHOLDER RIGHTS
The rights of holders of Southside Common are governed by the General
Business Corporation Law of Missouri (the "Missouri Corporate Law"), the state
of Southside's incorporation, the Southside Articles, Southside's Restated
Bylaws (the "Southside Bylaws") and other corporate documents. The rights of
holders of PSB Common are governed by OTS regulations, PSB's Federal Stock
Charter (the "PSB Charter"), Bylaws (the "PSB Bylaws") and other corporate
documents. The rights of holders of PSB Common differ in certain respects from
the rights which such holders would have as Southside shareholders. A summary of
the material differences between the respective rights of holders of PSB Common
and Southside Common is set forth herein.
41
<PAGE> 49
SHAREHOLDER VOTE REQUIRED FOR CERTAIN TRANSACTIONS AND OTHER MATTERS
BUSINESS COMBINATIONS
Southside
The Missouri Corporate Law generally provides that unless a
corporation's articles of incorporation or bylaws provide otherwise, certain
business combinations including mergers require the approval of the holders of
at least two-thirds of the outstanding shares entitled to vote on the subject
transaction.
The Southside Articles provide that any Business Combination (as defined
below) shall, in addition to any affirmative vote required by law, require the
affirmative vote of the holders of not less than eighty percent (80%) of the
shares of Southside Common then entitled to vote generally in the election of
the Southside Board; provided, however, that any such Business Combination may
be approved on the affirmative vote required by law if such Business Combination
is approved by not less than a seventy-five percent (75%) majority of the entire
Southside Board. The term "Business Combination" is defined in the Southside
Articles as: (i) any merger or consolidation of Southside or any subsidiary of
Southside with (a) any Substantial Shareholder (as defined below) or (b) any
other corporation which, after such merger or consolidation, would be a
Substantial Shareholder, regardless of which entity survives; (ii) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) to or with any Substantial Shareholder
of all or substantially all of the assets of Southside or any subsidiary of
Southside, or both; (iii) the adoption of any plan or proposal for the
liquidation of Southside proposed by or on behalf of a Substantial Shareholder;
or (iv) any transaction involving Southside or any of its subsidiaries,
including the issuance or transfer of, or any recapitalization of, Southside or
any of its subsidiaries, or any merger or consolidation of Southside with any of
its subsidiaries (whether or not involving a Substantial Shareholder), if the
transaction would have the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of Southside or any subsidiary, of which a Substantial
Shareholder is the Beneficial Owner. The term "Substantial Shareholder" is
defined in the Southside Articles as: (i) any individual, corporation,
partnership or other person or entity which, together with its "Affiliates" or
"Associates" (as such terms were defined as of February 1, 1987, in Rule 12b-2
under the Securities Exchange Act of 1934), is the "Beneficial Owner" (as
determined in accordance with the criteria set forth as of February 1, 1987) in
the aggregate of more than five percent (5%) of the outstanding shares of
Southside entitled to vote generally in an election of the Southside Board; and
any affiliate or associate of any such individual, corporation, partnership or
other person or entity.
PSB
Neither the PSB Charter nor the PSB Bylaws contain a comparable
provision concerning business combinations.
REMOVAL OF DIRECTORS
Southside
The Southside Articles provide that any director or the entire Southside
Board may be removed without cause, at a meeting called expressly for that
purpose, only upon the affirmative vote of the holders of not less than eighty
percent (80%) of the shares of Southside Common entitled to vote generally in
the election of directors; provided, however, that, if less than the entire
Southside Board is to be so removed
42
<PAGE> 50
without cause, no single director may be removed if the votes cast against such
director's removal would be sufficient to elect such director if then
cumulatively voted at an election of the class of directors of which such
director is a part. At a meeting called expressly for that purpose, a Southside
director may be removed by the applicable Southside shareholders for cause by
the affirmative vote of the holders of a majority of the shares of Southside
stock entitled to vote upon his election.
PSB
The PSB Bylaws provide that, at a meeting of shareholders expressly
called for that purpose, any director may be removed for cause by a vote of the
holders of a majority of the shares then entitled to vote at an election of
directors. If, however, less than the entire PSB Board is to be removed, no
single director may be removed if the votes cast against such director's removal
would be sufficient to elect such director if then cumulatively voted at an
election of the class of directors of which such director is a part. Whenever
the holders of the shares of any class are entitled to elect one or more
directors by the provisions of the PSB Charter, the same rules apply in respect
to the removal of a director or directors so elected, to the vote of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
AMENDMENTS TO ARTICLES OF INCORPORATION
Southside
Under the Missouri Corporate Law, a corporation may amend its articles
of incorporation upon receiving the affirmative vote of the holders of a
majority of its voting shares and the affirmative vote of the holders of a
majority of the outstanding shares of each class entitled to vote thereon as a
class; provided, however, that if the corporation's articles of incorporation or
bylaws provide for cumulative voting in the election of directors, the number of
directors of the corporation may not be decreased to less than three by
amendment to the corporation's articles of incorporation when the number of
shares voting against the proposal for decrease would be sufficient to elect a
director if the shares were voted cumulatively at an election of three
directors; and provided, further, that a proposed amendment which provides that
Section 351.407 of the Missouri Corporate Law does not apply to "control share
acquisitions" of shares of a corporation requires the affirmative vote of the
holders of two-thirds of such corporation's voting shares. See "COMPARISON OF
SHAREHOLDER RIGHTS -- Takeover Statutes."
The Southside Articles provide that Southside reserves the right to
amend, alter, change or repeal any provisions contained in the Southside
Articles in the manner now or hereafter prescribed by law, and all rights
conferred on Southside shareholders therein are granted subject to this
reservation; provided, however, that the affirmative vote of the holders of not
less than 80% of the Southside Common entitled to vote at a meeting of Southside
shareholders called for that purpose is required to amend, alter, change or
repeal certain provisions of Southside's Articles generally related to the
election and removal of Southside directors, business combinations and
anti-takeover protections, and amendments to the Southside Articles.
PSB
The PSB Charter provides that no amendment, addition, alteration, change
or repeal of the PSB Charter may be made unless such action is first proposed by
the PSB Board, then preliminarily approved by the OTS, which preliminary
approval may be granted by the OTS pursuant to regulations specifying
preapproved charter amendments, and thereafter approved by the shareholders of
PSB by a majority of the total votes eligible to be cast at a duly called
meeting. Any amendment, addition, alteration, change or
43
<PAGE> 51
repeal so acted upon will be effective upon filing with the OTS in accordance
with regulatory procedures or on such other date as the OTS may specify in its
preliminary approval.
AMENDMENTS TO BYLAWS
Southside
The Southside Articles provide that the Southside Board is expressly
authorized to adopt, repeal, alter and amend the Southside Bylaws; provided,
however, that the paramount power to repeal, amend and alter the Southside
Bylaws is vested in the Southside shareholders, which power may be exercised by
a vote of a majority of the Southside shareholders present at any annual or
special meeting of the Southside shareholders, unless a larger vote is otherwise
required, and the Southside Board thereafter will have no power to suspend,
repeal or otherwise alter any bylaw or portion thereof so enacted by the
Southside shareholders, unless the Southside shareholders in enacting or
approving such bylaw or portion thereof provide otherwise.
PSB
The PSB Bylaws provide that the PSB Bylaws may be amended in a manner
consistent with regulations of the OTS at any time by a majority vote of the
full PSB Board or by a majority vote of the votes cast by the PSB shareholders
at any duly called meeting.
VOTING RIGHTS
Southside
In accordance with the Missouri Corporate Law, unless otherwise provided
in the Southside Articles, each outstanding share of Southside Common is
entitled to one vote on each matter voted on at a meeting of Southside
shareholders. A Southside shareholder may vote in person or by proxy. However,
the Missouri Corporate Law provides that, unless the articles of incorporation
or bylaws provide otherwise, each shareholder is entitled to cumulative voting
when electing directors, which means that each shareholder has the right to cast
as many votes in the aggregate equal to the number of votes held by such person
multiplied by the number of directors to be elected at the election, and the
person may cast the whole number of votes for one candidate or distribute them
in any manner he or she desires.
The Southside Bylaws provide that at all meetings of the Southside
shareholders, each Southside shareholder is entitled to one vote for each share
of Southside Common entitled to vote under the provisions of the Southside
Articles which is registered in his or her name on the books of Southside.
Additionally, the Southside Bylaws deny cumulative voting with regard to the
election of directors. See "DESCRIPTION OF SOUTHSIDE CAPITAL STOCK -- Southside
Common -- Voting Rights."
PSB
The PSB Charter provides that each of holder of PSB Common is entitled
to one vote for each share of PSB Common held by such holder, except as to the
cumulation of votes for the election of directors.
44
<PAGE> 52
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN CONSENT
Southside
The Missouri Corporate Law provides that special meetings of the
shareholders may be called by the board of directors of the corporation or by
any other persons authorized by the articles of incorporation or bylaws of the
corporation. The Southside Bylaws provide that a special meeting of Southside
shareholders may be called by the Secretary upon request of the President, by a
majority of the Southside Board or upon the written request of the holders of
not less than eighty percent (80%) of all the outstanding shares of Southside
Common entitled to vote at such a meeting. The business transacted at any such
special meeting will be confined to the purpose or purposes specified in the
notice therefor.
The Missouri Corporate Law provides that any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a consent, in writing, setting forth the action taken is signed by
the holders of all of the shares entitled to vote on the subject matter.
PSB
The PSB Bylaws provide that special meetings of the shareholders of PSB,
held for any purpose or purposes, may be called at any time by the Chairman of
the Board, the President or a majority of the Board of Directors, unless
otherwise prescribed by OTS regulations, and must be called by the Chairman of
the Board, the President or the Secretary upon the written request of the
holders of not less than one-tenth of all of the outstanding capital stock of
PSB entitled to vote at the meeting. Such written request must state the purpose
or purposes of the meeting and must be delivered to PSB's main office addressed
to the Chairman of the Board, the President or the Secretary.
The PSB Bylaws also provide that any action required to be taken at a
meeting of the PSB shareholders, or any other action which may be taken at a
meeting of PSB shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, is given by all of the PSB
shareholders entitled to vote with respect to the subject matter thereof.
NOTICE OF SHAREHOLDER NOMINATIONS OF DIRECTORS AND PROPOSALS
Southside
The Missouri Corporate Law does not contain any specific provisions
regarding notice of shareholders' nominations of directors.
The Southside Bylaws provide that a Southside shareholder may nominate a
person for director only if such Southside shareholder delivers notice of such
nomination to the Secretary of Southside, accompanied or promptly followed by
such supporting information as the Secretary reasonably requests, not less than
75 days prior to the date of any annual meeting or more than seven days after
the mailing of notice of any special meeting. In order to be qualified for
nomination for, and election to, the Southside Board, an individual must own a
minimum of 10,000 shares of Southside Common.
PSB
The PSB Bylaws provide that nominations for directors may be made at the
PSB annual meeting by any PSB shareholder entitled to vote and must be voted
upon if PSB's nominating committee fails or refuses
45
<PAGE> 53
to deliver written nominations for the PSB Board to the Secretary of PSB at
least 20 days prior to the date of the annual meeting.
Any new business to be taken up at the PSB annual meeting must be stated
in writing and filed with the Secretary of PSB at least five days before the
date of the PSB annual meeting, and all business so stated, proposed, and filed
must be considered at the PSB annual meeting; but no other proposal can be acted
upon at the PSB annual meeting. Any PSB shareholder may make any other proposal
at the PSB annual meeting and the same may be discussed and considered, but
unless stated in writing and filed with the Secretary at least five days before
the meeting, such proposal must be laid over for action at an adjourned,
special, or annual meeting of the PSB shareholders taking place thirty days or
more thereafter.
DISSENTERS' RIGHTS
Southside
Under the Missouri Corporate Law, a shareholder of a corporation is
entitled to receive payment for the fair value of such shareholder's shares if
such shareholder dissents from a sale or exchange of substantially all of the
property and assets of the corporation or a merger or consolidation to which
such corporation is a party. A shareholder is also entitled to receive payment
for the fair value of such shareholder's shares if such shareholder dissents
from according voting rights to "control shares" in a control share acquisition,
as further described herein. The Southside Articles and the Southside Bylaws do
not contain specific provisions concerning this matter.
PSB
Under OTS regulations, in certain circumstances PSB shareholders will
have the right to receive payment for the full value of their shares if they
dissent from a merger transaction in which PSB is a party. In such a case, the
appraised value of the PSB Common will be determined under the direction of the
OTS. See Appendix D for the full text of Section 552.14, which provides the
appraisal rights generally available to PSB shareholders.
TAKEOVER STATUTES
Southside
The Missouri Corporate Law contains provisions regulating a broad range
of business combinations, such as a merger or consolidation, between a Missouri
corporation which is a "resident domestic corporation," as defined in the
statute, with shares of its stock registered under the federal securities laws
or that makes an election by appropriate provisions in its articles of
incorporation to be subject to the provisions of this statute, and an
"interested shareholder" (which is defined as any owner of 20% or more of the
corporation's stock) for five years after the date on which such shareholder
became an interested shareholder, unless, among other things, the stock
acquisition which caused the person to become an interested shareholder was
approved in advance by the corporation's board of directors. This so-called
"five year freeze" provision is effective even if all the parties should
subsequently decide that they wish to engage in a business combination. The
Missouri Corporate Law also contains a "control share acquisition" provision
which effectively denies voting rights to shares of a Missouri corporation
acquired in control share acquisitions unless a resolution granting such voting
rights is approved at a meeting of shareholders by an affirmative majority vote
of (i) all outstanding shares entitled to vote at such meeting voting by class
if required by the terms of such shares; and (ii) all outstanding shares
entitled to vote at such meeting voting
46
<PAGE> 54
by class if required by the terms of such shares, excluding all interested
shares. A "control share acquisition" is one by which a purchasing shareholder
acquires more than one-fifth, one-third, or a majority, under various
circumstances, of the voting power of the stock of an "issuing public
corporation." An "issuing public corporation" is a Missouri corporation with:
(i) one hundred or more shareholders; (ii) its principal place of business,
principal office or substantial assets in Missouri; and (iii) either (a) more
than 10% of its shareholders reside in Missouri, (b) more than 10% of its shares
owned by Missouri residents, or (c) 10,000 shareholders reside in Missouri.
Southside meets the statutory definition of an "issuing public corporation."
Finally, if a control share acquisition should be made of a majority or more of
the corporation's voting stock, and those shares are granted full voting rights,
shareholders of the corporation are granted dissenters' rights.
PSB
The OTS has not promulgated any regulations which restrict or limit the
amount or percentage ownership of a federally chartered capital stock savings
bank which may be acquired by an individual or entity in connection with an
acquisition. In addition, neither the PSB Charter nor the PSB Bylaws contain
such a provision.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Southside
Section 351.355(1) and (2) of the Missouri Corporate Law provide that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection with such action, suit or proceeding if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful, except that, in the case of an action or suit by or in the
right of the corporation, the corporation may not indemnify such persons against
judgments and fines and no person shall be indemnified as to any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his or her duty to the
corporation unless and only to the extent that the court in which the action or
suit was brought determines upon application that such person is fairly and
reasonably entitled to indemnity for proper expenses. Section 351.355 of the
Missouri Corporate Law further provides that, to the extent that a director,
officer, employee or agent of the corporation has been successful in the defense
of any such action, suit or proceeding or any claim, issue or matter therein, he
or she shall be indemnified against expenses, including attorney's fees,
actually and reasonably incurred in connection with such action, suit or
proceeding. Section 351.355 also provides that a Missouri corporation may
provide additional indemnification to any person indemnifiable under subsection
(1) or (2) thereof, provided that such additional indemnification is authorized
by the corporation's articles of incorporation or an amendment thereto or by a
shareholder-approved bylaw or agreement, and provided further that no person
shall thereby be indemnified against conduct which was finally adjudged to have
been knowingly fraudulent, deliberately dishonest or willful misconduct.
The Southside Articles and the Southside Bylaws provide that it will
indemnify its directors and officers to the full extent specified in Section
351.355 and, in addition, will indemnify each of them against
47
<PAGE> 55
all expenses incurred in connection with any claim by reason of service for or
at the request of Southside in any of the capacities referred to in Section
351.355 or arising out of his or her status in any such capacity, provided that
he or she may not be indemnified against conduct finally adjudged to have been
knowingly fraudulent, deliberately dishonest or to constitute willful
misconduct, or to the extent that such indemnification is otherwise finally
adjudged to be prohibited by applicable law.
A Missouri corporation also has the power to purchase and maintain
insurance on behalf of any person against any liability asserted against such a
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of the
Missouri Corporate Law. The Southside Bylaws permit it to supplement any of its
authorized indemnifications by purchasing insurance. Southside may, pursuant to
the Southside Articles and the Southside Bylaws, also voluntarily undertake to
indemnify certain persons acting on Southside's behalf in certain circumstances.
PSB
OTS regulations provide that a federal savings association is required
to indemnify its directors, officers and employees for any amount for which such
individual becomes liable under a judgment, if the judgment is rendered on the
merits and in favor of the director, officer or employee. In such a case,
indemnification must include all reasonable costs and expenses, including
attorneys' fees, actually paid or incurred in the course of defending such
individual. In the case of a settlement, a final judgment against the officer,
director or employee, or a final judgment in their favor other than on the
merits, the federal savings association must indemnify the director, officer or
employee if a majority of the disinterested directors of the federal savings
association determine that the director, officer or employee was acting in good
faith and within the scope of his or her duties, and for a purpose he or she
could have reasonably believed under the circumstances was in the best interests
of the federal savings association or its members.
Prior to indemnifying a director, officer or employee, the federal
savings association is required to provide notice of such election to the OTS at
least 60 days in advance. Such notice must state the facts upon which the action
arose, the material terms of any settlement, and any resulting disposition by
the court. Indemnification will not be allowed in the event that the OTS
notifies the federal savings association, within the sixty day period, of its
objection thereto.
Neither the PSB Charter nor the PSB Bylaws contain a provision
pertaining to the indemnification of officers and directors.
LIMITATION ON DIRECTORS' LIABILITY
Southside
The Missouri Corporate Law provides that a Missouri corporation may
include any provision in its articles of incorporation that is not inconsistent
with the law, but does not specifically prohibit or allow a provision limiting
the liability of directors in the articles of incorporation or bylaws of a
Missouri corporation. Other than in regard to the indemnification of directors,
the Southside Articles and the Southside Bylaws do not contain a provision
regarding the liability of directors.
48
<PAGE> 56
PSB
OTS regulations provide that a federal savings association is permitted
to obtain insurance to protect its directors, officers and employees for losses
resulting from claims arising out of actions taken in their capacity as
directors, officers and employees. No such insurance may be obtained by a
savings association which provides coverage for willful or criminal conduct.
There is no provision in either the PSB Charter or the PSB Bylaws which
addresses the issue of liability insurance for the directors, officers or
employees of PSB.
SOUTHSIDE SHAREHOLDER PROTECTION RIGHTS PLAN
Southside
Southside has adopted a shareholder rights plan pursuant to which
holders of Southside Common also hold one preferred share purchase right which
may be exercised upon the occurrence of certain "triggering events" specified in
the Southside Rights Agreement (as defined herein). Shareholder rights plans
such as the Southside Rights Agreement are intended to encourage potential
hostile acquirors of a "target" corporation to negotiate with the Board of
Directors of the target corporation in order to avoid occurrence of the
"triggering events" specified in such plans. Shareholder rights plans are
intended to give the directors of a target corporation the opportunity to assess
the fairness and appropriateness of a proposed transaction in order to determine
whether or not it is in the best interests of the corporation and its
shareholders. Notwithstanding these purposes and intentions of shareholder
rights plans, such plans, including that of Southside, could have the effect of
discouraging a business combination which shareholders believe to be in their
best interests. The provisions of the Southside Rights Agreement are discussed
below. The following summary description of the Rights (as defined herein) does
not purport to be complete and is qualified in its entirety by reference to the
Southside Rights Agreement.
On May 27, 1993, the Southside Board declared a dividend which was paid
on June 15, 1993 (the "Record Date") of one Preferred Share Purchase Right (a
"Right") for each outstanding share of Southside Common. Each Right entitles the
registered holder to purchase from Southside one one-hundredth share of
Southside Series D Preferred Stock at a price of $375.00 per one one-hundredth
Southside Series D Preferred Stock (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Southside Rights Agreement") between Southside and Boatmen's
Trust Company, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") have acquired beneficial ownership of 25% or more of the
outstanding shares of Southside Common or (ii) 10 business days (or such later
date as may be determined by action of the Southside Board prior to such time as
any Person becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 25% or more of such outstanding shares of Southside Common (the earlier
of such dates being called the "Distribution Date"), the Rights will be
evidenced, with respect to any of the Southside Common certificates outstanding
as of the Record Date, by such Southside Common certificate with a copy of a
Summary of Rights attached thereto.
The Southside Rights Agreement provides that, until the Distribution
Date, the Rights will be transferred with and only with shares of Southside
Common. Until the Distribution Date (or earlier
49
<PAGE> 57
redemption or expiration of the Rights), new Southside Common certificates
issued after the Record Date, upon transfer or new issuance of shares of
Southside Common will contain a notation incorporating the Southside Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Southside Common, outstanding as of the Record Date, even without such notation
or a copy of a Summary of Rights being attached thereto, will also constitute
the transfer of the Rights associated with the shares of Southside Common
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Southside Common as of
the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on May 27, 2003 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed by
Southside, in each case, as described below.
The Purchase Price payable, and the amount of Southside Series D
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Southside Series D Preferred Stock, (ii) upon the grant
to holders of the Southside Series D Preferred Stock of certain rights or
warrants to subscribe for or purchase Southside Series D Preferred Stock at a
price, or securities convertible into Southside Series D Preferred Stock with a
conversion price, less than the then current market price of the Southside
Series D Preferred Stock or (iii) upon the distribution to holders of the
Southside Series D Preferred Stock of evidences of indebtedness or assets
(excluding regular periodic cash dividends paid out of earnings or retained
earnings or dividends payable in shares of Southside Common) or of subscription
rights or warrants (other than those referred to above).
Southside Series D Preferred Stock purchasable upon exercise of the
Rights will not be redeemable. Each Southside Series D Preferred Stock will be
entitled to a minimum preferential quarterly dividend payment of $25.00 per
share but will be entitled to an aggregate dividend of 100 times the dividend
declared per share of Southside Common. In the event of liquidation, the holders
of the Southside Series D Preferred Stock will be entitled to a minimum
preferential liquidation payment of $37,500 per share but will be entitled to an
aggregate payment of 100 times the payment made per share of Southside Common.
The Southside Series D Preferred Stock will not have general voting rights.
Finally, in the event of any merger, consolidation or other transaction in which
shares of Southside Common are exchanged, each Southside Series D Preferred
Stock will be entitled to receive 100 times the amount received per share of
Southside Common. These rights are protected by customary antidilution
provisions.
Because of the nature of the Southside Series D Preferred Stock's
dividend and liquidation rights, the value of the one one-hundredth interest in
a Southside Series D Preferred Stock purchasable upon exercise of each Right
should approximate the long term value of one share of Southside Common.
In the event that Southside is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, proper provision will be made so that each holder of a Right
will thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the Right. In the event that (i) any
person or group of affiliated or associated persons becomes the beneficial owner
of 25% or more of the outstanding Southside Common or (ii) during such time as
there is an Acquiring Person, there shall be a reclassification of securities or
a recapitalization or reorganization of Southside or other transaction or series
of transactions involving Southside which has the effect of increasing by more
than 1% other
50
<PAGE> 58
proportionate share of the outstanding shares of any class of equity securities
of Southside or any of its subsidiaries beneficially owned by the Acquiring
Person, proper provision shall be made so that each holder of a Right, other
than Rights beneficially owned by the Acquiring Person (which will thereafter be
void), will thereafter have the right to receive upon exercise that number of
shares of Southside Common having a market value of two times the exercise price
of the Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 25% or more of the outstanding
shares of Southside Common and prior to the acquisition by such person or group
of 50% or more of the outstanding shares of Southside Common, the Southside
Board may exchange the Rights (other than Rights owned by such person or group
which have become void), in whole or in part, at an exchange ratio of one share
of Southside Common per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Southside Series D Preferred Stock will be
issued (other than fractions which are integral multiples of one one-hundredth
of a Southside Series D Preferred Stock and which may, at the election of
Southside, be evidenced by depositary receipts) and in lieu thereof, an
adjustment in cash will be made based on the market price of the Southside
Common on the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated
or associated persons of beneficial ownership of 25% or more of the outstanding
shares of Southside Common, the Southside Board may redeem the Rights in whole,
but not in part, at a price of $0.01 per Right (the "Redemption Price"). The
redemption of the Rights may be made effective at such time on such basis and
with such conditions as the Southside Board in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
In addition, if a bidder who does not beneficially own more than 1% of
the Southside Common and all other voting shares of Southside (together the
"Voting Shares") (and who has not within the past year owned in excess of 1% of
the Voting Shares and, at a time he held such greater than 1% stake, disclosed,
or caused the disclosure of, an intention which relates to or would result in
the acquisition or influence of control of Southside) proposes to acquire all of
the Voting Shares for cash at a price which a nationally recognized investment
banker selected by such bidder states in writing is fair, and such bidder has
obtained written financing commitments (or otherwise has financing) and complies
with certain procedural requirements, then Southside, upon the request of the
bidder, will hold a special shareholders meeting to vote on a resolution
requesting the Southside Board to accept the bidder's proposal. If a majority of
the outstanding shares entitled to vote on the proposal vote in favor of such
resolution, then for a period of 60 days after such meeting the Rights will be
automatically redeemed at the Redemption Price immediately prior to the
consummation of any tender offer for all of such shares at a price per share in
cash equal to or greater than the price offered by such bidder; provided,
however, that no redemption will be permitted or required after the acquisition
by any person or group of affiliated or associated persons of beneficial
ownership of 25% or more of the outstanding Southside Common. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.
The terms of the Rights may be amended by the Southside Board without
the consent of the holders of the Rights, including an amendment to lower
certain thresholds described above to not less than the greater of (i) any
percentage greater than the largest percentage of the outstanding Southside
Common then known to Southside to be beneficially owned by any person or group
of affiliated or associated persons or
51
<PAGE> 59
(ii) 10%, except that from and after such time as any person becomes an
Acquiring Person no such amendment may adversely affect the interests of the
holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of Southside, including, without limitation, the right
to vote or to receive dividends.
PSB
PSB does not have a shareholder rights plan. The existence of the
Southside Rights Agreement makes it more difficult in its case than in the case
of PSB for a potential acquiror to effect a business combination that has not
been negotiated with Southside's Board of Directors.
CONSIDERATION OF NON-SHAREHOLDER INTERESTS
Southside
The Missouri Corporate Law provides that in exercising business judgment
in consideration of acquisition proposals, a Missouri corporation's board of
directors may consider the following factors, among others: (i) the
consideration being offered; (ii) the existing political, economic, and other
factors bearing on securities prices generally, or the corporation's securities
in particular; (iii) whether the acquisition proposal may violate any applicable
laws; (iv) social, legal and economic effects on employees, suppliers, customers
and others having similar relationships with the corporation, and the
communities in which the corporation conducts its businesses; (v) the financial
condition and earning prospects of the person making the acquisition proposal;
and (vi) the competence, experience and integrity of the person making the
acquisition proposal.
PSB
Neither OTS regulations nor the PSB Charter nor the PSB Bylaws contain a
provision comparable to that contained in the Missouri Corporate Law.
LIQUIDATION ACCOUNTS
Southside
The Missouri Corporate Law and the Southside Articles and Southside
Bylaws do not contain any provisions with respect to the establishment of
liquidation accounts.
PSB
The PSB Charter and OTS regulations require PSB to establish and
maintain a liquidation account for the benefit of its savings account holders as
of December 31, 1989 ("Eligible Savers"). In the event of a complete liquidation
of PSB, PSB must comply with certain federal regulations with respect to the
amount and the priorities on liquidation of the interest of Eligible Savers in
the liquidation account to the extent that it is still in existence. Upon such a
liquidation, the holders of PSB Common are entitled to receive distributions
with respect to their shares only after the payment of debts and liabilities of
PSB, distributions or provision for distribution in settlement of the
liquidation account and distributions to holders of stock having a preference
over the PSB Common.
52
<PAGE> 60
INFORMATION ABOUT PSB
BUSINESS OF PSB
PSB is a federally-chartered capital stock savings bank. At December 31,
1997, PSB had total assets of $70,173,000, total deposits of $56,748,000 and
total shareholders' equity of $4,417,000. PSB's deposit accounts are insured up
to a maximum of $100,000 by the SAIF, which is administered by the Federal
Deposit Insurance Corporation ("FDIC"). PSB's primary business is the
solicitation of deposit accounts from members of the general public and the
origination of mortgage loans, upon the security of single family residences and
other improved real estate located primarily in the City of St. Louis and St.
Louis County, Missouri and surrounding areas. PSB conducts its business through
its main office in St. Louis, Missouri and two branch offices located in St.
Louis County, Missouri.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis is intended to review the
significant factors affecting the financial condition and results of operations
of PSB for the three months ended December 31, 1997 and 1996 and the three-year
period ended September 30, 1997. Accordingly, references to years throughout
this management's discussion and analysis section refer to PSB's fiscal years
ending September 30. This is intended to provide a more comprehensive review
than is otherwise apparent from the consolidated financial statements alone.
Reference should be made to those statements and the selected financial data
presented elsewhere herein for an understanding of the following review.
The business of PSB has been that of a financial intermediary consisting
primarily of attracting deposits from the general public and using such deposits
to originate mortgage loans secured by one- to four-family residences and, to a
lesser extent, multi-family and consumer loans. PSB's revenues are derived
principally from interest earned on loans and, to a lesser extent, from interest
earned on investments. The operations of PSB are influenced significantly by
general economic conditions and by policies of financial institution regulatory
agencies, including the OTS and the FDIC. PSB's cost of funds is influenced by
interest rates on competing investments and general market interest rates.
Lending activities are affected by the demand for financing of real estate and
other types of loans, which in turn are affected by the interest rates at which
such financing may be offered.
PSB's net interest income is dependent primarily upon the difference or
spread between the average yield earned on loans and investments and the average
rate paid on deposits and advances from the Federal Home Loan Bank ("FHLB"), as
well as the relative amounts of such assets and liabilities. PSB, like other
financial institutions, is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different times, or on a
different basis, than its interest-earning assets.
ASSET/LIABILITY MANAGEMENT
Key components of a successful asset/liability management strategy are
the monitoring and managing of interest rate sensitivity of both the
interest-earning asset and interest-bearing liability portfolios.
PSB has employed various strategies intended to minimize the adverse
effect of interest rate risk on future operations by providing a better match
between the interest rate sensitivity of its assets and liabilities and by
expanding its activities which are not directly dependent on interest rate
spreads. PSB's strategies include the origination of primarily adjustable-rate
and fifteen year fixed-rate mortgage loans and the
53
<PAGE> 61
origination of consumer loans. PSB also originates fixed-rate and
adjustable-rate residential mortgage loans for sale in the secondary market.
The following Repricing and Interest Rate Sensitivity Analysis table is
an analysis of interest-sensitive assets and liabilities at September 30, 1997
over various time horizons. An analysis such as this does not necessarily
capture all of the factors involved in determining interest rate risk, and is
presented as one means of assessing rate sensitivity. Based on past experience,
interest-bearing demand and savings deposits have been a stable core deposit
base through changing interest rate environments. Accordingly, these deposits
have been allocated between the four repricing categories as follows: three
months or less - 35%, over 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
table, PSB has a reasonably 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. PSB's current one-year gap of
.79x indicates a slightly liability sensitive position.
54
<PAGE> 62
REPRICING AND INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
(dollars in thousands)
SEPTEMBER 30, 1997
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:
Interest-bearing deposits $ 2,603 $ -- $ -- $ -- $ 2,603
Securities 1,500 997 6,977 -- 9,474
Mortgage-backed securities(1) 608 947 4,762 1,141 7,458
FHLB stock -- -- -- 824 824
Loans(2) 8,208 18,492 4,706 16,318 47,724
-------- -------- -------- -------- --------
Total interest-earning assets 12,919 20,436 16,445 18,283 68,083
-------- -------- -------- -------- --------
Cumulative interest-earning assets 12,919 33,355 49,800 68,083 68,083
-------- -------- -------- -------- --------
Interest-bearing liabilities:
Interest-bearing demand deposits 2,591 1,481 1,851 1,481 7,404
Savings deposits 2,533 1,447 1,809 1,447 7,236
Time deposits 7,293 21,879 11,202 34 40,408
FHLB borrowings 1,000 4,079 3,318 1,033 9,430
-------- -------- -------- -------- --------
Total interest-bearing deposits 13,417 28,886 18,180 3,995 64,478
-------- -------- -------- -------- --------
Cumulative interest-bearing liabilities 13,417 42,303 60,483 64,478 64,478
-------- -------- -------- -------- --------
Gap analysis:
Interest sensitivity gap $ (498) $ (8,450) $ (1,735) $ 14,288 $ 3,605
======== ======== ======== ======== ========
Cumulative interest sensitivity gap $ (498) $ (8,948) $(10,683) $ 3,605 $ 3,605
======== ======== ======== ======== ========
Cumulative gap ratio of interest-earning
assets to interest-bearing liabilities .96x 0.79x 0.82x 1.06x 1.06x
======== ======== ======== ======== ========
</TABLE>
- -----------------------------
(1) The allocation between the four repricing categories is based on the
projected cash flows of the individual securities.
(2) The allocation between the four repricing categories is based on the
earlier of contractual maturity or repricing date for adjustable rate
loans.
RISK MANAGEMENT
PSB's objective in structuring the balance sheet is to maximize the
return on shareholders' equity while minimizing the associated risks. The major
risks involved in the banking industry are market, credit and liquidity risk.
Market Risk. PSB's management believes that, while the majority of the
PSB's earning assets are collateralized by single-family residential real estate
loans, the diversity of the individual borrowers sufficiently
55
<PAGE> 63
minimizes the effect of a downturn in any particular market or industry segment.
PSB utilizes simulation models as one of the tools for assessing this risk.
Simulation model projections indicate annual net interest income would change by
less than 10% should interest rates rise or fall within 200 basis points from
their current level.
Credit Risk. The risks PSB's management assumes in providing credit
products to customers are fundamental to its business operation. Credit risk
management includes defining an acceptable level of risk and return,
establishing policies and procedures to govern the credit process, and
maintaining a portfolio review function. Credit policies are ultimately the
responsibility of the PSB Board and, as such, are reviewed and approved by the
PSB Board. Virtually all of the PSB's loans are secured by residential real
estate or were made to finance the construction of individual residences.
Accordingly, proper underwriting and adequacy of collateral are the primary
factors to ensure that PSB is not exposed to undue credit risk. As net
charge-offs have averaged $16,000 per year over the past five years, PSB's
management believes its systems for assessing credit risk are appropriate.
Liquidity Risk. Liquidity is a measurement of PSB's ability to meet the
borrowing needs and the deposit withdrawal requirements of its customers. PSB's
principal sources of funds are cash receipts from deposits, loan repayments by
borrowers, short-term borrowings from the FHLB of Des Moines and net earnings.
PSB has an agreement with the FHLB of Des Moines to provide cash advances,
should the need for additional funds arise.
For regulatory purposes, liquidity is measured as a ratio of cash and
certain investments to withdrawable deposits plus short-term borrowings. The
minimum level of liquidity required by regulation is presently 4%. PSB's
liquidity ratio at September 30, 1997, was approximately 24%. PSB maintains a
high level of liquidity as a matter of management philosophy in order to more
closely match interest-sensitive assets with interest-sensitive liabilities.
At September 30, 1997, PSB had $29.2 million in certificates due within
one year and $15.1 million in other deposits without specific maturity. PSB's
management estimates that substantially all of the deposits will be retained or
replaced by new deposits.
CAPITAL RESOURCES
PSB is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can result in certain mandatory and possibly additional discretionary actions by
regulators which, if undertaken, could have a direct material effect on PSB's
financial statements. Under capital adequacy guidelines, PSB must meet specific
guidelines which involve quantitative measures of assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. PSB's capital amounts and classifications are also subject to
quantitative judgments by the regulators about components, risk-weightings and
other factors.
At September 30, 1997, PSB met all capital adequacy requirements. PSB is
also subject to the regulatory framework for prompt corrective action. The most
recent notification from the regulatory agencies designated PSB as "well
capitalized." To be designated as "well capitalized," PSB must maintain minimum
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the following table. There are no conditions or events since the dates of the
aforementioned notifications which PSB's management believes have changed PSB's
designation.
56
<PAGE> 64
PSB's actual and required capital amounts and ratios at December 31,
1997 and September 30, 1997 are as follows:
<TABLE>
<CAPTION>
(in thousands)
Minimum Minimum
Required Required to
for Capital be "Well
December 31, 1997 September 30, 1997 Adequacy Capitalized"
------------------ ------------------- ----------- ------------
Amount Ratio Amount Ratio Ratio Ratio
------ ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Consolidated stockholders' equity and
tangible capital $ 4,417 6.3% $ 4,364 6.2% 1.5%
General valuation allowance - loans 95 89
------- -------
Total capital to risk-weighted assets $ 4,512 14.8% $ 4,453 14.7% 8.0% 10.0%
======= -------
Tier 1 capital to risk-weighted assets $ 4,417 14.4% $ 4,364 14.4% 4.0% 6.0%
======= =======
Tier 1 capital to total adjusted assets $ 4,417 6.3% $ 4,364 6.2% 4.0% 5.0%
======= =======
</TABLE>
An OTS regulation restricts PSB's ability to make capital distributions,
including paying dividends. The regulation provides that an institution meeting
the capital requirements, both before and after its proposed capital
distribution, may generally distribute the greater of (1) 75% of its net
earnings for the prior four quarters or (2) 100% of its net earnings to date
during the calendar year, plus 50% of the amount in excess of the capital
requirements as of the beginning of the calendar year. The OTS regulation
provides more significant restrictions on payment of dividends in the event that
the capital requirements are not met.
BALANCE SHEET ANALYSIS
Total assets at December 31, 1997 were $70.2 million compared to $70.5
million at September 30, 1997. Proceeds from maturities of securities and
principal collections on mortgage-backed securities were used to fund loans
originated for portfolio and sale and repay advances from the FHLB. Other
liabilities decreased from $996,000 at September 30, 1997 to $462,000 at
December 31, 1997 due principally to the payment of real estate taxes on behalf
of borrowers in December of each year.
Total assets decreased from $71.8 million at September 30, 1996 to $70.5
million at September 30, 1997. PSB continues to originate loans for portfolio
and has been able to increase the volume of loans sold in the secondary market.
Total loans originated were $36.2 million in 1997 compared to $25.6 million in
1996. PSB originated $15.2 million in loans for portfolio in 1997 compared to
$9.6 million in 1996. At September 30, 1997, foreclosed real estate held for
sale consisted of three residential properties. Other liabilities and accrued
expenses decreased from $499,000 at September 30, 1996 to $139,000 at September
30, 1997 as a result of payment of the $354,000 non-recurring SAIF special
assessment recognized in 1996.
Commitments to originate mortgage loans for portfolio and sale at
September 30, 1997, were approximately $3.1 million and $3.6 million,
respectively. Commitments on behalf of borrowers for unused lines of credit on
home equity loans at September 30, 1997 were approximately $2.4 million.
57
<PAGE> 65
SECURITIES
The following table summarizes the carrying values and weighted average
yields of securities by contractual maturity.
<TABLE>
<CAPTION>
(dollars in thousands)
SEPTEMBER 30,
1997 1996
---------------------- ----------------------
WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD(1) VALUE YIELD(1)
----- -------- ----- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and Obligations
of U.S. government corporations and
agencies - due within one year $ 2,497 4.77% $ -- --
U.S. Treasury securities and Obligations
of U.S. government corporations and
agencies - due after one year through five years 6,977 6.85 7,447 6.14%
Mortgage-backed securities 7,458 7.06 8,489 6.94
Other securities - no stated maturity 824 7.00 824 7.25
------- -------
Total $17,756 6.65% $16,760 6.60%
======= =======
</TABLE>
(1) 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 September 30.
The following table summarizes the carrying value and market value of
securities of each issuer of mortgage backed securities, which exceeds ten
percent of shareholders' equity at September 30, 1997:
<TABLE>
<CAPTION>
(in thousands)
CARRYING MARKET
ISSUER VALUE VALUE
------ ------
<S> <C> <C>
Federal Home Loan Mortgage Corporation (FHLMC) $2,308 $2,364
Government National Mortgage Association (GNMA) 668 674
Federal National Mortgage Association (FNMA) 4,482 4,489
------ ------
Total mortgage-backed securities $7,458 $7,527
====== ======
</TABLE>
58
<PAGE> 66
LOAN PORTFOLIO
A. Types of Loans
The following table shows the classification of loans held for portfolio
and sale by major category at September 30, 1997 and 1996.
<TABLE>
<CAPTION>
(in thousands)
SEPTEMBER 30,
1997 1996
------- -------
<S> <C> <C>
Commercial, financial and agricultural $ -- $ --
Real estate - construction 2,502 1,451
Real estate - mortgage and home equity 45,237 47,880
Installment loans to individuals 76 76
------- -------
Total loans $47,815 $49,407
Less:
Allowance for loan losses 89 108
Deferred loan fees, net 91 84
------- -------
Loans, net of allowance for loan losses $47,635 $49,215
======= =======
</TABLE>
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table shows the remaining maturities of selected loan
categories at September 30, 1997.
<TABLE>
<CAPTION>
(in thousands)
1997
------
<S> <C>
Real estate - construction loans:
Due in one year or less $2,502
Due after one through five years --
Due after five years --
------
TOTAL $2,502
======
</TABLE>
59
<PAGE> 67
C. Risk Elements
The following table shows the amount of nonperforming assets as of
December 31, 1997 and September 30, 1997 and 1996.
<TABLE>
<CAPTION>
(in thousands)
DECEMBER 31, SEPTEMBER 30,
1997 1997 1996
------ ------ ------
<S> <C> <C> <C>
Nonaccrual loans (1)(2) $ -- $ -- $ 725
Loans past due 90 days and still accruing interest 119 216 319
Loans not included above which are "troubled
debt restructurings" -- -- --
------ ------ ------
TOTAL NONPERFORMING LOANS 119 216 1,044
Foreclosed real estate held for sale 654 654 --
------ ------ ------
TOTAL NONPERFORMING ASSETS $ 773 $ 870 $1,044
====== ====== ======
</TABLE>
(1) Loans are placed on nonaccrual basis when, in the opinion of management,
full collections of principal and interest is unlikely.
(2) Includes one single family impaired loan of $640,000. The property was
subsequently foreclosed on during December 1996.
There were no loans, which in the opinion of management, represented
potential problem loans at December 31, 1997. In addition, there were no
concentrations of loans exceeding ten percent of total loans which were not
disclosed in the table above.
60
<PAGE> 68
SUMMARY OF LOAN LOSS EXPERIENCE
The following table analyzes the loan loss experience of PSB for three
months ended December 31, 1997 and the years ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
(dollars in thousands)
YEARS ENDED SEPTEMBER 30,
3 MONTHS ENDED ------------------------------
DECEMBER 31, 1997 1997 1996
----------------- -------- --------
<S> <C> <C> <C>
Allowance at beginning of period $ 89 $ 108 $ 84
Loans charged off:
Commercial, financial and agricultural -- -- --
Real estate - construction -- -- --
Real estate - mortgage and home equity -- (43) --
Installment loans to individuals -- -- --
-------- -------- --------
Total loans charged off -- (43) --
Recoveries:
Commercial, financial and agricultural -- -- --
Real estate - construction -- -- --
Real estate - mortgage and home equity -- -- --
Installment loans to individuals -- -- --
-------- -------- --------
Total recoveries -- -- --
-------- -------- --------
Net loans charged off -- (43) --
Provisions charged to operating expense 6 24 24
-------- -------- --------
Allowance at end of period $ 95 $ 89 $ 108
======== ======== ========
Average loans outstanding $ 46,165 $ 47,531 $ 43,364
======== ======== ========
Ratio of net charge-offs during the period to
average loans outstanding during the period -- 0.09% --
======== ======== ========
</TABLE>
The allowance for loan losses is available to absorb losses incurred on
loans and represents additions charged to expense, less net charge-offs. The
allowance is based on PSB's management's assessment of current or anticipated
economic conditions, past loss and collection experience, and risk
characteristics of the loan portfolio. PSB's management believes the allowance
for loan losses is adequate to provide for risks inherent in the loan portfolio.
61
<PAGE> 69
The following table sets forth as of the end of each reported period, a
breakdown of the allowance for loan losses by major categories of loans and the
percentage of loans in each category to total loans at the dates indicated.
<TABLE>
<CAPTION>
(dollars in thousands)
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------
Percent of loans Percent of loans
in each category in each category
Allowance to total loans Allowance to total loss
--------- --------------- --------- ----------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ -- --% $ -- --%
Real estate - construction 10 7.99 10 6.69
Real estate - mortgage and home equity 79 91.85 98 93.16
Installment loans to individuals -- 0.16 -- 0.15
---- ------ ---- ------
$ 89 100.00% $108 100.00%
==== ====== ==== ======
</TABLE>
DEPOSITS
The following table summarizes the average balances, by category, and
the average rates paid on deposits as September 30, 1997 and 1996:
<TABLE>
<CAPTION>
(dollars in thousands)
SEPTEMBER 30,
--------------------------------------------------------------------------
1997 1996
WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Interest-bearing demand deposits $ 7,693 3.72% $ 7,487 3.74%
Savings deposits 7,490 2.52 7,818 2.53
Time deposits 39,789 5.35 37,563 5.46
------- ==== ------- ====
Total $54,972 $52,868
======= =======
</TABLE>
The following table shows the amount of time deposits $100,000 and over
by time remaining until maturity at September 30, 1997.
<TABLE>
<CAPTION>
(in thousands)
1997
----------
<S> <C>
Three months or less $ 725
Over three through six months 776
Over six through twelve months 706
Over twelve months 691
----------
Total time deposits $100,000 and over $ 2,898
==========
</TABLE>
62
<PAGE> 70
SHORT-TERM BORROWINGS
The following table summarizes the average balance, weighted average
interest rate, the maximum month-end amount of short-term borrowings, the year
end balance and weighted average rate thereon for Federal Home Loan Bank
borrowings due in one year or less.
<TABLE>
<CAPTION>
(dollars in thousands)
SEPTEMBER 30,
---------------------------------------------------
1997 1996
AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
---------------------- -----------------------
<S> <C> <C> <C> <C>
Balance at end of year $ 5,079 5.79% $ 8,579 5.71%
======= ==== ======= ====
Average balance $ 5,689 5.86% $ 863 5.71%
======= ==== ======= ====
Maximum amount outstanding at any month-end $ 8,579 $ 8,579
======= =======
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
NET EARNINGS
Net earnings were $78,000 and $51,000 for the three months ended
December 31, 1997 and 1996, respectively, which resulted in basic and diluted
earnings per common share of $.76 and $.50, respectively. This increase in PSB's
first quarter earnings over the prior period was largely the result of
additional revenue generated from the sale of loans in the secondary market.
NET INTEREST INCOME
Net interest income increased $9,000 to $454,000 for the fiscal 1998
first quarter from $445,000 in the prior period. The increase was due to a
$14,000 increase in interest income which was partially offset by a $5,000
increase in interest expense. The increase in interest income was largely due to
an increase in loans outstanding.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $6,000 during each of the quarters.
Provisions for loan losses are based upon PSB's management's consideration of
current and anticipated economic conditions which may affect the ability of
borrowers to repay the loans. PSB's management also reviews individual loans for
which full collectibility may not be reasonably assured and considers, among
other matters, the estimated fair value of the underlying collateral, less
estimated selling costs.
NONINTEREST INCOME
Noninterest income increased $62,000 to $140,000 during the fiscal 1998
first quarter, largely due to an increase in the gain on sale of loans. The
increase in the gain on sale of loans was the result of an increase in the
volume of loans sold in the secondary market, which increased to $7.5 million
during the first quarter of fiscal 1998 compared to $4.2 million in the first
quarter of the prior year.
63
<PAGE> 71
NONINTEREST EXPENSE
Noninterest expense increased $23,000 on a quarter to quarter basis as
increases in compensation expense, attorney fees and real estate owned expenses
were partially offset by decreases in occupancy and equipment expense and SAIF
deposit insurance premiums. The increase in compensation expense was due to
additional commissions paid on loans sold in the secondary market, while the
increased attorney fees results from costs associated with PSB's pending
acquisition. The decrease in the SAIF deposit insurance premium was the result
of the premium being reduced to the minimum level required by SAIF.
INCOME TAXES
The increase in income tax expense is due to the increase in earnings.
The effective income tax rate increased to 38.58% during the first quarter of
fiscal 1998 vs. 35.44% in the first quarter of the prior fiscal year.
1997 COMPARED TO 1996
NET EARNINGS
Net earnings increased from a loss of $116,000 for the year ended
September 30, 1996 to earnings of $268,000 for the year ended September 30, 1997
due primarily to the non-recurring, special SAIF assessment of $353,527 in 1996.
PSB had higher net interest income and gain on sale of loans, as well as lower
total noninterest expense, offset by higher income taxes in 1997.
NET INTEREST INCOME
Net interest income was higher due largely to an increase in the
interest rate spread from 2.23% for 1996 to 2.42% for 1997. Interest on loans
receivable was higher in 1997 as PSB's average loan portfolio increased from
$43.4 million for 1996 to $47.5 million for 1997. The weighted-average yield on
loans increased from 7.56% for 1996 to 7.74% for 1997. Interest on
mortgage-backed securities ("MBS") was significantly higher due to an increase
in the average balance, from $2.6 million for 1996 to $8.0 million for 1997. The
weighted-average yield on MBS decreased from 7.05% for 1996 to 6.83% for 1997.
Interest on securities increased primarily as a result of a higher
weighted-average yield. The yield increased from 5.84% for 1996 to 6.38% for
1997. Interest on other interest-earning assets, which consist principally of
FHLB of Des Moines daily time and demand accounts and banker's acceptances,
decreased as a result of a lower average balance. The average balance on other
interest-earning assets, decreased from $5.7 million for 1996 to $3.1 million
for 1997. Interest on deposits increased due to a higher average balance. The
average balance of deposits increased from $52.9 million for 1996 to $55.0
million for 1997. The weighted-average rate paid on deposits decreased from
4.78% for 1996 to 4.74% for 1997. Interest on advances from the FHLB of Des
Moines increased as a result of a higher average balance. The average balance
for advances from FHLB of Des Moines more than doubled from $5.0 million for
1996 to $10.6 million for 1997.
64
<PAGE> 72
Distribution of Average Assets, Liabilities and Shareholders' Equity;
Interest Rates and Interest Differential
Years Ended September 30,
<TABLE>
<CAPTION>
1997
Average
Interest Rates
Average Income/ Earned/
Balance(4) Expense Paid
---------- ------- ----
<S> <C> <C> <C>
Assets
Loans (1) (2) (3) $47,531 $3,681 7.74%
Securities (3) 9,515 606 6.38
Mortgage backed securities 8,008 547 6.83
Interest-bearing deposits 3,124 172 5.50
------- ------
Total interest-earning assets/interest income/yield 68,178 $5,006 7.34
------ ====
Allowance for loan losses (107)
Cash and due from banks 300
Other assets 2,201
------
Total assets $70,572
=======
Liabilities
Deposits
Interest-bearing demand deposits $ 7,693 $ 286 3.72
Savings deposits 7,490 189 2.52
Time deposits 39,789 2,129 5.35
FHLB borrowings 10,623 625 5.88
------- ------
Total interest -bearing liabilities/interest expense/rate $65,595 $3,229 4.92
------ ====
Noninterest-bearing demand deposits 425
Other liabilities 265
Shareholders' equity 4,287
-------
Total liabilities & shareholders' equity $70,572
=======
Net interest income $1,777
======
Net interest margin on average interest-earning assets 2.61%
====
</TABLE>
<TABLE>
<CAPTION>
1996
Average
Interest Rates
Average Income/ Earned/
Balance(4) Expense Paid
---------- ------- ----
<S> <C> <C> <C>
Assets
Loans (1) (2) (3) $43,364 $3,279 7.56%
Securities (3) 9,425 550 5.84
Mortgage backed securities 2,552 180 7.05
Interest-bearing deposits 5,715 324 5.67
------- ------
Total interest-earning assets/interest income/yield 61,056 $4,333 7.10
------ ====
Allowance for loan losses (97)
Cash and due from banks 350
Other assets 1,652
------
Total assets $62,961
=======
Liabilities
Deposits
Interest-bearing demand deposits $ 7,487 $ 280 3.74
Savings deposits 7,818 198 2.53
Time deposits 37,563 2,051 5.46
FHLB borrowings 5,005 290 5.79
------- ------
Total interest -bearing liabilities/interest expense/rate 57,873 $2,819 4.87
------ ====
Noninterest-bearing demand deposits 340
Other liabilities 441
Shareholders' equity 4,307
-------
Total liabilities & shareholders' equity $62,961
=======
Net interest income $1,514
======
Net interest margin on average interest-earning assets 2.48%
====
</TABLE>
(1) Average balances include non-accrual loans.
(2) Interest income includes amortization of net loan origination fees.
(3) PSB has no tax-exempt loan or investment income, therefore tax equivalent
income is equal to book income.
(4) Average balances have been calculated on a monthly basis
65
<PAGE> 73
ANALYSIS OF CHANGES IN NET INTEREST INCOME
DUE TO CHANGES IN VOLUME AND CHANGES IN RATES
The following table sets forth, 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 September 30,
-------------------------------------------------------------------------------
1997 Compared to 1996 1996 Compared to 1995
------------------------------------- -------------------------------------
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 $ 402 $ 322 $ 80 $ 10 $ (52) $ 62
Securities 56 5 51 81 54 27
Mortgage-backed securities 367 370 (3) (56) (58) 2
Short-term investments (152) (141) (11) 127 128 (1)
----- ----- ----- ----- ----- -----
Total interest income 673 556 117 162 72 90
----- ----- ----- ----- ----- -----
Changes in interest expense on:
Interest-bearing demand
deposits 6 8 (2) (41) (35) (6)
Savings deposits (9) (8) (1) (29) (30) 1
Time deposits 78 114 (36) 176 71 105
FHLB borrowings 335 329 6 156 155 1
----- ----- ----- ----- ----- -----
Total interest expense 410 443 (33) 262 161 101
----- ----- ----- ----- ----- -----
Change in net interest income $ 263 $ 113 $ 150 $(100) $ (89) $ (11)
===== ===== ===== ===== ===== =====
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses was $24,000 for 1997 and 1996. Provisions for
loan losses are based upon PSB's management's consideration of current and
anticipated economic conditions which may affect the ability of borrowers to
repay the loans. PSB's management also reviews individual loans for which full
collectibility may not be reasonably assured and considers, among other matters,
the estimated fair value of the underlying collateral, less estimated selling
costs.
66
<PAGE> 74
NONINTEREST INCOME
Noninterest income increased as PSB increased the level of mortgage loans
originated and sold in the secondary market, resulting in a gains of $243,000 in
1996 compared to gains of $298,000 in 1997.
NONINTEREST EXPENSE
Noninterest expense decreased from $2.0 million in 1996 to $1.7 million in
1997 due primarily to the $354,000 special assessment to recapitalize the SAIF
charged in 1996. Recurring 1997 SAIF deposit insurance premiums decreased as a
result of a substantially lower assessment rate after the recapitalization of
the SAIF in 1996. Compensation and benefits increased in 1997 due primarily to
commissions paid to the mortgage banking staff as a result of higher loan
originations. Net loss on foreclosed real estate was $28,000 in 1997 compared to
none in 1996. Other noninterest expense also includes $20,000 of expenses
related to maintaining the foreclosed properties.
INCOME TAXES
Income taxes increased from an $84,000 income tax benefit in 1996 to income
tax expense of $168,000 during 1997. The effective income tax rate during 1997
was 38.53%. The 1996 tax benefit resulted from the $354,000 special SAIF
assessment.
1996 COMPARED TO 1995
NET EARNINGS
Net earnings decreased from $106,000 for the year ended September 30, 1995 to
a loss of $116,000 for the year ended September 30, 1996 due to the
non-recurring SAIF assessment, lower net interest income and slightly higher
other noninterest expenses, offset by higher noninterest income and lower income
taxes.
NET INTEREST INCOME
Net interest income decreased from $1.6 million for 1995 to $1.5 million for
1996. Interest income increased due to both an increase in interest-earning
assets and higher interest rates. Interest expense increased as a result of a
very competitive environment for retail deposits and additional FHLB advances.
PSB's interest rate spread decreased from 2.46% for 1995 to 2.23% for 1996. The
weighted-average yield on loans increased from 7.42% for 1995 to 7.56% for 1996.
Interest on securities increased from $469,000 for 1995 to $550,000 for 1996
largely as a result of a higher weighted-average yield. The weighted-average
yield on securities increased from 5.53% for 1995 to 5.84% for 1996. Interest on
other interest-earning assets increased from $197,000 for 1995 to $324,000 for
1996 as a result of a higher portfolio balance. The average balance on other
interest-earning assets, which consists principally of FHLB of Des Moines daily
time and demand accounts and banker's acceptances, increased from $3.5 million
for 1995 to $5.7 million for 1996. Interest on deposits increased from
$2,423,000 for 1995 to $2,529,000 for 1996 due to a higher weighted-average
rate. The weighted-average rate paid on deposits increased from 4.52% for 1995
to 4.78% for 1996 as a result of higher market interest rates. Interest on
advances from the FHLB of Des Moines increased from $134,000 for 1995 to
$290,000 for 1996 as a result of a higher average balance. The average balance
for advances from FHLB of Des Moines, increased from $2.3 million for 1995 to
$5.0 million for 1996. Components of interest income change from time to time
based on the availability, interest rates and other terms of loans, investments
and MBSs.
67
<PAGE> 75
PROVISION FOR LOAN LOSSES
The provision for loan losses was $24,000 for 1996 and 1995. Provisions for
loan losses are based upon PSB's management's consideration of current and
anticipated economic conditions which may affect the ability of borrowers to
repay the loans. Management also reviews individual loans for which full
collectibility may not be reasonably assured and considers, among other matters,
the estimated fair value of the underlying collateral, less estimated selling
costs.
NONINTEREST INCOME
Noninterest income increased from $163,000 for 1995 to $303,000 for 1996. PSB
originated and sold mortgage loans in the secondary market, resulting in a gains
of $122,000 in 1995 compared to gains of $243,000 in 1996. PSB's management's
efforts during the year were focused on building the mortgage loan function,
including loan sales in the secondary market. Other income increased from
$22,000 for 1995 to $40,000 for 1996 due to an increase in service fees on NOW
accounts.
NONINTEREST EXPENSE
Noninterest expense increased from $1,600,000 for 1995 to $1,993,000 for 1996
due primarily to the $354,000 special assessment to recapitalize the SAIF.
Recurring SAIF deposit insurance premiums were virtually unchanged. Advertising
expense increased due to additional promotional activity.
INCOME TAXES
Income taxes decreased from a $47,000 expense in 1995 to an $84,000 income
tax benefit in 1996. The 1996 tax benefit was largely due to the $354,000
special SAIF assessment. The effective tax rate in 1995 was 30.52%.
IMPACT OF INFLATION
Persistent high rates of inflation can have a significant effect on the
reported financial condition and results of operation 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 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 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 simply 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
68
<PAGE> 76
factors in turn affect the composition of sources of funds by reducing the
growth of deposits that are less interest sensitive and increasing the need for
funds that are most interest sensitive.
Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
The statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose statements. It does
not address recognition or measurement issues for comprehensive income and its
components. Entities are required to classify items of other comprehensive
income (including minimum pension liability adjustment and unrealized gains and
losses on securities available for sale) by their nature in the financial
statement and display the accumulated balance of other comprehensive income
separately in the equity section of the balance sheet. The statement is
effective for fiscal years beginning after December 15, 1997. Comparative
financial statements for earlier periods are required to reflect the provisions
of this statement.
During 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information (SFAS
131). SFAS 131 establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires those enterprises report selected information about operating segments
in interim financial reports issued to shareholders. Additionally, SFAS 131
establishes standards for related disclosures about products and services,
geographic areas, and major customers superseding SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise. PSB does not believe expanded
disclosure information will be required to be included in its consolidated
financial statements beginning in 1998.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 31, 1998, the names of each
director and executive officer of PSB, the number of shares of PSB Common owned
beneficially by each such director and executive officer, and the number of
shares of PSB Common owned beneficially by all directors and executive officers
of PSB as a group. None of the shareholders listed herein would own, on a pro
forma basis giving effect to the Merger, more than 1% of the issued and
outstanding shares of Southside Common.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER AMOUNT AND NATURE OF PERCENT OF CLASS
BENEFICIAL OWNERSHIP
- --------------------------------------- -------------------- ----------------
<S> <C> <C>
Robert C. Spinzig...................... 9,500 9.3
Robert E. Lamear, Jr................... 4,350 4.3
William S. Bahn........................ 7,150 7.0
Clement H. Albers...................... 2,440 2.4
Daniel T. Rabbitt...................... 8,750 8.6
James F. Conway........................ 2,500 2.5
Richard E. Clift....................... 9,700 9.5
James A. Sheets........................ 2,125 2.1
Directors and Executive Officers
as a Group (10 persons)............ 46,545 45.6
</TABLE>
69
<PAGE> 77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of March 31, 1998, other than certain directors and officers of PSB,
see "--Security Ownership of Management," no person is the beneficial owner of
more than 5% of the outstanding shares of PSB Common.
LEGAL AND TAX OPINIONS
The legality of the securities offered hereby will be passed upon by
Lewis, Rice & Fingersh, L.C., St. Louis, Missouri. Certain tax matters will be
passed upon by Breyer & Aguggia, Washington D.C.
EXPERTS
INDEPENDENT AUDITORS FOR SOUTHSIDE
The consolidated financial statements of Southside and subsidiaries at
December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997, have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
INDEPENDENT AUDITORS FOR PSB
The consolidated financial statements of PSB at September 30, 1997 and
1996 and for each of the years in the three-year period ended September 30, 1997
have been audited by Michael Trokey & Company, P.C., independent certified
public accountants, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
PRESENCE AT SPECIAL MEETING
Representatives of Michael Trokey & Company, P.C. are expected to attend
the Special Meeting with the opportunity to make a statement if they desire to
do so and to respond to appropriate questions.
SHAREHOLDER PROPOSALS
The annual meeting of Southside was held on April 23, 1998. Shareholder
proposals for the annual meeting of Southside shareholders to be held in April
1999 must meet the requirements established by the S.E.C. for shareholder
proposals and must be received at Southside's executive office on or before
November 23, 1998 in order to be considered for inclusion in the 1999 proxy
statement.
Upon receipt of any such proposal, Southside will determine whether or
not to include such proposal in the proxy statement and proxy in accordance with
the S.E.C.'s regulations governing the solicitation of proxies.
70
<PAGE> 78
PUBLIC SERVICE BANK
A FEDERAL SAVINGS BANK
AND
SUBSIDIARIES
Condensed Consolidated Financial Statements
December 31, 1997
Unaudited
F-1
<PAGE> 79
Public Service Bank and Subsidiaries
TABLE OF CONTENTS
<TABLE>
<S> <C>
Condensed Consolidated Financial Statements - December 31, 1997 and September 30, 1997
Condensed Consolidated Balance Sheets......................................................... F-3
Condensed Consolidated Financial Statements - Quarters Ended December 31, 1997 and 1996
Condensed Consolidated Statements of Earnings................................................. F-4
Condensed Consolidated Statements of Cash Flows............................................... F-5
Notes to Condensed Consolidated Financial Statements................................................... F-6
</TABLE>
F-2
<PAGE> 80
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1997 1997
------------ -------------
<S> <C> <C>
Cash and cash equivalents $ 4,182 $ 2,909
Certificates of deposit 10 10
Securities held to maturity, at amortized cost (market value
of $8,034 and $9,537) 7,981 9,474
Stock in Federal Home Loan Bank of Des Moines 824 824
Mortgage-backed securities held to maturity, at amortized cost
(market value of $6,906 and $7,527) 6,842 7,458
Loans, net of allowance for loan losses of $95 and $89 46,082 46,648
Loans held for sale at lower of cost or market 2,141 987
Premises and equipment, net 919 937
Foreclosed real estate held for sale, net 654 654
Other assets 538 569
------- -------
Total assets $70,173 $70,470
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $56,748 $55,544
Advances from Federal Home Loan Bank of Des Moines 8,410 9,430
Deferred tax liability 136 136
Other Liabilities 462 996
------- -------
Total liabilities 65,756 66,106
------- -------
Stockholders' equity:
Serial preferred stock, 5,000,000 shares authorized; none issued -- --
Capital stock, $1 par value; 15,000,000 shares
authorized; 102,182 shares issued and outstanding 102 102
Additional paid-in capital 744 744
Retained earnings - substantially restricted 3,571 3,518
------- -------
Total stockholders' equity 4,417 4,364
------- -------
Total liabilities and stockholders' equity $70,173 70,470
======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-3
<PAGE> 81
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Interest income:
Loans $ 948 932
Mortgage-backed securities 120 140
Securities 150 166
Other interest-earning assets 49 15
-------- --------
Total interest income 1,267 1,253
-------- --------
Interest expense:
Deposits 678 631
Advances from FHLB 135 177
-------- --------
Total interest expense 813 808
-------- --------
Net interest income 454 445
Provision for loan losses 6 6
-------- --------
Net interest income after provision for loan losses 448 439
-------- --------
Noninterest income:
Gain on sale of loans 118 58
Other 22 20
-------- --------
Total noninterest income 140 78
-------- --------
Noninterest expense:
Compensation and benefits 278 257
Occupancy and equipment expense 74 82
Attorney fees 16 1
SAIF deposit insurance premium 9 30
Other 84 68
-------- --------
Total noninterest expense 461 438
-------- --------
Earnings before income taxes 127 79
Income taxes 49 28
-------- --------
Net earnings $ 78 $ 51
======== ========
Earnings per share - basic and diluted $ .76 $ .50
======== ========
Weight average shares outstanding 102,182 102,182
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-4
<PAGE> 82
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 78 $ 51
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 20 28
Provision for loan losses 6 6
Loans held for sale:
Originated (8,585) (2,226)
Proceeds from loans sold 7,549 4,216
Other net, (621) (322)
------- -------
Total adjustments (1,631) 1,702
------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,553) 1,753
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of and principal payments
on debt securities held to maturity 2,108 237
Purchases of debt securities held to maturity -- (1,000)
Net decrease in loans held in portfolio 560 535
Purchases of bank premises and equipment (1) (24)
------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES $ 2,667 (252)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand and savings deposits $ (63) (592)
Net increase in time deposits 1,267 859
Net decrease in short-term borrowings (1,020) (3,020)
Cash dividends paid (25) (25)
------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 159 (2,778)
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,273 (1,277)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,909 4,279
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,182 3,002
======= =======
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest on deposits and borrowings $ 804 $ 797
Income taxes -- --
======= =======
Noncash transactions:
Transfers to other real estate owned in
settlement of loans $ -- $ 711
======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-5
<PAGE> 83
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 AND
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
NOTE 1. INTERIM CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The unaudited interim condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. This unaudited data, in the opinion of the Company, includes all
adjustments necessary for the fair presentation thereof. All adjustments made
were of a normal recurring nature.
NOTE 2. SUBSEQUENT EVENT - MERGER WITH SOUTHSIDE BANCSHARES CORP.
On February 25, 1998, the Company entered into an Agreement and Plan of Merger
with Southside Bancshares Corp. (Southside). At December 31, 1997, Southside,
which is headquartered in St. Louis, Missouri, had total assets of approximately
$550 million. The merger agreement will be effected through an exchange of stock
of the Company for stock and cash of Southside. The merger is contingent upon
approval of various regulatory agencies and the stockholders of Public Service
Bank, a federal savings bank. If approved, the merger is expected to close by
the second or third quarter of 1998.
F-6
<PAGE> 84
PUBLIC SERVICE BANK
A FEDERAL SAVINGS BANK
AND
SUBSIDIARIES
Consolidated Financial Statements
September 30, 1997
F-7
<PAGE> 85
Public Service Bank and Subsidiaries
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.................................................................................. F-9
Financial Statements - September 30, 1997 and 1996
Consolidated Balance Sheets.................................................................................. F-10
Financial Statements - Years Ended September 30, 1997, 1996, 1995
Consolidated Statements of Operations........................................................................ F-11
Consolidated Statements of Stockholders' Equity.............................................................. F-12
Consolidated Statements of Cash Flows........................................................................ F-13
Notes to Consolidated Financial Statements...................................................................... F-15
</TABLE>
F-8
<PAGE> 86
MICHAEL TROKEY & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
10411 CLAYTON ROAD
ST. LOUIS, MISSOURI 63131
(314) 432-0996
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Public Service Bank, a federal savings bank
St. Louis, Missouri
We have audited the accompanying consolidated balance sheets of Public Service
Bank, a federal savings bank and subsidiaries as of September 30, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended September 30, 1997.
These financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these 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 that 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 Public Service Bank,
a federal savings bank and subsidiaries as of September 30, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended September 30, 1997 in conformity with generally accepted
accounting principles.
/s/ Michael Trokey & Company, P.C.
St. Louis, Missouri
November 26, 1997
F-9
<PAGE> 87
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
----------- ----------
<S> <C> <C>
Cash and cash equivalents $ 2,908,532 4,278,560
Certificates of deposit 10,000 10,000
Securities held to maturity, at amortized cost (market value
of $9,536,740 and $7,460,782) 9,474,391 7,447,379
Stock in Federal Home Loan Bank of Des Moines 823,700 823,700
Mortgage-backed securities held to maturity, at amortized cost
(market value of $7,527,167 and $8,478,256) 7,457,568 8,489,374
Loans receivable, net 46,647,965 45,964,948
Loans held for sale at lower of cost or market 986,772 3,250,540
Premises and equipment, net 937,324 993,826
Foreclosed real estate held for sale, net 653,962 --
Accrued interest receivable:
Securities and certificates of deposit 157,302 109,346
Mortgage-backed securities 49,833 56,615
Loans 267,803 238,316
Other assets 94,829 135,136
----------- ----------
Total assets $70,469,981 71,797,740
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $55,544,489 53,194,083
Accrued interest on deposits 233,624 214,064
Advances from Federal Home Loan Bank of Des Moines 9,429,560 13,008,856
Advances from borrowers for taxes and insurance 602,390 663,561
Other liabilities and accrued expenses 138,809 499,460
Income taxes payable 21,155 18,526
Deferred tax liability 136,000 1,000
----------- ----------
Total liabilities 66,106,027 67,599,550
----------- ----------
Stockholders' equity:
Serial preferred stock, 5,000,000 shares authorized; none issued -- --
Capital stock, $1 par value; 15,000,000 shares
authorized; 102,182 shares issued and outstanding 102,182 102,182
Additional paid-in capital 743,942 743,942
Retained earnings - substantially restricted 3,517,830 3,352,066
----------- ----------
Total stockholders' equity 4,363,954 4,198,190
----------- ----------
Total liabilities and stockholders' equity $70,469,981 71,797,740
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 88
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Interest income:
Loans receivable $3,680,711 3,278,930 3,268,965
Mortgage-backed securities 547,043 179,970 236,535
Securities 606,880 550,419 468,817
Other interest-earning assets 171,652 323,892 196,754
---------- --------- ---------
Total interest income 5,006,286 4,333,211 4,171,071
---------- --------- ---------
Interest expense:
Deposits 2,603,422 2,528,734 2,423,290
Advances from FHLB 625,413 289,995 133,859
---------- --------- ---------
Total interest expense 3,228,835 2,818,729 2,557,149
---------- --------- ---------
Net interest income 1,777,451 1,514,482 1,613,922
Provision for loan losses 23,818 24,000 24,000
---------- --------- ---------
Net interest income after provision for loan losses 1,753,633 1,490,482 1,589,922
---------- --------- ---------
Noninterest income:
Loan service charges 20,997 19,140 18,520
Gain on sale of loans 297,955 243,223 122,031
Other 37,820 40,159 22,391
---------- --------- ---------
Total noninterest income 356,772 302,522 162,942
---------- --------- ---------
Noninterest expense:
Compensation and benefits 952,795 889,742 890,265
Occupancy expense 140,946 148,280 133,897
Equipment and data processing expense 141,035 147,799 155,240
SAIF deposit insurance premium 49,683 123,512 123,945
Loss (gain) on foreclosed real estate 28,312 -- (4,304)
Advertising expense 88,190 80,291 66,158
Other 273,498 249,908 234,948
---------- --------- ---------
Total general and administrative expense 1,674,459 1,639,532 1,600,149
SAIF special assessment -- 353,527 --
---------- --------- ---------
Total noninterest expense 1,674,459 1,993,059 1,600,149
---------- --------- ---------
Earnings (loss) before income taxes 435,946 (200,055) 152,715
Income taxes 168,000 (83,542) 46,615
---------- --------- ---------
Net earnings (loss) $ 267,946 (116,513) 106,100
========== ========= =========
Earnings (loss) per share $ 2.62 (1.14) 1.04
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 89
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
CAPITAL PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at September 30, 1994 $ 102,182 743,942 3,566,843 4,412,967
Net earnings -- -- 106,100 106,100
Cash dividends of $1.00 per share -- -- (102,182) (102,182)
---------- ------- --------- ---------
Balance at September 30, 1995 102,182 743,942 3,570,761 4,416,885
Net loss -- -- (116,513) (116,513)
Cash dividends of $1.00 per share -- -- (102,182) (102,182)
---------- ------- --------- ---------
Balance at September 30, 1996 102,182 743,942 3,352,066 4,198,190
Net earnings -- -- 267,946 267,946
Cash dividends of $1.00 per share -- -- (102,182) (102,182)
---------- ------- --------- ---------
Balance at September 30, 1997 $ 102,182 743,942 3,517,830 4,363,954
========== ======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE> 90
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 267,946 (116,513) 106,100
Adjustments to reconcile net earnings (loss) to
net cash provided by (used for) operating activities:
Depreciation and amortization:
Premises and equipment 95,709 118,736 121,109
Premiums (discounts) on securities, net (24,464) (21,731) 6,306
Deferred loan fees, net (47,174) (26,004) (44,001)
Provision for loan losses 23,818 24,000 24,000
Loans held for sale:
Originated (21,016,616) (16,009,947) (10,203,387)
Purchased -- (1,847,635) --
Proceeds from sale 23,578,339 16,706,856 8,690,327
FHLB stock dividends -- (16,200) --
Gain on sale of loans (297,955) (243,223) (122,031)
Loss (gain) on foreclosed real estate 28,312 -- (4,304)
Decrease (increase) in:
Accrued interest receivable (70,661) (18,477) (6,922)
Other assets 40,307 14,038 (37,333)
Increase (decrease) in:
Accrued interest on deposits 19,560 (10,725) 72,889
Other liabilities and accrued expenses (360,651) 356,529 46,234
Income taxes payable 2,629 16,525 (49,649)
Deferred tax liability 135,000 (116,000) 5,000
------------ ----------- -----------
Net cash provided by (used for)
operating activities 2,374,099 (1,189,771) (1,395,662)
------------ ----------- -----------
Cash flows from investing activities:
Loans:
Originated (15,153,944) (9,585,317) (4,545,304)
Purchased -- (4,367,437) --
Principal collections 13,779,712 11,110,776 4,064,689
Securities and certificates of deposit:
Held to maturity:
Purchased (3,001,112) (2,972,675) (1,944,688)
Proceeds from maturity 1,000,000 3,500,000 3,860,439
Mortgage-backed securities:
Held to maturity:
Purchased -- (6,630,451) --
Principal collections 1,030,370 1,143,791 684,052
Purchase of premises and equipment (39,207) (7,535) (103,494)
Proceeds from sale of foreclosed real estate 32,297 -- --
------------ ----------- -----------
Net cash provided by (used for)
investing activities $ (2,351,884) (7,808,848) 2,015,694
------------ ----------- -----------
</TABLE>
(Continued)
F-13
<PAGE> 91
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(Continued)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in:
Deposits $ 2,350,406 (1,044,181) 853,317
Advances from borrowers for taxes and
insurance (61,171) (123,057) 40,675
Advances from FHLB of Des Moines:
Proceeds 5,000,000 11,500,000 2,500,000
Repayment (8,579,296) (1,079,296) (1,579,296)
Cash dividends (102,182) (102,182) (102,182)
----------- ---------- ----------
Net cash provided by (used for)
financing activities (1,392,243) 9,151,284 1,712,514
----------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (1,370,028) 152,665 2,332,546
Cash and cash equivalents at beginning of year 4,278,560 4,125,895 1,793,349
----------- ---------- ----------
Cash and cash equivalents at end of year $ 2,908,532 4,278,560 4,125,895
=========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest on deposits $ 2,583,862 2,539,459 2,350,401
Interest on advances from FHLB of Des Moines 632,760 282,648 133,859
Federal income taxes, net 29,269 11,519 74,943
State taxes 1,102 1,535 19,199
Real estate acquired in settlement of loans $ 714,571 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE> 92
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996 AND
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following comprise the significant accounting policies which the Bank
follows in preparing and presenting its consolidated financial
statements:
a. The consolidated financial statements include the accounts of the
Bank and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
b. For purposes of reporting cash flows, cash and cash equivalents
include cash, due from depository institutions and
interest-bearing deposits with original maturities of three
months or less. Interest-bearing deposits were $2,592,901 and
$3,942,995 at September 30, 1997 and 1996, respectively.
c. Certificates of deposit are carried at cost and have original
maturities of more than three months.
d. Securities and mortgage-backed securities which the Bank has the
positive intent and ability to hold to maturity are classified as
held to maturity securities and reported at cost, adjusted for
amortization of premiums and accretion of discounts over the life
of the security using the interest method. Securities and
mortgage-backed securities not classified as held to maturity
securities are classified as available for sale securities and
reported at fair value, with unrealized gains and losses excluded
from net earnings and reported in a separate component of
stockholders' equity. The Bank does not purchase securities and
mortgage-backed securities for trading purposes. The cost of
securities sold is determined by specific identification.
e. Loans receivable, net are carried at unpaid principal balances, less
allowance for losses and net deferred loan fees.
Loans held for sale are carried at the lower of cost or estimated
market value in the aggregate. Gains or losses on loan sales are
recognized at the time of sale and are determined by the
difference between net sales proceeds and the principal balance
of the loans sold, adjusted for net deferred loan fees.
The Bank adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 91, "Accounting for Nonrefundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial
Direct Costs of Leases" for lending activities effective October
1, 1989. Loan origination and commitment fees and certain direct
loan origination costs are deferred and amortized to interest
income over the contractual life of the loan using the interest
method.
F-15
<PAGE> 93
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996 AND
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
Prior to October 1, 1989 the Bank recognized loan origination and
commitment fees as income to the extent of estimated direct costs
of underwriting and origination. Loan origination fees in excess
of that amount are deferred and are being amortized to interest
income over the contractual life of the related loans using the
interest method. Loan commitment fees are amortized over the
combined commitment period and expected life of the loan.
f. Effective October 1, 1995, the Bank adopted the provisions of SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan" and
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures." Specific valuation
allowances are established for impaired loans for the difference
between the loan amount and the fair value of collateral less
estimated selling costs. The Bank considers a loan to be impaired
when, based on current information and events, it is probable
that the Bank will be unable to collect all amounts due according
to the contractual terms of the loan agreement on a timely basis.
The types of loans for which impairment is measured under SFAS
No. 114 and No. 118 include nonaccrual income property loans
(excluding those loans included in the homogenous portfolio which
are collectively reviewed for impairment), large, nonaccrual
single family loans and troubled debt restructurings. Such loans
are placed on nonaccrual status at the point deemed
uncollectible. Impairment losses are recognized through an
increase in the allowance for loan losses. See note 5.
g. Allowances for losses are available to absorb losses incurred on
loans and foreclosed real estate held for sale and represents
additions charged to expense, less net charge-offs. The
allowances are based on management's assessment of current or
anticipated economic conditions, past loss and collection
experience, and risk characteristics of the loan portfolio and
foreclosed real estate held for sale. Management believes that
the allowances for losses on loans and foreclosed real estate
held for sale are adequate.
h. Premises and equipment are recorded at cost, less accumulated
depreciation and amortization. Depreciation and amortization of
premises and equipment is computed using the straight-line method
based on the estimated useful lives of the related assets.
Estimated lives are five to fifty years for building and
improvements, and three to twenty years for furniture and
equipment. Leasehold improvements are amortized over the term of
the lease, including options.
i. Foreclosed real estate held for sale is carried at the lower of cost
or fair value minus estimated selling costs. Costs related to
holding and maintaining the property are charged to expense and
costs relating to improvement of the property are capitalized.
j. Interest on loans, mortgage-backed securities and investments is
accrued as earned. Interest on delinquent loans is accrued to
income to the extent considered collectible.
k. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of
assets and liabilities which will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in
F-16
<PAGE> 94
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which the differences are expected to affect income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount which will more likely than not be realized.
Income tax expense is the tax payable or refundable for the
period plus or minus the net change in the deferred tax assets
and liabilities.
l. Earnings per share data is based on the weighted-average shares
outstanding.
m. The following paragraphs summarize the impact of new accounting
pronouncements:
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 provides that
compensation cost for stock-based employee compensation plans be
measured at the grant date based on the fair value of the award
and recognized over the service period, which is usually the
vesting period. However, SFAS No. 123 also allows an institution
to use the intrinsic value based method under APB Opinion No. 25.
SFAS No. 123 is effective for transactions entered into in fiscal
years which begin after December 15, 1995, with earlier
application permitted. SFAS No. 123 is not applicable to the
operations of the Bank.
In June 1996, the FASB issued SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." The Statement focuses on the issues of
accounting for transfers and servicing of financial assets,
extinguishments of liabilities and financial assets subject to
prepayment. In December, 1996 the FASB issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." SFAS No. 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring generally after December 31, 1996 and for certain
transactions after December 31, 1997. The provisions of SFAS No.
125 for financial assets subject to prepayment are effective for
financial assets held on or acquired after January 1, 1997. SFAS
No. 125 did not have a material impact on the financial position
or results of operations of the Bank.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share"
and SFAS No. 129, "Disclosure of Information about Capital
Structure." The statements supersede APB Opinion No. 15, amend
certain other accounting pronouncements, and modify the
presentation of earnings per share. The statements are effective
for financial statements for both interim periods and years
ending after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." The statement establishes standards for reporting and
display of comprehensive income and its components in a full set
of general purpose statements. It does not address recognition or
measurement issues for comprehensive income and its components.
Entities are required to classify items of other comprehensive
income (including minimum pension liability adjustment and
unrealized gains and losses on securities available for sale) by
their nature in the financial statement and display the
accumulated balance of other comprehensive income separately in
the equity section of the balance sheet. The statement is
effective for fiscal years beginning after December 15, 1997.
Comparative financial statements for earlier periods are required
to reflect the provisions of this statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The statement
requires that public entities report certain
F-17
<PAGE> 95
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
information about operating segments in the financial statements.
The statement also requires disclosures about products and
services, geographic areas and major customers. The statement
supersedes SFAS No. 14 and supersedes and amends certain other
accounting pronouncements. The statement is effective for fiscal
years beginning after December 15, 1997.
(2) RISKS AND UNCERTAINTIES
The Bank is a community oriented financial institution which provides
traditional financial services within the areas it serves. The Bank is
engaged primarily in the business of attracting deposits from the
general public and using these funds to originate one- to four-family
residential mortgage loans located in the City of St. Louis and St.
Louis County, Missouri.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions which affect the reported amounts of assets
and liabilities as of the balance sheet dates and income and expenses
for the periods covered. Actual results could differ significantly from
these estimates and assumptions.
The Bank's operations are affected by interest rate risk, credit risk,
market risk and regulations by the Office of Thrift Supervision (OTS).
The Bank is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice more rapidly, or on a
different basis, than its interest-earning assets. To better control
the impact of changes in interest rates, the Bank has sought to improve
the match between asset and liability maturities or repricing periods
and rates by emphasizing the origination of one and three year,
adjustable-rate mortgage loans and maintaining a securities portfolio
with maturities of up to five years. The Bank uses the gap analysis
(the difference between interest-earning assets and interest-bearing
liabilities that mature or reprice within a specific time period)
provided by the FHLB of Des Moines to measure its interest rate risk
exposure. Credit risk is the risk of default on the Bank's loan
portfolio which results from the borrowers' inability or unwillingness
to make contractually required payments. Market risk reflects changes
in the value of collateral underlying loans receivable and the
valuation of real estate held by the Bank. The Bank is subject to
periodic examination by regulatory agencies which may require the Bank
to record increases in the allowances based on their evaluation of
available information. There can be no assurance that the Bank's
regulators will not require further increases to the allowances.
The Bank is reviewing computer applications with its outside data
processing service bureau and other software vendors to ensure
operational and financial systems are not adversely affected by "year
2000" software failures. All major customer applications are processed
through the outside service bureau. The service bureau has indicated
that it expects to modify existing programs to make them year 2000
compliant. Management of the Bank is unable to estimate any additional
expense related to this issue. Any year 2000 compliance failures could
result in additional expense to the Bank.
F-18
<PAGE> 96
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) SECURITIES
Securities are summarized as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Held to maturity - debt securities:
U.S. Treasury note and Federal
agency obligations due
within one year $2,497,443 1,468 (224) 2,498,687
Federal agency obligations due
after one year through five years 6,976,948 67,574 (6,469) 7,038,053
---------- ------ ------ ---------
$9,474,391 69,042 (6,693) 9,536,740
========== ====== ====== =========
Weighted-average rate 6.31%
==========
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Held to maturity - debt securities:
U.S. Treasury note and Federal
agency obligations due after
one year through five years $ 7,447,379 13,403 -- 7,460,782
============= ====== ======= =========
Weighted-average rate 6.14%
=============
</TABLE>
(4) MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are summarized as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Held to maturity - debt securities:
FHLMC $2,307,801 56,023 -- 2,363,824
GNMA 667,495 6,385 -- 673,880
FNMA 4,482,272 8,991 (1,800) 4,489,463
---------- ------ ------ ---------
$7,457,568 71,399 (1,800) 7,527,167
========== ====== ====== =========
Weighted-average rate 7.06%
==========
</TABLE>
F-19
<PAGE> 97
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Held to maturity - debt securities:
FHLMC $2,784,976 -- (7,349) 2,777,627
GNMA 764,961 -- (3,769) 761,192
FNMA 4,939,437 -- -- 4,939,437
---------- ---------- ------- ---------
$8,489,374 -- (11,118) 8,478,256
========== ========== ======= =========
Weighted-average rate 6.94%
==========
</TABLE>
At September 30, 1997 and 1996 mortgage-backed securities included
adjustable-rate mortgage loans of $4,836,413 and $5,266,018,
respectively.
(5) LOANS RECEIVABLE, NET
Loans receivable, net are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Residential real estate:
Single-family, 1-4 units $ 44,531,982 44,037,487
5 or more units 490,887 501,436
Consumer loans 1,804,772 1,617,950
------------ ----------
46,827,641 46,156,873
Allowance for losses (88,808) (108,330)
Deferred loan fees, net (90,868) (83,595)
------------ ----------
$ 46,647,965 45,964,948
============ ==========
Weighted-average rate 7.74% 7.72%
============ ==========
</TABLE>
Adjustable-rate loans included in the loan portfolio amounted to
approximately $20,982,000 and $21,375,000 at September 30, 1997 and
1996, respectively. Loans serviced for others amounted to $602,363,
$1,238,179 and $1,445,985 at September 30, 1997, 1996 and 1995,
respectively.
Following is a summary of activity in allowance for losses:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- ------
<S> <C> <C> <C>
Balance, beginning of year $ 108,330 84,621 60,621
Provision charged to expense 23,818 24,000 24,000
Recoveries (charge-offs) (43,340) (291) --
--------- ------- ------
Balance, end of year $ 88,808 108,330 84,621
========= ======= ======
</TABLE>
F-20
<PAGE> 98
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of loans to directors, executive officers and
associates of such persons in excess of $60,000 in the aggregate for
the year ended September 30, 1997:
<TABLE>
<S> <C>
Balance, beginning of year $ 426,898
Additions 160,246
Repayments (21,092)
---------
Balance, end of year $ 566,052
=========
</TABLE>
These loans were made on substantially the same terms as those prevailing
at the time for comparable transactions with unaffiliated persons.
The recorded investment in one single family loan which was considered
impaired at September 30, 1996 was $639,888. The property was
subsequently foreclosed during December, 1996. The average balance of
this impaired loan up to the foreclosure date during fiscal 1997 and
during the year ended September 30, 1996 was $640,033 and $636,168,
respectively. There was no allowance for loss on this impaired loan at
September 30, 1996. The amount of interest recognized on this loan on
a cash basis for the year ended September 30, 1996 was $7,361.
There was no interest collected on this loan during 1997.
(6) PREMISES AND EQUIPMENT, NET
Premises and equipment, net are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Land $ 166,296 166,296
Office buildings 1,352,695 1,332,916
Furniture and equipment 790,258 770,830
Leasehold improvements 79,672 79,672
---------- ---------
2,388,921 2,349,714
Less accumulated depreciation and amortization 1,451,597 1,355,888
---------- ---------
$ 937,324 993,826
========== =========
</TABLE>
Depreciation and amortization expense for 1997, 1996 and 1995 was
$95,709, $118,736 and $121,109, respectively.
(7) FORECLOSED REAL ESTATE HELD FOR SALE, NET
Foreclosed real estate held for sale, net is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ----
<S> <C> <C>
Foreclosed real estate held for sale $ 689,075 --
Allowance for losses (35,113) --
--------- ----
$ 653,962 --
========= ====
</TABLE>
F-21
<PAGE> 99
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of activity in allowance for losses:
<TABLE>
<CAPTION>
1997 1996 1995
------- ---- ------
<S> <C> <C> <C>
Balance, beginning of year $ -- -- --
Charge-offs, net of gain on sale 6,801 -- 4,304
Provision charged to expense 28,312 -- (4,304)
------- ---- ------
Balance, end of year $35,113 -- --
======= ==== ======
</TABLE>
Foreclosed real estate held for sale at September 30, 1997 consists of
two single-family dwellings and one two-family dwelling.
(8) DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
DESCRIPTION AND INTEREST RATE 1997 1996
----------- -----------
<S> <C> <C>
Noninterest-bearing NOW accounts $ 495,764 350,090
NOW accounts, 1.75% 2,144,599 2,123,897
Super NOW accounts, 2.50% 277,201 236,840
Passbook accounts, 2.50% 7,236,453 7,715,994
Money market deposit accounts, 4.03% and 4.06%,
respectively 4,982,247 5,620,601
----------- -----------
Total transaction accounts 15,136,264 16,047,422
----------- -----------
Certificates:
3.00 - 3.99% 14,460 41,688
4.00 - 4.99% 3,193,134 3,728,522
5.00 - 5.99% 33,954,657 27,324,292
6.00 - 6.99% 3,245,974 5,966,912
7.00 - 7.99% -- 85,247
----------- -----------
Total certificates, 5.56% and 5.53%, respectively 40,408,225 37,146,661
----------- -----------
Total deposits $55,544,489 53,194,083
=========== ===========
Weighted-average rate - deposits 4.81% 4.73%
=========== ===========
Certificate maturities are summarized as follows:
October 1, 1997 to September 30, 1998 $29,172,473
October 1, 1998 to September 30, 1999 8,535,623
October 1, 1999 to September 30, 2000 1,717,375
October 1, 2000 to September 30, 2001 679,581
October 1, 2001 to September 30, 2002 268,630
October 1, 2002 and thereafter 34,543
-----------
$40,408,225
===========
</TABLE>
F-22
<PAGE> 100
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of interest on deposits:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
NOW and super NOW accounts $ 61,612 45,765 107,430
Passbook accounts 189,366 197,765 226,827
Money market deposit accounts 223,234 234,252 214,212
Certificates 2,129,210 2,050,952 1,874,821
---------- --------- ---------
$2,603,422 2,528,734 2,423,290
========== ========= =========
</TABLE>
(9) ADVANCES FROM FHLB OF DES MOINES
Advances from Federal Home Loan Bank of Des Moines are summarized as
follows:
<TABLE>
<CAPTION>
TYPE INTEREST RATE 1997 1996
-------- ------------- ---------- ----------
<S> <C> <C> <C>
Adjustable varies $ -- 4,000,000
Fixed 5.65 - 5.98% 9,429,560 9,008,856
---------- ----------
$9,429,560 13,008,856
========== ==========
</TABLE>
The adjustable rate advance was based upon the one month LIBOR minus
three basis points, 5.443% at September 30, 1996.
Principal maturities at September 30, 1997 are summarized as follows:
<TABLE>
<S> <C>
October 1, 1997 to September 30, 1998 $5,079,296
October 1, 1998 to September 30, 1999 2,079,296
October 1, 1999 to September 30, 2000 79,296
October 1, 2000 to September 30, 2001 1,079,296
October 1, 2001 to September 30, 2002 79,296
October 1, 2002 and thereafter 1,033,080
----------
$9,429,560
==========
</TABLE>
Advances from Federal Home Loan Bank of Des Moines are secured by FHLB
stock and single-family mortgage loans of $14,144,340.
(10) INCOME TAXES
On August 20, 1996 the Small Business Job Protection Act of 1996 was
signed into law. Under the Act, the Bank's bad debt reserves in excess
of the 1987 tax year level are subject to recapture and payable in
equal amounts over six years in tax years beginning October 1, 1996.
The recapture of the applicable excess tax bad debt reserves may be
deferred for two years if certain residential loan origination levels
are met. The Act eliminated the percentage of taxable income method
for the Bank effective October 1, 1996. The Bank will continue to be
eligible to compute additions to the tax bad debt reserve using the
experience method. The percentage of taxable income method was used
for income tax purposes for the years ended September 30, 1996 and
1995.
F-23
<PAGE> 101
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net deferred tax liability are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Deferred tax liabilities:
FHLB stock dividend $ 129,723 114,036
Present value of excess servicing 4,501 4,354
Tax depreciation in excess of book depreciation 58,475 37,585
Tax bad debt reserves arising after September 30, 1988 28,352 37,379
--------- --------
Total deferred tax liabilities 221,051 193,354
--------- --------
Deferred tax assets:
SAIF special assessment -- (124,409)
Deferred loan fees, net (35,981) (29,417)
Allowance for losses (49,070) (38,528)
--------- --------
Gross deferred tax assets (85,051) (192,354)
Valuation allowance -- --
--------- --------
Total deferred tax assets (85,051) (192,354)
--------- --------
Net deferred tax liability $ 136,000 1,000
========= ========
</TABLE>
The provisions of SFAS No. 109 require the Bank to establish a deferred
tax liability for the tax effect of the tax bad debt reserves over the
amounts at September 30, 1988. The Bank's tax bad debt reserves were
approximately $1,693,000 at September 30, 1988. The estimated deferred
tax liability on such amount is approximately $576,000, which has not
been recorded in the accompanying consolidated financial statements.
Income taxes are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ------
<S> <C> <C> <C>
Current:
Federal $ 34,000 31,458 40,115
State (1,000) 1,000 1,500
--------- -------- ------
33,000 32,458 41,615
--------- -------- ------
Deferred:
Federal 120,000 (101,000) 5,000
State 15,000 (15,000) --
--------- -------- ------
135,000 (116,000) 5,000
--------- -------- ------
$ 168,000 (83,542) 46,615
========= ======== ======
</TABLE>
The provision for income taxes differs from the statutory corporate tax
rate as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF EARNINGS (LOSS)
BEFORE INCOME TAXES
-----------------------------
1997 1996 1995
----- ------- -----
<S> <C> <C> <C>
Tax at statutory rate 34.0% (34.0)% 34.0%
Increase (decrease) in taxes:
State taxes, net of Federal tax benefit 2.1 (3.0) .5
Other, net 2.4 (4.8) (4.0)
---- ----- ----
Effective tax rate 38.5% (41.8)% 30.5%
==== ===== ====
</TABLE>
F-24
<PAGE> 102
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can result in certain mandatory and possibly
additional discretionary actions by regulators which, if undertaken,
could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines, the Bank must meet
specific guidelines which involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to quantitative judgments by the
regulators about components, risk-weightings and other factors.
At September 30, 1997, the Bank meets all capital adequacy requirements.
The Bank is also subject to the regulatory framework for prompt
corrective action. The most recent notification from the regulatory
agencies categorized the Bank as well capitalized. To be categorized
as well capitalized, the Bank must maintain minimum total risk-based,
Tier 1 risk-based and Tier 1 leverage ratios as set forth in the
following table. There are no conditions or events since the dates of
the aforementioned notifications which management believes have
changed the Bank's category.
The Bank's actual and required capital amounts and ratios at September
30, 1997 are as follows:
<TABLE>
<CAPTION>
Minimum Required Minimum Required
for Capital to be "Well
Actual Adequacy Capitalized"
--------------- ---------------- ---------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated stockholders'
equity and tangible
capital $4,364 6.2% $1,057 1.5%
General valuation
allowance - loans $ 89
------
Total capital to risk-
weighted assets $4,453 14.7% $2,418 8.0% $3,023 10.0%
======
Tier 1 capital to risk-
weighted assets $4,364 14.4% $1,209 4.0% $1,814 6.0%
Tier 1 capital to
total assets $4,364 6.2% $2,819 4.0% $3,524 5.0%
</TABLE>
An OTS regulation restricts the Bank's ability to make capital
distributions, including paying dividends. The regulation provides that
an institution meeting the capital requirements, both before and after
its proposed capital distribution, may generally distribute the greater
of (1) 75% of its net earnings for the prior four quarters or (2) 100%
of its net earnings to date during the calendar year, plus 50% of the
amount in excess of the capital requirements as of the beginning of the
calendar year. The regulation provides more significant restrictions on
payment of dividends in the event that the capital requirements are not
met.
F-25
<PAGE> 103
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) RETIREMENT PLAN
The Bank participates in a multiemployer, defined benefit retirement plan
which covers substantially all employees. Assets of the previous plan
were transferred to the new plan, or distributed to the former
participants. The multiemployer plan's assets exceed the actuarially
computed value of vested benefits at June 30, 1997, the most recent
valuation date. Plan benefits are fully vested after six years of
service and are based on an employee's years of service. The Bank's
funding policy is to make contributions to the plan equal to the
amount accrued as pension expense. Total pension expense for the years
ended September 30, 1997, 1996 and 1995 was $51,864, $42,887 and
$77,828 respectively.
(13) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a 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 generally include commitments
to originate mortgage loans and unused lines of credit on home equity
loans. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in
the balance sheet. The Bank's maximum exposure to credit loss in the
event of nonperformance by the borrower is represented by the
contractual amount and related accrued interest receivable of those
instruments. The Bank minimizes this risk by evaluating each
borrower's creditworthiness on a case-by-case basis. Collateral held
by the Bank consists of a first or second mortgage on the borrower's
property. The amount of collateral obtained is based upon an appraisal
of the property.
Commitments to originate mortgage loans and unused lines of credit on
home equity loans are legally binding agreements to lend to the Bank's
customers. Commitments at September 30, 1997 to originate fixed-rate
and adjustable rate mortgage loans for sale and fixed-rate and
adjustable-rate mortgage loans for portfolio were $3,049,718,
$523,356, $316,900 and $2,833,550, respectively. Commitments to
originate loans generally expire in 60 days or less. Commitments at
September 30, 1997 on behalf of borrowers for unused lines of credit
on home equity loans were approximately $2,426,000 expiring in ten
years or less.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the Bank's financial
instruments, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Non-trading instruments
and nonderivatives:
Cash and cash equivalents $ 2,908,532 2,908,532 4,278,560 4,278,560
Certificates of deposit 10,000 10,000 10,000 10,000
Securities held to maturity 9,474,391 9,536,740 7,447,379 7,460,782
Stock in FHLB of Des Moines 823,700 823,700 823,700 823,700
Mortgage-backed securities
held to maturity 7,457,568 7,527,167 8,489,374 8,478,256
Loans receivable, net 46,647,965 46,474,703 45,964,948 45,664,928
Loans held for sale 986,772 986,772 3,250,540 3,250,540
Deposits 55,544,489 54,877,753 53,194,083 52,792,899
Advances from FHLB $ 9,429,560 9,240,026 13,008,856 12,701,654
</TABLE>
F-26
<PAGE> 104
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following methods and assumptions were used in estimating the fair
values of financial instruments:
Cash and cash equivalents and certificates of deposit are valued at their
carrying amounts due to the relatively short period to maturity of the
instruments.
Fair values of securities and mortgage-backed securities are based on
quoted market prices or, if unavailable, quoted market prices of
similar securities.
Stock in FHLB of Des Moines is valued at cost, which represents
redemption value and approximates fair value.
Fair values are computed for each loan category using discounted cash
flows at the estimated current market price for similar existing loans
in the portfolio and management's estimates of prepayments.
Deposits with no defined maturities, such as NOW accounts, passbook
accounts and money market deposit accounts, are valued at the amount
payable on the reporting date.
The fair values of certificates of deposit and advances from FHLB of Des
Moines are computed based upon cash flows discounted at the estimated
current market price which reflects similar terms and maturities.
F-27
<PAGE> 105
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF MERGER
by and among
PUBLIC SERVICE BANK,
a Federal Savings Bank,
and
SOUTH SIDE NATIONAL BANK IN ST. LOUIS,
a national banking association,
and
SOUTHSIDE BANCSHARES CORP.
a Missouri corporation,
Dated February 25, 1998.
================================================================================
A-1
<PAGE> 106
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE ONE TERMS OF MERGER AND CLOSING........................................................ A-5
Section 1.01. Merger............................................................................. A-5
Section 1.02. Merging Bank....................................................................... A-5
Section 1.03. Surviving Bank..................................................................... A-5
Section 1.04. Effect of Merger................................................................... A-5
Section 1.05. Merger Consideration; Conversion of Shares......................................... A-5
Section 1.06. Elections and Proration............................................................ A-7
Section 1.07. The Closing........................................................................ A-8
Section 1.08. Closing Date....................................................................... A-9
Section 1.09. Exchange Procedures; Surrender of Certificates..................................... A-9
Section 1.10. Closing Deliveries................................................................. A-10
ARTICLE TWO REPRESENTATIONS AND WARRANTIES OF PSB.............................................. A-11
Section 2.01. Organization and Capital Stock..................................................... A-11
Section 2.02. Authorization; No Defaults......................................................... A-12
Section 2.03. Subsidiaries....................................................................... A-13
Section 2.04. Financial Information.............................................................. A-13
Section 2.05. Absence of Changes................................................................. A-13
Section 2.06. Regulatory Enforcement Matters..................................................... A-13
Section 2.07. Tax Matters........................................................................ A-14
Section 2.08. Litigation and Related Matters..................................................... A-14
Section 2.09. Employment Agreements.............................................................. A-15
Section 2.10. Reports............................................................................ A-15
Section 2.11. Loan Portfolio..................................................................... A-15
Section 2.12. Interest Rate Risk Management Instruments.......................................... A-15
Section 2.13. Employee Matters and ERISA......................................................... A-16
Section 2.14. Title to Properties; Insurance..................................................... A-17
Section 2.15. Environmental Matters.............................................................. A-17
Section 2.16. Compliance with Law................................................................ A-18
Section 2.17. Brokerage.......................................................................... A-18
Section 2.18. Interim Events..................................................................... A-18
Section 2.19. Properties, Contracts and Other Agreements......................................... A-18
Section 2.20. No Undisclosed Liabilities......................................................... A-19
Section 2.21. Statements True and Correct........................................................ A-19
ARTICLE THREE REPRESENTATIONS AND WARRANTIES OF SOUTHSIDE AND
NATIONAL BANK...................................................................... A-20
Section 3.01. Organization and Capital Stock..................................................... A-20
Section 3.02. Authorization...................................................................... A-20
Section 3.03. Subsidiaries....................................................................... A-21
Section 3.04. Financial Information.............................................................. A-21
Section 3.05. Absence of Changes................................................................. A-21
Section 3.06. Litigation......................................................................... A-21
</TABLE>
A-2
<PAGE> 107
<TABLE>
<S> <C> <C>
Section 3.07. Regulatory Enforcement Matters..................................................... A-21
Section 3.08. Loan Portfolio..................................................................... A-22
Section 3.09. No Undisclosed Liabilities......................................................... A-22
Section 3.10. Reports.............................................................................A-22
Section 3.11. Compliance With Law................................................................ A-22
Section 3.12. Statements True and Correct........................................................ A-23
ARTICLE FOUR AGREEMENTS OF PSB.................................................................. A-23
Section 4.01. Business in Ordinary Course........................................................ A-23
Section 4.02. Breaches........................................................................... A-25
Section 4.03. Submission to Shareholders......................................................... A-26
Section 4.04. Consents to Contracts and Leases................................................... A-26
Section 4.05. Consummation of Agreement.......................................................... A-26
Section 4.06. Merger Expenses and Related Matters................................................ A-26
Section 4.07. Environmental Reports.............................................................. A-27
Section 4.08. Restriction on Resales............................................................. A-27
Section 4.09. Access and Information............................................................. A-27
Section 4.10. PSB Quarterly Financials........................................................... A-28
ARTICLE FIVE AGREEMENTS OF SOUTHSIDE AND NATIONAL BANK.......................................... A-28
Section 5.01. Regulatory Approvals and Registration Statement.................................... A-28
Section 5.02. Breaches........................................................................... A-29
Section 5.03. Consummation of Agreement.......................................................... A-29
Section 5.04. Employee Benefits.................................................................. A-29
Section 5.05. Directors and Officers' Indemnification and Insurance.............................. A-29
Section 5.06. Access to Information.............................................................. A-30
Section 5.07. Employment Agreement............................................................... A-30
ARTICLE SIX CONDITIONS PRECEDENT TO THE MERGER................................................. A-30
Section 6.01. Conditions to Southside's and National Bank's Obligations.......................... A-30
Section 6.02. Conditions to PSB's Obligations.................................................... A-31
ARTICLE SEVEN TERMINATION OR ABANDONMENT......................................................... A-32
Section 7.01. Mutual Agreement................................................................... A-32
Section 7.02. Breach of Agreements............................................................... A-32
Section 7.03. Failure of Conditions.............................................................. A-32
Section 7.04. Regulatory Approval Denial......................................................... A-33
Section 7.05. Shareholder Approval Denial........................................................ A-33
Section 7.06. Regulatory Enforcement Matters..................................................... A-33
Section 7.07. Automatic Termination.............................................................. A-33
Section 7.08. Southside Termination Fee.......................................................... A-33
Section 7.09. PSB Termination Fee................................................................ A-33
ARTICLE EIGHT GENERAL............................................................................ A-34
Section 8.01. Confidential Information........................................................... A-34
Section 8.02. Publicity.......................................................................... A-34
Section 8.03. Return of Documents................................................................ A-35
Section 8.04. Notices............................................................................ A-35
Section 8.05. Liabilities and Expenses........................................................... A-36
</TABLE>
A-3
<PAGE> 108
<TABLE>
<S> <C> <C>
Section 8.06. Nonsurvival of Representations, Warranties and Agreements.......................... A-36
Section 8.07. Entire Agreement................................................................... A-36
Section 8.08. Headings and Captions.............................................................. A-36
Section 8.09. Waiver, Amendment or Modification.................................................. A-36
Section 8.10. Rules of Construction.............................................................. A-36
Section 8.11. Counterparts....................................................................... A-36
Section 8.12. Successors and Assigns............................................................. A-37
Section 8.13. Severability....................................................................... A-37
Section 8.14. Governing Law; Assignment.......................................................... A-37
Section 8.15. Enforcement of Agreement........................................................... A-37
EXHIBIT 1.10(a) PSB's Legal Opinion Matters.................................................A-Ex-1.10(a)
EXHIBIT 1.10(b) Southside's Legal Opinion Matters...........................................A-Ex-1.10(b)
EXHIBIT 4.08 Form of Affiliate's Letter.....................................................A-Ex-4.08
</TABLE>
A-4
<PAGE> 109
AGREEMENT AND PLAN OF MERGER
This is an AGREEMENT AND PLAN OF MERGER (this "Agreement") made
February ___, 1998, by and among PUBLIC SERVICE BANK, a Federal Savings Bank
("PSB"), SOUTH SIDE NATIONAL BANK IN ST. LOUIS, a national banking association
("National Bank"), and SOUTHSIDE BANCSHARES CORP., a Missouri corporation and
parent corporation of National Bank ("Southside").
In consideration of the premises and the respective representations,
warranties, covenants, and agreements set forth herein, the parties hereby agree
as follows:
ARTICLE ONE
TERMS OF MERGER AND CLOSING
SECTION 1.01. MERGER. Pursuant to the terms and provisions of this
Agreement and the Home Owners' Loan Act, the regulations of the Office of Thrift
Supervision (the "O.T.S.") promulgated thereunder, the National Bank Act, the
Federal Deposit Insurance Act, the Federal Reserve Act and the Bank Merger Act,
as applicable, and the regulations of the Office of the Comptroller of the
Currency (the "O.C.C.") and the Federal Deposit Insurance Corporation (the
"F.D.I.C.") promulgated thereunder (the "Corporate Law"), PSB shall merge with
and into National Bank under the charter of the latter (the "Merger").
SECTION 1.02. MERGING BANK. PSB shall be the merging institution under
the Merger and its corporate identity and existence, separate and apart from
National Bank, shall cease on consummation of the Merger.
SECTION 1.03. SURVIVING BANK. National Bank shall be the surviving bank
in the Merger (sometimes referred to as the "Surviving Bank" when reference is
made as of the Effective Time (as defined in Section 1.08 hereof) or
thereafter). No changes in the Charter or Bylaws of National Bank shall be
effected by the Merger, and the name of the Surviving Bank shall continue to be
"South Side National Bank in St. Louis."
SECTION 1.04. EFFECT OF MERGER. The Merger shall have all of the
effects provided for herein and in the Corporate Law. The business of the
Surviving Bank shall be that of a national banking association. This business
shall be conducted by the Surviving Bank at its main office which shall continue
to be located at 3606 Gravois Avenue, St. Louis, Missouri, and its legally
established branches, which shall include all of the existing locations of PSB.
The present Board of Directors of National Bank shall continue to serve as the
Board of Directors of the Surviving Bank until the next annual meeting or until
such time as their successors have been elected and have qualified. All assets
as they exist at the Effective Time shall pass to and vest in the Surviving Bank
without any conveyance or other transfer.
SECTION 1.05. MERGER CONSIDERATION; CONVERSION OF SHARES.
(a) At the Effective Time, each share of common stock, $1.00 par value
per share, of PSB ("PSB Common Stock"), issued and outstanding immediately prior
thereto (except for Dissenting Shares, as defined herein) shall, by virtue of
the Merger and without any action on the part of the holder thereof,
A-5
<PAGE> 110
be converted into the right to receive from Southside either (1) cash, without
interest ("Per Share Cash Amount"), in an amount (rounded to the nearest cent)
equal to the Exchange Ratio (as defined below) multiplied by the Southside
Average Price (as defined below), or (2) that number of shares of common stock,
par value $1.00 per share, of Southside ("Southside Common Stock") equal to the
Exchange Ratio, or (3) a combination of shares of Southside Common Stock and
cash, all as determined in accordance with Section 1.06.
The "Exchange Ratio" shall equal the quotient (rounded to the nearest
one-thousandth) of (x) two times the "Capital" of PSB divided by the number of
outstanding shares of PSB Common Stock at the Effective Time, divided by (y) the
Southside Average Price. The "Capital" of PSB shall equal total stockholders'
equity of PSB as reflected in the consolidated balance sheet of PSB as of the
last day of the quarter immediately preceding the month in which the Effective
Time shall occur minus any and all attorneys fees, accounting fees, and
financial services/brokerage fees incurred by PSB in connection with the Merger
that have been or will be paid or accrued by PSB before and after the date
hereof and not expensed on the financial statements of PSB. The "Southside
Average Price" shall be the average of the average (rounded to the nearest
one-thousandth) of the closing bid and ask prices per share of Southside Common
Stock reported by the National Association of Securities Dealers, Inc./Small Cap
Market System ("NASDAQ/SCM") during the period of ten trading days which ends on
the fifth trading day prior to the Closing Date (as defined below).
Notwithstanding any other provision of this Agreement, any shares of
PSB Common Stock issued and outstanding immediately prior to the Effective Time
which are then owned beneficially or of record by Southside, PSB or by any
direct or indirect subsidiary of any of them, other than in a fiduciary
capacity, or are held in the treasury of PSB shall, by virtue of the Merger, be
canceled without payment of any consideration therefor and without any
conversion thereof.
(b) Any shares of PSB Common Stock held by a holder who dissents from
the Merger in accordance with the regulations of the O.T.S. and becomes entitled
to obtain payment for the fair value of such shares of PSB Common Stock pursuant
to such regulations shall be herein called "Dissenting Shares". Notwithstanding
any other provision of this Agreement, any Dissenting Shares shall not, after
the Effective Time, be entitled to vote for any purpose or receive any dividends
or other distributions and shall be entitled only to such rights as are afforded
in respect of Dissenting Shares pursuant to the O.T.S.
regulations.
(c) Notwithstanding any other provision hereof, no fractional shares of
Southside Common Stock and no certificates or scrip therefor, or other evidence
of ownership thereof, will be issued in the Merger; instead, Southside shall pay
to each holder of PSB Common Stock who would otherwise be entitled to a
fractional share an amount in cash determined by multiplying such fraction by
the Southside Average Price.
(d) Each share of common stock, par value $1.00 per share, of National
Bank ("National Bank Common") outstanding immediately prior to the Effective
Time shall remain outstanding unaffected by the Merger.
(e) Each share of Southside Common Stock outstanding immediately prior
to the Effective Time shall remain outstanding unaffected by the Merger.
A-6
<PAGE> 111
SECTION 1.06. ELECTIONS AND PRORATION.
(a) The number of shares of PSB Common Stock to be converted into the
right to receive cash in the Merger shall equal 40% of the number of shares of
PSB Common Stock outstanding immediately prior to the Effective Time ("Cash
Election Number"), and the number of shares of PSB Common Stock to be converted
into the right to receive Southside Common Stock in the Merger shall equal 60%
of the number of shares of PSB Common Stock outstanding immediately prior to the
Effective Time ("Stock Election Number").
(b) Subject to the allocation and election procedure set forth in this
Section 1.06, each record holder of PSB Common Stock will be entitled (1) to
elect to receive cash for all of such shares ("Cash Election"), (2) to elect to
receive Southside Common Stock for all of such shares ("Stock Election"), (3) to
elect to receive Southside Common Stock for a stated percentage of such shares
("Partial Stock Election") and to receive cash for the balance of such shares
("Partial Cash Election") or (4) to indicate that such record holder has no
preference as to the receipt of cash or Southside Common Stock for such shares
("Non-Election"). All such elections shall be made on a form designated for that
purpose ("Form of Election"). Holders of record of shares of PSB Common Stock
who hold such shares as nominees, trustees or in any other representative
capacities ("Representative") may submit multiple Forms of Election, provided
that such Representative certifies that each such Form of Election covers the
shares of PSB Common Stock held by each Representative for a particular
beneficial owner.
(c) If the sum of the number of shares covered by Cash Elections and
Partial Cash Elections ("Cash Election Shares") exceeds the Cash Election
Number, all shares of PSB Common Stock covered by Stock Elections and Partial
Stock Elections ("Stock Election Shares") and all shares of PSB Common Stock
covered by Non-Elections ("Non-Election Shares") shall be converted into the
right to receive Southside Common Stock and the Cash Election Shares shall be
converted into the right to receive Southside Common Stock and cash in the
following manner:
Each Cash Election Share shall be converted into the right to receive
(i) an amount in cash (rounded to the nearest cent), without interest,
equal to the product of (x) the Per Share Cash Amount and (y) a
fraction ("Cash Fraction"), the numerator of which shall be the Cash
Election Number and the denominator of which shall be the total number
of Cash Election Shares, and (ii) a number of shares of Southside
Common Stock equal to the product (rounded to the nearest
one-thousandth) of (x) the Exchange Ratio and (y) a fraction equal to
one minus the Cash Fraction.
(d) If the aggregate number of Stock Election Shares exceeds the Stock
Election Number, all Cash Election Shares and all Non-Election Shares shall be
converted into the right to receive cash, and all Stock Election Shares shall be
converted into the right to receive Southside Common Stock and cash in the
following manner:
Each Stock Election Share shall be converted into the right to receive
(i) a number of shares of Southside Common Stock equal to the product
(rounded to the nearest one-thousandth) of (x) the Exchange Ratio and
(y) a fraction ("Stock Fraction"), the numerator of which shall be the
Stock Election Number and the denominator of which shall be the total
number of Stock Election Shares, and (ii) an amount in cash (rounded to
the nearest cent), without interest, equal to the product of (x) the
Per Share Cash Amount and (y) a fraction equal to one minus the Stock
Fraction.
A-7
<PAGE> 112
(e) In the event that neither Section 1.06(c) nor Section 1.06(d) above
is applicable, all Cash Election Shares shall be converted into the right to
receive cash, all Stock Election Shares shall be converted into the right to
receive Southside Common Stock, and the Non-Election Shares, if any, shall be
converted into the right to receive cash and Southside Common Stock in the
following manner:
Each Non-Election Share shall be converted into the right to receive
(i) an amount in cash (rounded to the nearest cent), without interest,
equal to the product of (x) the Per Share Cash Amount and (y) a
fraction ("Non-Election Fraction") the numerator of which shall be the
excess of the (a) Cash Election Number over (b) the number of Cash
Election Shares and the denominator of which shall be the excess of (A)
the number of shares of PSB Common Stock outstanding immediately prior
to the Effective Time over (B) the sum of the total number of Cash
Election Shares and (ii) a number of shares of Southside Common Stock
equal to the product (rounded to the nearest one-thousandth) of (x) the
Exchange Ratio and (y) a fraction equal to one minus the Non-Election
Fraction.
(f) Elections shall be made by holders of PSB Common Stock by mailing
to the Exchange Agent (as defined below) the Form of Election delivered to the
shareholders of PSB with the Prospectus/Proxy Statement for the Merger (the
"Proxy Statement/Prospectus"). To be effective, a Form of Election must be
properly completed, signed and submitted by the shareholder (or by an
appropriate trust company in the United States or a member of a registered
national securities exchange or the National Association of Securities Dealers)
together with the certificate or certificates representing the shares of PSB
Common Stock for which an election is made to the Exchange Agent not later than
seven days following the date of the special meeting of the shareholders of PSB
held to approve the Merger (the "Election Deadline"). Southside shall have the
discretion, which it may delegate in whole or in part to the Exchange Agent, to
determine whether Forms of Election have been properly completed, signed and
submitted and to disregard immaterial defects in Forms of Election. The decision
of Southside, or the Exchange Agent, as to such matters shall be conclusive and
binding. Neither Southside nor the Exchange Agent will be under any obligation
to notify any person of any defect in a Form of Election submitted to the
Exchange Agent. The Exchange Agent also shall make all computations contemplated
by this Section 1.06 and all such computations shall be conclusive and binding
on the holders of PSB Common Stock.
(g) For the purposes hereof, a holder of PSB Common Stock who does not
submit a properly completed Form of Election that is received by the Exchange
Agent prior to the Election Deadline shall be deemed to have made a
Non-Election. If Southside or the Exchange Agent shall determine that any
purported Cash Election, Partial Cash Election, Stock Election or Partial Stock
Election was not properly made, such purported election shall be deemed to be of
no force and effect and the shareholder making such purported Cash Election,
Partial Cash Election, Stock Election or Partial Stock Election shall for
purposes hereof be deemed to have made a Non-Election.
(h) Southside and PSB shall mail the Form of Election with the
Prospectus/Proxy Statement to all holders of PSB Common Stock on the record date
for the PSB special shareholders' meeting and shall make the Form of Election
available to all persons who become holders of PSB Common Stock subsequent to
such day and no later than the close of business on the business day prior to
the Election Deadline. All elections may be revoked until the Election Deadline.
SECTION 1.07. THE CLOSING. The closing of the Merger (the "Closing")
shall take place at the main offices of Southside at 10:00 A.M. Central Time on
the date described in Section 1.08 hereof.
A-8
<PAGE> 113
SECTION 1.08. CLOSING DATE. The Merger shall be effective (the
"Effective Time") upon compliance with any and all requirements and/or
conditions contained in the approval order issued by the O.C.C. The Closing
shall take place on the earliest practicable date after each of the conditions
in Sections 6.01(d) and 6.02(d) hereof is satisfied or waived by the appropriate
party or on such other date after such satisfaction or waiver as PSB and
Southside may mutually agree (the "Closing Date").
SECTION 1.09. EXCHANGE PROCEDURES; SURRENDER OF CERTIFICATES.
(a) U.M.B. Bank, N.A., Securities Transfers Division, Kansas City,
Missouri, shall act as Exchange Agent in the Merger (the "Exchange Agent").
(b) On the Closing Date, the Exchange Agent shall mail to each holder
of PSB Common Stock who submitted a properly completed Form of Election together
with all certificates representing the shares of PSB Common Stock
("Certificates") covered by such Form of Election the cash and/or shares of
Southside Common Stock to which such shareholder is entitled pursuant to the
terms of this Agreement. As soon as practicable after the Closing Date, each
holder of record of Certificates who has not previously submitted a properly
completed Form of Election accompanied by all Certificates representing the
shares of PSB Common Stock held of record by such person shall be instructed to
tender such Certificates to the Exchange Agent pursuant to a letter of
transmittal that Southside shall deliver or cause to be delivered to such
holder. Such letter of transmittal shall specify that risk of loss and title to
Certificates shall pass only upon acceptance of such Certificates by the
Exchange Agent. Upon surrender to the Exchange Agent of a Certificate, together
with a letter of transmittal duly executed and any other required documents, the
holder of such Certificate shall be entitled to receive in exchange therefor
solely the consideration payable in respect of the shares represented thereby.
No interest on the consideration issuable upon the surrender of the Certificates
shall be paid or accrued for the benefit of holders of Certificates. If the cash
and/or Southside Common Stock is to be issued to a person other than a person in
whose name a surrendered Certificate is registered, it shall be a condition of
issuance that the surrendered Certificate shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
issuance shall pay to the Exchange Agent any required transfer taxes or other
taxes or establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable.
(c) At any time following six months after the Closing Date, Southside
shall be entitled to terminate the Exchange Agent relationship, and thereafter
holders of Certificates shall be entitled to look only to Southside (subject to
abandoned property, escheat or other similar laws) with respect to the cash
and/or Southside Common Stock issuable upon surrender of their Certificates.
(d) No dividends that are otherwise payable on shares of Southside
Common Stock shall be paid to persons entitled to receive such shares of
Southside Common Stock until such persons surrender their Certificates. Upon
such surrender, there shall be paid to the person in whose name the shares of
Southside Common Stock shall be issued any dividends which shall have become
payable with respect to such shares of Southside Common Stock (without interest
and less the amount of taxes, if any, which may have been imposed thereon),
between the Effective Time and the time of such surrender.
(e) Notwithstanding anything to the contrary contained herein, no
shares of Southside Common Stock shall be delivered to a person who is an
"affiliate" (as such term is used in Section 4.08 hereof) of PSB unless such
"affiliate" shall have theretofore executed and delivered to Southside the
agreement referred to in Section 4.08 hereof.
A-9
<PAGE> 114
(f) Holders of unsurrendered Certificates shall not be entitled to vote
the shares represented by such unsurrendered Certificates at any meeting of
Southside shareholders.
(g) In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Southside
in its sole discretion, the posting by such person of a bond in such amount as
Southside may determine is reasonably necessary as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificate the cash
and/or Southside Common Stock deliverable in respect thereof pursuant hereto.
(h) At or after the Effective Time there shall be no transfers on the
stock transfer books of PSB of any shares of PSB Common Stock. If, after the
Effective Time, Certificates are presented for transfer, they shall be canceled
and exchanged for the cash and/or Southside Common Stock as provided in, and
subject to the provisions of, this Section 1.09.
SECTION 1.10. CLOSING DELIVERIES.
(a) At the Closing, PSB shall deliver to Southside and National Bank:
(i) a certified copy of the Charter or Articles of
Incorporation, as the case may be, and Bylaws of PSB and each of its
subsidiaries; and
(ii) a certificate signed by an appropriate officer of PSB
stating that (A) each of the representations and warranties contained
in Article Two is true and correct in all material respects at the time
of the Closing with the same force and effect as if such
representations and warranties had been made at Closing, and (B) all of
the conditions set forth in Sections 6.01(b) and 6.01(d) hereof have
been satisfied or waived as provided therein; and
(iii) a certified copy of the resolutions of PSB's Board of
Directors and shareholders as required for valid approval of the
execution of this Agreement and the consummation of the Merger and the
other transactions contemplated hereby; and
(iv) a certificate issued by the O.T.S., dated a recent date,
stating that PSB is in good standing; and
(v) a certificate or certificates issued by the appropriate
governing regulatory authority or authorities, as the case may be, each
dated a recent date, stating that each of PSB's subsidiaries is in good
standing; and
(vi) Articles of Merger executed by PSB, reflecting the terms
and provisions hereof and in proper form for filing with the O.C.C. in
order to cause the Merger to become effective pursuant to the Corporate
Law; and
(vii) a legal opinion from counsel for PSB, in form reasonably
acceptable to Southside counsel, opining with respect to the matters
listed on Exhibit 1.10(a) hereto.
(b) At the Closing, Southside and National Bank shall deliver to PSB:
A-10
<PAGE> 115
(i) a certificate signed by an appropriate officer of
Southside and National Bank stating that (A) each of the
representations and warranties contained in Article Three is true and
correct in all material respects at the time of the Closing with the
same force and effect as if such representations and warranties had
been made at Closing, and (B) all of the conditions set forth in
Sections 6.02(b) and 6.02(d) hereof have been satisfied; and
(ii) a certified copy of the resolutions of Southside's Board
of Directors as required for valid approval of the execution of this
Agreement and the consummation of the transactions contemplated hereby;
and
(iii) a certified copy of the resolutions of National Bank's
Board of Directors and shareholder, as required for valid approval of
the execution of this Agreement and the consummation of the
transactions contemplated hereby; and
(iv) a certificate issued by the Missouri Secretary of State,
dated a recent date, stating that Southside is in good standing; and
(v) a certificate issued by the O.C.C., dated a recent date,
stating that National Bank is in good standing; and
(vi) a legal opinion from counsel for Southside, in form
reasonable acceptable to PSB's counsel, opining with respect to the
matters listed on Exhibit 1.10(b) hereto.
ARTICLE TWO
REPRESENTATIONS AND WARRANTIES OF PSB
PSB hereby makes the following representations and warranties:
SECTION 2.01. ORGANIZATION AND CAPITAL STOCK.
(a) PSB is a federally chartered, stock savings bank duly organized,
validly existing and in good standing under the laws of the United States with
full corporate power and all necessary governmental authorizations to own all of
its property and assets, to incur all of its liabilities and to carry on its
business as now being conducted. The Charter and Bylaws of PSB, as amended,
copies of which were previously furnished to Southside, are true, complete and
correct copies of such documents as in effect on the date of this Agreement.
(b) The authorized capital stock of PSB consists of (i) 15,000,000
shares of PSB Common Stock, of which, as of the date hereof, 102,182 shares are
issued and outstanding, and (ii) 5,000,000 shares of preferred stock, none of
which are issued or outstanding. All of the issued and outstanding shares of PSB
Common Stock are duly and validly issued and outstanding and are fully paid and
non-assessable and free of preemptive rights. None of the outstanding shares of
PSB Common Stock has been issued in violation of any preemptive rights of the
current or past shareholders of PSB. Except as may be otherwise specifically
disclosed in Section 2.01(b) of that certain confidential writing delivered by
PSB to Southside and National Bank and executed by each of PSB, Southside and
National Bank concurrently with the delivery and execution of this Agreement
(the "Disclosure Schedule"), as of the date hereof, PSB has neither granted nor
is there outstanding any warrants, stock options or the like representing the
right
A-11
<PAGE> 116
to acquire any shares of PSB Common Stock. Each Certificate issued by PSB in
replacement of any Certificate theretofore issued by it which was claimed by the
record holder thereof to have been lost, stolen or destroyed was issued by PSB
only upon receipt of an affidavit of lost stock certificate and indemnity
agreement of such shareholder indemnifying PSB against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
Certificate or the issuance of such replacement Certificate.
(c) Except as set forth in subsection 2.01(b) above, (i) there are no
shares of capital stock or other equity securities of PSB outstanding and no
outstanding options, warrants, rights to subscribe for, calls, or commitments of
any character whatsoever relating to, or securities or rights convertible into
or exchangeable for, shares of capital stock of PSB or contracts, commitments,
understandings or arrangements by which PSB is or may be obligated to issue
additional shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock, and (ii) there
are no outstanding stock appreciation, phantom stock or similar rights.
(d) The minute books of PSB accurately reflect in all material respects
all corporate actions held or taken of its shareholders and Board of Directors
(including committees of the Board of Directors).
SECTION 2.02. AUTHORIZATION; NO DEFAULTS. PSB's Board of Directors has
approved this Agreement and the Merger and authorized the execution hereof on
its behalf by its duly authorized officers and the performance by PSB of its
obligations hereunder. PSB's Board of Directors has directed that the agreement
of merger (within the meaning of the Corporate Law) contained in this Agreement
and the transactions contemplated by this Agreement, including the Merger, be
submitted to the shareholders of PSB for approval at the PSB Shareholders'
Meeting (as defined in Section 4.03 hereof), and, except for the adoption and
approval of this Agreement by the requisite vote of the holders of PSB Common
Stock, no other corporate proceedings (pursuant to the Corporate Law, its
Charter or Bylaws) on the part of PSB are necessary to approve this Agreement
and to consummate the transactions contemplated by this Agreement, including the
Merger. Nothing in the Charter or Bylaws of PSB, as amended, or any other
agreement, instrument, decree, proceeding, law or regulation (except as
specifically referred to in or contemplated by this Agreement) by or to which it
or any of its subsidiaries are bound or subject would prohibit PSB from
consummating this Agreement and the Merger on the terms and conditions herein
contained. This Agreement has been duly and validly executed and delivered by
PSB and constitutes a legal, valid and binding obligation of PSB, enforceable
against PSB in accordance with its terms except to the extent that the
enforceability thereof against PSB may be limited by bankruptcy, insolvency,
moratorium, reorganization, conservatorship, receivership or similar laws
relating to or affecting the enforcement of creditors' rights generally or the
rights of creditors of insured financial institutions and their holding
companies, the accounts of whose subsidiaries are insured by the FDIC, by
general equity principles, regardless of whether such enforceability is
considered in a proceeding in equity or at law, or laws relating to the safety
and soundness of insured depository institutions and their affiliates, and
except that the provisions hereof may be unenforceable as against public policy
or by applicable law, including without limitation, the provisions of the
Corporate Law. PSB and its subsidiaries are neither in default under nor in
violation of any provision of their Charter or Articles of Incorporation, as the
case may be, or any promissory note, indenture or any evidence of indebtedness
or security therefor, lease, contract, insurance policy, purchase or other
commitment or any other agreement or arrangement (however evidenced), whether
written or oral, which default or violation would, individually or in the
aggregate with other defaults or violations, have a material adverse effect upon
the financial condition, business or results of operations of PSB and its
subsidiaries taken as a whole, and there has not occurred any event that, with
the lapse of time or giving of notice or both, would constitute such a default
or violation.
A-12
<PAGE> 117
SECTION 2.03. SUBSIDIARIES. Each of PSB's subsidiaries (the
"subsidiaries") the name and jurisdiction of incorporation or organization of
which is disclosed in Section 2.03 of the Disclosure Schedule, is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has the corporate power to
own its respective properties and assets, to incur its respective liabilities
and to carry on its respective business as now being conducted. The number of
issued and outstanding shares of capital stock of each such subsidiary is
disclosed in Section 2.03 of the Disclosure Schedule, all of which shares
(except as may be otherwise specified in Section 2.03 of the Disclosure
Schedule) are owned by PSB or PSB's subsidiaries, as the case may be, free and
clear of all liens, encumbrances, rights of first refusal, options or other
restrictions of any nature whatsoever. There are no options, warrants or rights
outstanding to acquire any capital stock of any of PSB's subsidiaries and no
person or entity has any other right to purchase or acquire any unissued shares
of stock of any of PSB's subsidiaries, nor does any such subsidiary have any
obligation of any nature with respect to its unissued shares of stock. Except as
may be otherwise specifically disclosed in Section 2.03 of the Disclosure
Schedule, neither PSB nor any of PSB's subsidiaries is a party to any
partnership or joint venture or owns an equity interest in any other business or
enterprise. The Charter or Articles of Incorporation, as the case may be, and
Bylaws of each subsidiary of PSB, as amended, copies of which were previously
furnished to Southside, are true, complete and correct copies of such documents
as in effect on the date of this Agreement.
SECTION 2.04. FINANCIAL INFORMATION. The audited consolidated balance
sheets of PSB and its subsidiaries as of September 30, 1997 and 1996 and related
audited consolidated income statements and statements of changes in
shareholders' equity and of cash flows for the three (3) years ended September
30, 1997, together with the notes thereto, copies of each of which are included
in Section 2.04 of the Disclosure Schedule, and the year-end and quarterly
Thrift Financial Reports of PSB for 1996, 1997 and for the latest interim period
during 1997, respectively, as currently on file with the O.T.S., copies of each
of which are included in Section 2.04 of the Disclosure Schedule and each
quarterly thrift financial report (including unaudited financial statements) of
PSB after the date hereof prior to the Effective Time (together, the "PSB
Financial Statements"), have been and will be prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
(except as may be disclosed therein and except for regulatory reporting
differences required by PSB's reports) and fairly present in all material
respects the consolidated financial position and the consolidated results of
operations, changes in shareholders' equity and cash flows of the entity and its
consolidated subsidiaries as of the dates and for the periods indicated
(subject, in the case of interim financial statements, to normal recurring
year-end adjustments, none of which shall be material). The books and records of
PSB and its subsidiaries have been, and are being, maintained in all material
respects in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions.
SECTION 2.05. ABSENCE OF CHANGES. Since September 30, 1997, there has
not been any change in the financial condition, the results of operations or the
business of PSB and its subsidiaries taken as a whole which would have a
material adverse effect on PSB and its subsidiaries taken as a whole, nor have
there been any events or transactions having such a material adverse effect
which should be disclosed in order to make the PSB Financial Statements not
misleading.
SECTION 2.06. REGULATORY ENFORCEMENT MATTERS. Except as may be
otherwise specifically disclosed in Section 2.06 of the Disclosure Schedule,
neither PSB nor any of its subsidiaries is subject or is party to, or has
received any notice or advice that it may become subject or party to, any
investigation with respect to, any cease-and-desist order, agreement, consent
agreement, memorandum of understanding or other regulatory enforcement action,
proceeding or order with or by, or is a party to any commitment letter or
similar undertaking to, or is subject to any directive by, or has been a
A-13
<PAGE> 118
recipient of any supervisory letter from, or has adopted any board resolutions
at the request of, any Regulatory Agency (as defined below in this Section 2.06)
that currently restricts in any material respect the conduct of its business or
that in any material manner relates to its capital adequacy, its credit
policies, its management or its business (each, a "Regulatory Agreement"), nor
has PSB or any of its subsidiaries been advised by any Regulatory Agency that it
is considering issuing or requesting any such Regulatory Agreement. As used
herein, the term "Regulatory Agency" means any federal or state agency charged
with the supervision or regulation of thrifts or savings banks or thrift or
savings bank holding companies, or engaged in the insurance of thrift or savings
bank deposits, or any court, administrative agency or commission or other
governmental agency, authority or instrumentality having supervisory or
regulatory authority with respect to PSB or any of its subsidiaries.
SECTION 2.07. TAX MATTERS.
(a) Each of PSB and its subsidiaries has filed with the appropriate
governmental agencies all foreign, federal, state and local Taxes (as defined
below in this Section 2.07) tax returns, declarations, estimates, information
returns, statements and reports (collectively, "Tax Returns") required to be
filed by it. Neither PSB nor its subsidiaries are (i) delinquent in the payment
of any Taxes shown on such Tax Returns or on any assessments received by it for
such Taxes, (ii) subject to any agreement extending the period for assessment or
collection of any Tax, or (iii) a party to any action or proceeding with, nor
has any claim been asserted or threatened against any of them by, any
governmental authority for assessment or collection of Taxes or for the refund
of Taxes previously paid. The income Tax Returns of PSB and its subsidiaries
have been filed with the Internal Revenue Service (the "I.R.S.") and any
liability with respect thereto has been satisfied for all years to and including
1996. As used herein, the term "Taxes" means any federal, state, local, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental, customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated or
other tax of any kind whatsoever, including any interest, penalty or addition
thereto, whether disputed or undisputed.
(b) Except as may be otherwise specifically disclosed in Section
2.07(b) of the Disclosure Schedule, any amount that could be received (whether
in cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer or director
of PSB or any of its subsidiaries who is a "Disqualified Individual" (as such
term is defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation arrangement
or PSB Employee Plan (as defined in Section 2.13(c) hereof) currently in effect
would not be characterized as an "excess parachute payment" (as such term is
defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended
(the "Code")).
(c) Except as may be otherwise specifically disclosed in Section
2.07(c) of the Disclosure Schedule, PSB has not been subject to any disallowance
of a deduction under Section 162(m) of the Code nor does PSB reasonably believe
that such a disallowance is reasonably likely to be applicable for any tax year
of PSB ended on or before the Closing Date.
SECTION 2.08. LITIGATION AND RELATED MATTERS. Except as may be
otherwise specifically disclosed in Section 2.08 of the Disclosure Schedule,
there is no litigation, claim or other proceeding or investigation of any nature
pending or, to the knowledge of PSB, threatened, against PSB or any of its
subsidiaries, or of which the property of PSB or any of its subsidiaries is or
would be subject. There is
A-14
<PAGE> 119
no injunction, order, judgment, decree or regulatory restriction imposed upon
PSB, or any of its subsidiaries or the assets of PSB of any of its subsidiaries.
SECTION 2.09. EMPLOYMENT AGREEMENTS. Except as may be otherwise
specifically disclosed in Section 2.09 of the Disclosure Schedule, neither PSB
nor any of its subsidiaries is a party to or bound by any agreement,
arrangement, commitment or contract (whether written or oral) for the
employment, election, retention or engagement, or with respect to the severance,
of any present or former officer, employee, agent, consultant or other person or
entity which, by its terms, is not terminable by PSB or such subsidiary on
thirty (30) days written notice or less without the payment of any amount by
reason of such termination. A true, accurate and complete copy of each such
agreement and any and all amendments or supplements thereto which is in writing,
and a summary of each such agreement which is not in writing, is included in
Section 2.09 of the Disclosure Schedule.
SECTION 2.10. REPORTS. Except as may be otherwise specifically
disclosed in Section 2.10 of the Disclosure Schedule, PSB and each of its
subsidiaries has filed all reports and statements, together with any amendments
required to be made with respect thereto, if any, that it was required to file
with (i) the O.T.S., (ii) any applicable federal or state securities or banking
or thrift authorities, and (iii) any other Regulatory Agency with jurisdiction
over PSB or any of its subsidiaries, and have paid all fees and assessments due
and payable in connection therewith. As of their respective dates, each of such
reports and documents, including any financial statements, exhibits and
schedules thereto, complied in all material respects with the relevant statutes,
rules and regulations enforced or promulgated by the regulatory authority with
which they were filed, and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
SECTION 2.11. LOAN PORTFOLIO. Except as may not have a material adverse
effect on PSB or as may be otherwise specifically disclosed in Section 2.11 of
the Disclosure Schedule, (i) all loans and discounts shown on the PSB Financial
Statements or which were entered into after the date of the most recent balance
sheet included in the PSB Financial Statements were and shall be made in all
material respects for good, valuable and adequate consideration in the ordinary
course of the business of PSB and its subsidiaries, and are not subject to any
material known defenses, setoffs or counterclaims, including without limitation
any such as are afforded by usury or truth in lending laws, except as may be
provided by bankruptcy, insolvency or similar laws or by general principles of
equity, (ii) the notes or other evidences of indebtedness evidencing such loans
and all forms of pledges, mortgages and other collateral documents and security
agreements are and shall be, in all material respects, enforceable, valid, true
and genuine and what they purport to be, and (iii) PSB and its subsidiaries have
complied and shall prior to the Closing Date comply in all material respects
with all laws and regulations relating to such loans, or to the extent there has
not been such compliance, such failure to comply shall not materially interfere
with the collection of any such loan. The reserve for possible loan losses shown
on the most recent consolidated balance sheet included in the PSB Financial
Statements is adequate, and the reserve for possible loan losses shown on the
consolidated balance sheet as of the end of the PSB fiscal quarter immediately
preceding the Effective Time shall be adequate, in all material respects under
the requirements of GAAP to provide for possible losses, net of recoveries
relating to loans previously charged-off, on loans outstanding (including,
without limitation, accrued interest receivable) as of the date of each such
consolidated balance sheet.
SECTION 2.12. INTEREST RATE RISK MANAGEMENT INSTRUMENTS. Except with
respect to adjustable rate mortgage loans made by PSB or as may be otherwise
specifically disclosed in Section 2.12 of the Disclosure Schedule, there are no
interest rate swaps, caps, floors, option agreements or other interest
A-15
<PAGE> 120
rate risk management arrangements or agreements, whether entered into for the
account of PSB or its subsidiaries or for the account of a customer of PSB or
one of its subsidiaries.
SECTION 2.13. EMPLOYEE MATTERS AND ERISA.
(a) Except as may be otherwise specifically disclosed in Section
2.13(a) of the Disclosure Schedule, neither PSB nor any of its subsidiaries has
entered into any collective bargaining agreement with any labor organization
with respect to any group of employees of PSB or any of its subsidiaries and to
the knowledge of PSB there is no present effort nor existing proposal to attempt
to unionize any group of employees of PSB or any of its subsidiaries.
(b) Except as may be otherwise specifically disclosed in Section
2.13(b) of the Disclosure Schedule, (i) PSB and its subsidiaries are and have
been in material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
including, without limitation, any such laws respecting employment
discrimination and occupational safety and health requirements, and neither PSB
nor any of its subsidiaries is engaged in any unfair labor practice, (ii) there
is no material unfair labor practice complaint against PSB or any subsidiary
pending or, to the knowledge of PSB, threatened before the National Labor
Relations Board, (iii) there is no labor dispute, strike, slowdown or stoppage
actually pending or, to the knowledge of PSB, threatened against or directly
affecting PSB or any subsidiary, and (iv) neither PSB nor any subsidiary has
experienced any material work stoppage or other material labor difficulty during
the past five (5) years.
(c) Except as may be otherwise specifically disclosed in Section
2.13(c) of the Disclosure Schedule, neither PSB nor any subsidiary maintains,
contributes to or participates in or has any liability under any employee
benefit plans, as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or any nonqualified employee benefit
plans or deferred compensation, bonus, stock or incentive plans, or other
employee benefit or fringe benefit programs for the benefit of former or current
employees of PSB or any subsidiary (the "PSB Employee Plans"). No present or
former employee of PSB or any subsidiary has been charged with breaching or to
the knowledge of PSB has breached a fiduciary duty under any of the PSB Employee
Plans. Neither PSB nor any of its subsidiaries participates in, nor has it in
the past five (5) years participated in, nor has it any present or future
obligation or liability under, any multiemployer plan (as defined at Section
3(37) of ERISA). Except as may be otherwise specifically and separately
disclosed in Section 2.13(c) of the Disclosure Schedule, neither PSB nor any
subsidiary maintains, contributes to, or participates in, any plan that provides
health, major medical, disability or life insurance benefits to former employees
of PSB or any subsidiary.
(d) Except as disclosed in Section 2.13(d) of the Disclosure Schedule,
neither PSB nor any of its subsidiaries maintain, nor have any of them
maintained for the past ten years, any PSB Employee Plans subject to Title IV of
ERISA or Section 412 of the Code. No reportable event (as defined in Section
4043 of ERISA) has occurred with respect to any PSB Employee Plans as to which a
notice would be required to be filed with the Pension Benefit Guaranty
Corporation. No claim is pending, and PSB has not received notice of any
threatened or imminent claim with respect to any PSB Employee Plan (other than a
routine claim for benefits for which plan administrative review procedures have
not been exhausted) for which PSB or any of its subsidiaries would be liable
after December 31, 1996, except as reflected on the PSB Financial Statements.
PSB and its subsidiaries do not have any liabilities for excise taxes under
Sections 4971, 4975, 4976, 4977, 4979 or 4980B of the Code or for a fine under
Section 502 of ERISA with respect to any PSB Employee Plan. To the knowledge of
PSB, all PSB Employee Plans
A-16
<PAGE> 121
have in all material respects been operated, administered and maintained in
accordance with the terms thereof and in compliance with the requirements of all
applicable laws, including, without limitation, ERISA and the Code.
(e) Except as may be otherwise specifically disclosed in Section
2.13(e) of the Disclosure Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated by this
Agreement (either alone or upon the occurrence of any additional acts or events)
would (i) result in any material payment (including, without limitation,
severance, unemployment compensation, golden parachute or otherwise) becoming
due to any director, officer or employee of PSB or any of its subsidiaries from
PSB or any of its subsidiaries under any PSB Employee Plan or otherwise, (ii)
materially increase any benefits otherwise payable under any PSB Employee Plan,
or (iii) result in any acceleration of the time of payment or vesting of any
such benefits to any material extent. All employee benefit plans are fully
funded through June 30, 1998.
SECTION 2.14. TITLE TO PROPERTIES; INSURANCE. Except as may be
otherwise specifically disclosed in Section 2.14 of the Disclosure Schedule, PSB
and its subsidiaries have marketable title, insurable at standard rates, free
and clear of all liens, charges and encumbrances (except taxes which are a lien
but not yet payable and liens, charges or encumbrances reflected in the PSB
Financial Statements and easements, rights-of-way, and other restrictions which
are not material, and further excepting in the case of Real Estate Owned
(R.E.O.; as such real estate is internally classified on the books of PSB or its
subsidiaries) rights of redemption under applicable law) to all of their real
properties. All leasehold interests for real property and to the knowledge of
PSB any material personal property used by PSB and its subsidiaries in their
businesses are held pursuant to lease agreements which are valid and enforceable
in accordance with their terms. To the knowledge of PSB, all such properties
comply in all material respects with all applicable private agreements, zoning
requirements and other governmental laws and regulations relating thereto and
there are no condemnation proceedings pending or threatened with respect to such
properties. PSB and its subsidiaries have valid title or other ownership rights
under licenses to all material intangible personal or intellectual property
necessary to conduct the business and operations of PSB and its subsidiaries as
presently conducted, free and clear of any claim, defense or right of any other
person or entity which is material to such property, subject only to rights of
the licensors pursuant to applicable license agreements, which rights do not
materially adversely interfere with the use of such property. All material
insurable properties owned or held by PSB and its subsidiaries are insured by
financially sound and reputable insurers in such amounts and against fire and
other risks insured against by extended coverage and public liability insurance,
as is customary with savings associations of similar size, and there are
presently no claims pending under such policies of insurance and no notices have
been given by PSB or any of its subsidiaries under such policies. All tangible
properties used in the businesses of PSB and its subsidiaries are in good
condition, reasonable wear and tear excepted, and are useable in the ordinary
course of business consistent with past practices.
SECTION 2.15. ENVIRONMENTAL MATTERS.
(a) As used herein, the term "Environmental Laws" shall mean all local,
state and federal environmental, health and safety laws and regulations and
common law standards in all jurisdictions in which PSB and its subsidiaries do
business or own, lease or operate property, including, without limitation, the
Federal Resource Conservation and Recovery Act, the Federal Comprehensive
Environmental Response, Compensation and Liability Act, the Federal Clean Water
Act, the Federal Clean Air Act, and the Federal Occupational Safety and Health
Act.
A-17
<PAGE> 122
(b) Except as may be otherwise specifically disclosed in Section
2.15(b) of the Disclosure Schedule, to the knowledge of PSB neither the conduct
nor operation of PSB or its subsidiaries nor any condition of any property
presently owned, leased or operated by any of them violates Environmental Laws
in a manner that would have a material adverse effect upon the financial
condition, business or results of operations of PSB and its subsidiaries taken
as a whole and no condition has existed or event has occurred with respect to
any of them or any such property that, with notice or the passage of time, or
both, would constitute a violation of Environmental Laws or obligate PSB or its
subsidiaries to remedy, stabilize, neutralize or otherwise alter the
environmental condition of any such property where the aggregate cost of such
actions would have a material adverse effect upon the financial condition,
business or results of operations of PSB and its subsidiaries taken as a whole.
Except as may be otherwise specifically disclosed in Section 2.15(b) of the
Disclosure Schedule, neither PSB nor any of its subsidiaries has received any
notice from any person or entity that PSB or its subsidiaries or the operation
or condition of any property ever owned, leased or operated by any of them are
or were in violation of any Environmental Laws or that any of them are
responsible (or potentially responsible) for the cleanup or other remediation of
any pollutants, contaminants, or hazardous or toxic wastes, substances or
materials at, on or beneath any such property.
SECTION 2.16. COMPLIANCE WITH LAW. PSB and its subsidiaries have all
licenses, franchises, permits and other governmental authorizations that are
legally required to enable them to conduct their respective businesses in all
material respects and are in compliance in all material respects with all
applicable laws and regulations except where noncompliance would not have
material adverse effect upon the financial condition, business or results of
operation of PSB and its subsidiaries taken as a whole.
SECTION 2.17. BROKERAGE. Except as may be disclosed in Section 2.17 of
the Disclosure Statement, there are no existing claims or agreements for
brokerage commissions, finders' fees, or similar compensation relating to the
Merger payable by PSB or its subsidiaries.
SECTION 2.18. INTERIM EVENTS. Except as may be disclosed in Section
2.18 of the Disclosure Schedule, since September 30, 1997, neither PSB nor its
subsidiaries has paid or declared any dividend or made any other distribution to
shareholders or taken any action which if taken after the date hereof will
require the prior written consent of Southside pursuant to Section 4.01(b)
hereof.
SECTION 2.19. PROPERTIES, CONTRACTS AND OTHER AGREEMENTS. Section 2.19
of the Disclosure Schedule lists or describes the following:
(a) Each parcel of real property owned by PSB or its subsidiaries and
the principal buildings and structures located thereon; and
(b) Each lease of real property to which PSB or its subsidiaries is a
party, identifying the parties thereto, the annual rental payable, the term and
expiration date thereof and a brief description of the property covered; and
(c) Each loan and credit agreement, conditional sales contract,
indenture or other title retention agreement or security agreement relating to
money borrowed by PSB or its subsidiaries; and
(d) Each guaranty by PSB or any of its subsidiaries of any obligation
for the borrowing of money or otherwise (excluding any endorsements and
guarantees in the ordinary course of business and letters of credit issued by
PSB in the ordinary course of its business) or any warranty or indemnification
agreement; and
A-18
<PAGE> 123
(e) Each agreement between PSB or any of its subsidiaries and any
present or former officer, director or shareholder of PSB or any of its
subsidiaries (except for deposit or loan agreements entered into in the ordinary
course of PSB's business); and
(f) Each lease or license with respect to personal property involving
PSB or any of its subsidiaries, whether as lessee or lessor or licensee or
licensor; and
(g) The name and annual salary as of December 31, 1997, of each
director or employee of PSB and its subsidiaries and any employment agreement or
arrangement with respect to each such person; and
(h) Each agreement, loan, contract, lease, guaranty, letter of credit,
line of credit or commitment of PSB or its subsidiaries not referred to
elsewhere in this Section 2.19 and having a value of $20,000 or more which (i)
involves payment by PSB or its subsidiaries (other than as disbursement of loan
proceeds to customers), (ii) involves payments based on profits of PSB or its
subsidiaries, (iii) relates to the future purchase of goods or services in
excess of the requirements of its respective business at current levels or for
normal operating purposes, or (iv) were not made in the ordinary course of
business; and
(i) Each loan participation, syndication, purchase or assignment
agreement with respect to loans made by other lenders pursuant to which PSB
holds an interest, together with a list of each such loan, PSB's share of such
loan, the identity of the originating lender and whether or not any repurchase
obligation or right exists in favor of such lender.
Copies of each document, plan or contract listed and described in Section 2.19
of the Disclosure Schedule are appended to such Disclosure Schedule and included
in the Disclosure Schedule.
SECTION 2.20. NO UNDISCLOSED LIABILITIES. To its knowledge, PSB and its
subsidiaries do not have any material liability, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due, including any liability for
Taxes (and there is no past or present fact, situation, circumstance, condition
or other basis for any present or future action, suit or proceeding, hearing,
charge, complaint, claim or demand against PSB or its subsidiaries giving rise
to any such liability), except (i) for liabilities set forth in the PSB
Financial Statements, and (ii) as may be specifically disclosed in Section 2.20
of the Disclosure Schedule.
SECTION 2.21. STATEMENTS TRUE AND CORRECT. None of the information
supplied or to be supplied in writing by PSB or its subsidiaries for inclusion
in (i) the Registration Statement (as defined in Section 4.05 hereof), (ii) the
Proxy Statement/Prospectus, and (iii) any other documents to be filed with the
S.E.C., or any other Regulatory Agency in connection with the transactions
contemplated by this Agreement shall, at the respective times such documents are
filed, and, in the case of the Registration Statement, when it becomes
effective, and, with respect to the Proxy Statement/Prospectus, when first
mailed to the shareholders of PSB and at the time of the PSB Shareholders'
Meeting, contain any untrue statement of a material fact, or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they are made, not misleading. All documents
that PSB shall be responsible for filing with the O.T.S. or any other Regulatory
Agency in connection with the transactions contemplated by this Agreement shall
comply as to form in all material respects with the provisions of applicable law
and the applicable rules and regulations thereunder.
A-19
<PAGE> 124
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF SOUTHSIDE AND NATIONAL BANK
Southside and National Bank, as applicable, hereby make the following
representations and warranties:
SECTION 3.01. ORGANIZATION AND CAPITAL STOCK.
(a) Southside is a corporation duly incorporated, validly existing, and
in good standing under the laws of the State of Missouri with full corporate
power and authority to carry on its business as it is now being conducted.
Southside is a bank holding company registered with the Federal Reserve Board
under the Bank Holding Company Act of 1956, as amended. National Bank is a
national banking association duly organized, validly existing, and in good
standing under the laws of the United States with full corporate power and
authority to carry on its business as it is now being conducted. The Articles of
Incorporation, Charter and Bylaws of Southside and National Bank, copies of
which were previously furnished to PSB, are true complete and correct copies and
such documents are in effect as of the date of this Agreement.
(b) The authorized capital stock of Southside consists of (i) 5,000,000
shares of Southside Common Stock, of which, as of December 31, 1997, 2,859,010
shares were issued and outstanding, and (ii) 1,000,000 shares of cumulative
preferred stock, no par value, none of which have been issued or are
outstanding. All of the issued and outstanding shares of Southside Common Stock
are duly and validly issued and outstanding and are fully paid and
non-assessable and free of preemptive rights. None of the outstanding shares of
Southside Common Stock has been issued in violation of any preemptive rights of
the current or past shareholders of Southside.
(c) The authorized capital stock of National Bank consists of 120,000
shares of National Bank Common. As of the date hereof, 119,531 shares of
National Bank Common are issued and outstanding, fully paid and non-assessable
and are owned by Southside.
(d) The shares of Southside Common Stock that are to be issued to the
shareholders of PSB pursuant to the Merger have been or will be duly authorized
and, when so issued in accordance with the terms hereof, shall be validly issued
and outstanding, fully paid and non-assessable, with no personal liability
attaching to the ownership thereof.
SECTION 3.02. AUTHORIZATION. The Board of Directors of Southside and
the Board of Directors and sole shareholder of National Bank have, by all
appropriate action, approved this Agreement and the Merger and authorized the
execution hereof on their behalf by their respective duly authorized officers
and the performance by such respective entity of their obligations hereunder.
Nothing in the Articles of Incorporation or Charter, as the case may be, or
Bylaws of Southside or National Bank, or any other agreement, instrument,
decree, proceeding, law or regulation (except as specifically referred to in or
contemplated by this Agreement) by or to which either of them or any of their
subsidiaries are bound or subject would prohibit or inhibit Southside or
National Bank from entering into and consummating this Agreement and the Merger
on the terms and conditions herein contained. This Agreement has been duly and
validly executed and delivered by Southside and National Bank and constitutes a
legal, valid and binding obligation of Southside and National Bank, enforceable
against Southside and National Bank in accordance with its terms and no other
corporate acts or proceedings are required to be taken by Southside or National
Bank to authorize the execution, delivery and performance of this Agreement.
A-20
<PAGE> 125
Except for the requisite approval of the Federal Reserve Board, the O.C.C. and
the F.D.I.C., no notice to, filing with, authorization by, or consent or
approval of, any federal or state bank regulatory authority is necessary for the
execution and delivery of this Agreement or consummation of the Merger by
Southside or National Bank.
SECTION 3.03. SUBSIDIARIES. Each of Southside's significant
subsidiaries (as such term is defined in Rule 1-02 of Regulation S-X promulgated
by the S.E.C.), including National Bank, is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization and has the corporate power to own its respective properties and
assets, to incur its respective liabilities and to carry on its respective
business as now being conducted.
SECTION 3.04. FINANCIAL INFORMATION. The audited consolidated balance
sheets of Southside and its subsidiaries as of December 31, 1996 and 1995 and
related consolidated statements of income, changes in shareholders' equity and
cash flows for the three (3) years ended December 31, 1996, together with the
notes thereto, included in Southside's Annual Report on Form 10-K for the year
ended December 31, 1996, as currently on file with the S.E.C., and the unaudited
consolidated balance sheets of Southside and its subsidiaries as of September
30, 1997, and the related unaudited consolidated income statements and
statements of changes in shareholders' equity and cash flows for the nine (9)
months then ended included in Southside's Quarterly Reports on Form 10-Q for the
quarters then ended, as currently on file with the S.E.C. (together, the
"Southside Financial Statements"), have been prepared in accordance with GAAP
applied on a consistent basis (except as may be disclosed therein) and fairly
present in all material respects the consolidated financial position and the
consolidated results of operations, changes in shareholders' equity and cash
flows of Southside and its consolidated subsidiaries as of the dates and for the
periods indicated (subject, in the case of interim financial statements, to
normal recurring year-end adjustments, none of which shall be material). The
books and records of Southside, National Bank and its subsidiaries have been,
and are being, maintained in all material respects in accordance with GAAP and
any other applicable legal and accounting requirements and reflect only actual
transactions.
SECTION 3.05. ABSENCE OF CHANGES. Since December 31, 1996, there has
not been any change in the financial condition, the results of operations or the
business of Southside and its subsidiaries which would have a material adverse
effect on Southside and its subsidiaries taken as a whole, and there have not
been any events or transactions having such a material adverse effect which
should be disclosed in order to make the Southside Financial Statements not
misleading.
SECTION 3.06. LITIGATION. There is no litigation, claim or other
proceeding pending or, to the knowledge of Southside, threatened, against
Southside or any of its subsidiaries, or of which the property of Southside or
any of its subsidiaries is or would be subject which would have a material
adverse effect upon the financial condition, business or results of operations
of Southside and its subsidiaries taken as a whole.
SECTION 3.07. REGULATORY ENFORCEMENT MATTERS. Neither Southside nor any
of its subsidiaries is subject or is party to, or has received any notice or
advice that it may become subject or party to, any investigation with respect
to, any cease-and-desist order, agreement, consent agreement, memorandum of
understanding or other regulatory enforcement action, proceeding or order with
or by, or is a party to any commitment letter or similar undertaking to, or is
subject to any directive by, or has been a recipient of any supervisory letter
from, or has adopted any board resolutions at the request of, any Regulatory
Agency (as defined below in this Section 3.07) that currently restricts in any
material respect the conduct of its business or that in any material manner
relates to its capital adequacy, its credit policies, its management or its
business (each, a "Regulatory Agreement"), nor has Southside or any of
A-21
<PAGE> 126
its subsidiaries been advised by any Regulatory Agency that it is considering
issuing or requesting any such Regulatory Agreement. As used herein, the term
"Regulatory Agency" means any federal or state agency charged with the
supervision or regulation of banks or bank holding companies, or engaged in the
insurance of bank deposits, or any court, administrative agency or commission or
other governmental agency, authority or instrumentality having supervisory or
regulatory authority with respect to Southside or any of its subsidiaries.
SECTION 3.08. LOAN PORTFOLIO. Except as may not have a material adverse
effect on Southside or (i) all loans and discounts shown on the Southside
Financial Statements or which were entered into after the date of the most
recent balance sheet included in the Southside Financial Statements were and
shall be made in all material respects for good, valuable and adequate
consideration in the ordinary course of the business of Southside and its
subsidiaries, and are not subject to any material known defenses, setoffs or
counterclaims, including without limitation any such as are afforded by usury or
truth in lending laws, except as may be provided by bankruptcy, insolvency or
similar laws or by general principles of equity, (ii) the notes or other
evidences of indebtedness evidencing such loans and all forms of pledges,
mortgages and other collateral documents and security agreements are and shall
be, in all material respects, enforceable, valid, true and genuine and what they
purport to be, and (iii) Southside and its subsidiaries have complied and shall
prior to the Closing Date comply in all material respects with all laws and
regulations relating to such loans, or to the extent there has not been such
compliance, such failure to comply shall not materially interfere with the
collection of any such loan. The reserve for possible loan losses shown on the
most recent consolidated balance sheet included in the Southside Financial
Statements is adequate, and the reserve for possible loan losses shown on the
consolidated balance sheet as of the end of the Southside fiscal quarter
immediately preceding the Effective Time shall be adequate, in all material
respects under the requirements of GAAP and safe and sound banking practices to
provide for possible losses, net of recoveries relating to loans previously
charged-off, on loans outstanding (including, without limitation, accrued
interest receivable) as of the date of each such consolidated balance sheet.
SECTION 3.09. NO UNDISCLOSED LIABILITIES. To its knowledge, Southside
and its subsidiaries do not have any material liability, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due, including
any liability for taxes (and there is no past or present fact, situation,
circumstance, condition or other basis for any present or future action, suit or
proceeding, hearing, charge, complaint, claim or demand against Southside or its
subsidiaries giving rise to any such liability), except for liabilities set
forth in the Southside Financial Statements.
SECTION 3.10. REPORTS. Southside and each of its subsidiaries has filed
all material reports and statements, together with any amendments required to be
made with respect thereto, that it was required to file with (i) the S.E.C.,
(ii) the Federal Reserve Board, (iii) the O.C.C., (iv) the F.D.I.C., (v)
NASDAQ/SCM, and (vi) any other Regulatory Agency with jurisdiction over
Southside or any of its significant subsidiaries. As of their respective dates,
each of such reports and documents, as amended, including any financial
statements, exhibits and schedules thereto, complied in all material respects
with the relevant statutes, rules and regulations enforced or promulgated by the
regulatory authority with which they were filed and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
SECTION 3.11. COMPLIANCE WITH LAW. Southside and its subsidiaries have
all licenses, franchises, permits and other governmental authorizations that are
legally required to enable them to
A-22
<PAGE> 127
conduct their respective businesses in all material respects and are in
compliance in all material respects with all applicable laws and regulations.
SECTION 3.12. STATEMENTS TRUE AND CORRECT. None of the information
supplied or to be supplied by Southside or National Bank for inclusion in (i)
the Registration Statement, (ii) the Proxy Statement/Prospectus, and (iii) any
other documents to be filed with the S.E.C., NASDAQ/SCM or any other Regulatory
Agency (as defined in Section 3.07) in connection with the transactions
contemplated by this Agreement shall, at the respective times such documents are
filed, and, in the case of the Registration Statement, when it becomes
effective, and with respect to the Proxy Statement/Prospectus, when first mailed
to the shareholders of PSB and at the time of the PSB Shareholders' Meeting,
contain any untrue statement of a material fact, or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not misleading. All documents that
Southside shall be responsible for filing with the S.E.C., NASDAQ/SCM or any
other Regulatory Agency (as defined in Section 3.07) in connection with the
transactions contemplated by this Agreement shall comply as to form in all
material respects with the provisions of applicable law and the applicable rules
and regulations thereunder.
ARTICLE FOUR
AGREEMENTS OF PSB
SECTION 4.01. BUSINESS IN ORDINARY COURSE.
(a) After the date hereof, PSB shall continue to declare and pay
dividends and make other distributions to shareholders in such amounts and at
such times as are in accordance with PSB's historical practices.
(b) PSB shall, and shall cause each of its subsidiaries to, (1)
continue to carry on after the date hereof its respective business and the
discharge or incurrence of obligations and liabilities, only in the usual,
regular and ordinary course of business, as heretofore conducted, (2) continue
to fund the loan loss reserve in accordance with its past practices, (3) use
reasonable best efforts to maintain and preserve intact its respective business
organization, employees and advantageous business relationships and retain the
services of its officers and key employees, and (4) by way of amplification and
not limitation, PSB and each of its subsidiaries shall not, without the prior
written consent of Southside, which consent shall not be withheld unreasonably:
(i) issue any PSB Common Stock or other capital stock or any
options, warrants, or other rights to subscribe for or purchase PSB
Common Stock or any other capital stock or any securities convertible
into or exchangeable for any capital stock of PSB or any of its
subsidiaries; or
(ii) directly or indirectly redeem, purchase or otherwise
acquire any PSB Common Stock or any other capital stock of PSB or its
subsidiaries; or
(iii) effect a reclassification, recapitalization, splitup,
exchange of shares, readjustment or other similar change in or to any
capital stock or otherwise reorganize or recapitalize; or
(iv) change its Charter or Bylaws unless so requested by a
regulatory authority; or
A-23
<PAGE> 128
(v) grant any increase, other than ordinary and normal
increases consistent with past practices, in the compensation payable
or to become payable to officers or salaried employees, grant any stock
options or, except as required by law, adopt or make any change in any
bonus, insurance, pension, or other PSB Employee Plan, agreement,
payment or arrangement made to, for or with any of such officers or
employees; or
(vi) borrow or agree to borrow any amount of funds, other than
in the ordinary course of business, or directly or indirectly guarantee
or agree to guarantee any obligations of others; or
(vii) except as may be otherwise specifically disclosed in
Section 4.01(b)(vii) of the Disclosure Schedule, make or commit to make
any new loan or letter of credit or any new or additional discretionary
advance under any existing line of credit, in principal amounts in
excess of $300,000 or that would increase the aggregate credit
outstanding to any one borrower (or group of affiliated borrowers) to
more than $500,000 (excluding for this purpose any accrued interest or
overdrafts), without the prior written consent of Southside, acting
through its President or such other designee as Southside may give
notice of to PSB; or
(viii) purchase or otherwise acquire any investment security,
including without limitation any derivative security, for its own
account, except for United States government issued or guaranteed
obligations; or
(ix) increase or decrease the rate of interest paid on time
deposits, or on certificates of deposit, except in a manner and
pursuant to policies consistent with past practices; or
(x) enter into any agreement, contract or commitment out of
the ordinary course of business or having a term in excess of three (3)
months other than letters of credit, loan agreements, deposit
agreements, and other lending, credit and deposit agreements and
documents made in the ordinary course of business; or
(xi) except in the ordinary course of business, place on any
of its assets or properties any mortgage, pledge, lien, charge, or
other encumbrance; or
(xii) except in the ordinary course of business, cancel or
accelerate any material indebtedness owing to PSB or its subsidiaries
or any claims which PSB or its subsidiaries may possess or waive any
material rights with respect thereto; or
(xiii) sell or otherwise dispose of any real property or any
material amount of any tangible or intangible personal property other
than properties acquired in foreclosure or otherwise in the ordinary
collection of indebtedness to PSB and its subsidiaries; or
(xiv) foreclose upon or otherwise take title to or possession
or control of any real property (other than single family residential
real estate) without first obtaining a phase one environmental report
thereon which indicates that the property is free of pollutants,
contaminants or hazardous or toxic waste materials; or
(xv) commit any act or fail to do any act which would cause a
breach of any agreement, contract or commitment and which would have a
material adverse effect upon the
A-24
<PAGE> 129
financial condition, business or results of operations of PSB and its
subsidiaries taken as a whole; or
(xvi) violate any law, statute, rule, governmental regulation,
or order, which violation would have a material adverse effect upon the
financial condition, business or results of operations of PSB and its
subsidiaries taken as a whole; or
(xvii) purchase any real or personal property or make any
other capital expenditure where the amount paid or committed therefor
is in excess of $5,000.00; or
(xviii) take any action which would adversely effect or delay
the ability of either Southside or PSB to obtain any necessary
approvals of any Regulatory Agency or other governmental authority
required for the transactions contemplated by this Agreement or to
perform its covenants and agreements under this Agreement; or
(xix) purchase or otherwise acquire any participations or any
other interest in loans made by other financial institutions or
lenders.
(c) From and after July 1, 1998, if the Closing has not yet occurred,
PSB shall continue to accrue for its obligation with respect to the Financial
Institutions Retirement Fund in an amount equal to one-twelfth (1/12) of the
amount funded in the previous fiscal year for each month thereafter until and
including the month in which the Closing Date shall occur.
(d) PSB and its subsidiaries shall not, without the prior written
consent of Southside, engage in any transaction or take any action that would
render untrue in any material respect any of the representations and warranties
of PSB contained in Article Two hereof, if such representations and warranties
were given as of the date of such transaction or action.
(e) PSB shall promptly notify Southside in writing of the occurrence of
any matter or event known to and directly involving PSB, which would not include
any changes in conditions that affect the savings bank or thrift industry
generally, that would have, either individually or in the aggregate, a material
adverse effect upon the financial condition, business or results of operations
of PSB and its subsidiaries taken as a whole.
(f) PSB and its subsidiaries shall not, and shall not authorize or
permit any of their respective officers, directors, employees or agents to, on
or before the earlier of the Closing Date or the date of termination of this
Agreement, directly or indirectly solicit, initiate or encourage or (subject to
the fiduciary duties of its directors as advised by counsel) hold discussions or
negotiations with or provide any information to any person in connection with
any proposal from any person for the acquisition of all or any substantial
portion of the business, assets, shares of PSB Common Stock or other securities
of PSB or its subsidiaries. PSB shall promptly (which for this purpose shall
mean within twenty-four (24) hours) advise Southside in reasonable detail of its
receipt of any such proposal or inquiry concerning any possible such proposal.
SECTION 4.02. BREACHES. PSB shall, in the event it has knowledge of the
occurrence, or impending or threatened occurrence, of any event or condition
which would cause or constitute a failure of any condition precedent to any
party's obligation to effect the Merger or a breach (or would have caused or
constituted a breach had such event occurred or been known prior to the date
hereof) of any
A-25
<PAGE> 130
of its representations or agreements contained or referred to herein, give
prompt written notice thereof to Southside and use its best efforts to prevent
or promptly remedy the same.
SECTION 4.03. SUBMISSION TO SHAREHOLDERS. PSB shall promptly cause to
be duly called and held, on a date mutually selected by Southside and PSB, a
special meeting of the shareholders of PSB (the "PSB Shareholders' Meeting") for
submission of this Agreement and the Merger for approval of such PSB
shareholders as required by the Corporate Law. In connection with the PSB
Shareholders' Meeting, (i) PSB shall mail a Proxy Statement/Prospectus to its
shareholders, and (ii) the Board of Directors of PSB shall, subject to the
fiduciary duties of its directors as advised by counsel, recommend to its
shareholders the approval of this Agreement and the Merger contemplated by this
Agreement and use its best efforts to obtain such shareholder approval.
SECTION 4.04. CONSENTS TO CONTRACTS AND LEASES. PSB shall use its best
efforts to obtain all necessary consents with respect to all interests of PSB
and its subsidiaries in any material leases, licenses, contracts, instruments
and rights which require the consent of another person for their transfer or
assumption pursuant to the Merger, if any.
SECTION 4.05. CONSUMMATION OF AGREEMENT. PSB shall use its best efforts
to perform and fulfill all conditions and obligations on its part to be
performed or fulfilled under this Agreement and to effect the Merger and the
other transactions contemplated hereby in accordance with the terms and
provisions hereof, to obtain all necessary approvals and consents on its part to
be obtained pursuant to this Agreement. PSB shall furnish to Southside in
writing and in a timely manner all information, data and documents in the
possession of PSB or its subsidiaries requested by Southside as may be required
to obtain any necessary regulatory or other approvals of the Merger or to file
with the S.E.C. a registration statement on Form S-4 (the "Registration
Statement") relating to the shares of Southside Common Stock to be issued to the
shareholders of PSB pursuant to the Merger and this Agreement.
SECTION 4.06. MERGER EXPENSES AND RELATED MATTERS.
(a) Notwithstanding that PSB believes that it has established all
reserves and taken all provisions for possible loan losses required by GAAP and
applicable laws, rules and regulations, PSB recognizes that Southside may have
adopted different loan, accrual and reserve policies (including loan
classifications and levels of reserves for possible loan losses). From and after
the date of this Agreement to the Closing Date, PSB and Southside shall consult
and reasonably cooperate with each other with respect to conforming, as
specified in a written notice from Southside to PSB, based upon such
consultation and as hereinafter provided, PSB's loan, accrual and reserve
policies to those policies of Southside; provided, however, that PSB shall not
be required to take any action in this regard unless and until the conditions
specified in Article Six hereof shall have been satisfied. It being understood
and acknowledged by PSB, however, that such actions shall be made effective
prior to the Effective Time and deemed a condition precedent to Southside's
obligation to cause the Closing.
(b) In addition, from and after the date of this Agreement to the
Closing Date, PSB and Southside shall consult and reasonably cooperate with each
other with respect to determining, as specified in a written notice from
Southside to PSB, based upon such consultation and as hereinafter provided,
appropriate accruals, reserves and charges to establish and take in respect of
excess equipment write-off or write-down of various assets and other appropriate
charges and accounting adjustments taking into account the parties' business
plans following the Merger.
A-26
<PAGE> 131
(c) PSB and Southside shall consult and reasonably cooperate with each
other with respect to determining, as specified in a written notice from
Southside to PSB, based upon such consultation and as hereinafter provided, the
amount and the timing for recognizing for financial accounting purposes the
expenses of the Merger and the restructuring charges related to or to be
incurred in connection with the Merger.
(d) At the request of Southside after all of the conditions to the
Closing have been satisfied or waived, as provided in Article Six hereof, PSB
shall establish and take such reserves and accruals as Southside shall
reasonably request to conform PSB's loan, accrual and reserve policies to
Southside's policies, shall establish and take such accruals, reserves and
charges in order to implement such policies in respect of excess facilities and
equipment capacity, severance costs, litigation matters, write-off or write-down
of various assets and other appropriate accounting adjustments, and to recognize
for financial accounting purposes such expenses of the Merger and restructuring
charges related to or to be incurred in connection with the Merger, in each case
at such times as are mutually agreeable to Southside and PSB. Notwithstanding
the foregoing and unless otherwise provided in this Agreement, such write-downs,
reserves and accruals shall not be deemed to reduce capital for the purposes of
determining the consideration to be issued in connection with the Merger.
SECTION 4.07. ENVIRONMENTAL REPORTS. Section 4.07 of the Disclosure
Schedule contains a report of a phase one environmental investigation on all
real property owned, leased or operated by PSB or its subsidiaries as of the
date hereof (but excluding space for branch facilities where the space leased
comprises less than 20% of the total space leased to all tenants of such
property) and PSB shall provide to Southside, within ten (10) days after the
acquisition or lease of any real property acquired or leased by PSB or its
subsidiaries after the date hereof (but excluding space for branch facilities
where the space leased comprises less than 20% of the total space leased to all
tenants of such property), a report of a phase one environmental investigation
on such property, except as otherwise provided in Section 4.01(b)(xiv) hereof.
SECTION 4.08. RESTRICTION ON RESALES. PSB shall deliver to Southside,
at least ten (10) days prior to the Closing Date, a list of each person who may
reasonably be deemed an "affiliate" of PSB within the meaning of such term as
used in Rule 145 under the Securities Act of 1933, as amended (the "Securities
Act") at the time the Proxy Statement/Prospectus is mailed to the shareholders
of PSB. PSB shall use its best efforts to obtain and deliver to Southside, prior
to the Effective Time, the signed agreement, in the form of Exhibit 4.08 hereto,
of each person named on the list referred to in the preceding sentence regarding
compliance by such person with the provisions of such Rule 145.
SECTION 4.09. ACCESS AND INFORMATION. PSB shall afford to Southside's
accountants, counsel and other representatives, reasonable access during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, shall furnish promptly to
Southside (i) a copy of each report, schedule and other document filed or
received by PSB during such period pursuant to the requirements of federal and
state securities laws and (ii) all other information concerning its business,
properties and personnel as Southside may reasonably request. In addition,
Southside and its accountants, attorneys or other representatives, at all
reasonable times during normal business hours and in a manner which will avoid
undue disruption or interference with the normal operations of PSB and its
affiliates, may make such accounting, financial and operating inspections,
reviews and analyses with respect to auditors' reports and such other financial
statements concerning PSB and its affiliates, and perform such other tests or
reviews as Southside may request. PSB shall deliver to Southside within ten (10)
days after the date hereof a true, accurate and complete copy of each written
plan or program disclosed in Section 2.13(c) of the Disclosure Schedule and, if
requested with respect
A-27
<PAGE> 132
to each such plan or program, all (i) amendments or supplements thereto, (ii)
summary plan descriptions, (iii) lists of all current participants and all
participants with benefit entitlements, (iv) contracts relating to plan
documents, (v) actuarial valuations for any defined benefit plan, (vi)
valuations for any plan as of the most recent date, (vii) determination letters
from the I.R.S., (viii) the most recent annual report filed with the I.R.S.,
(ix) registration statements and prospectuses, and (x) trust agreements.
Furthermore, Southside and its accountants, attorneys and other representatives,
shall be permitted to contact and consult with the accounting firm or personnel
responsible for preparing the PSB Financial Statements or any other audited
financial information concerning PSB or its affiliates. Except as may be
required by law, Southside shall cause its advisors and representatives to, (A)
hold confidential all information obtained in connection with any transaction
contemplated hereby with respect to the other party which is not otherwise
public knowledge, (B) return all documents (including copies thereof) obtained
hereunder from the other party to such other party and (C) use its best efforts
to cause all information obtained pursuant to this Agreement or in connection
with the negotiation of this Agreement to be treated as confidential and not
use, or knowingly permit others to use, any such information unless such
information becomes generally available to the public.
SECTION 4.10. PSB QUARTERLY FINANCIALS. Until the Effective Time, PSB
shall provide to Southside its unaudited (or, if available, audited) financial
statements as of the PSB fiscal quarter last ended.
ARTICLE FIVE
AGREEMENTS OF SOUTHSIDE AND NATIONAL BANK
SECTION 5.01. REGULATORY APPROVALS AND REGISTRATION STATEMENT.
(a) Southside shall prepare and file all regulatory applications
required in order to consummate the Merger, including but not limited to the
necessary applications for the prior approval of the O.T.S., the O.C.C. and the
Federal Reserve Board in a timely manner. Southside shall keep PSB reasonably
informed as to the status of such applications and prior to filing provide to
PSB for PSB's review and comment, copies of such applications and any
supplementally filed materials.
(b) Southside shall prepare and file in a timely manner with the S.E.C.
the Registration Statement relating to the shares of Southside Common to be
issued to the shareholders of PSB pursuant hereto, and shall use its best
efforts to cause the Registration Statement to become effective. At the time the
Registration Statement becomes effective, the Registration Statement shall
comply in all material respects with the provisions of the Securities Act and
the published rules and regulations thereunder, and shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not false or
misleading, and at the time of mailing thereof to the shareholders of PSB, at
the time of the PSB Shareholders' Meeting, at the Effective Time and on the
Closing Date, the Proxy Statement/Prospectus included as part of the
Registration Statement, as amended or supplemented by any amendment or
supplement, shall not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not false or
misleading. Southside shall timely file all documents required to obtain all
necessary permits and approvals from state securities agencies or authorities,
if any, required to carry out the transactions contemplated by this Agreement,
shall pay all expenses incident thereto and shall use its best efforts to obtain
such permits and approvals on a timely basis. Southside shall promptly and
properly prepare and
A-28
<PAGE> 133
file any other filings required under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") relating to the Merger and the transactions
contemplated herein.
SECTION 5.02. BREACHES. Southside shall, in the event it has knowledge
of the occurrence, or impending or threatened occurrence, of any event or
condition which would cause or constitute a breach (or would have caused or
constituted a breach had such event occurred or been known prior to the date
hereof) of any of its representations or agreements contained or referred to
herein, give prompt written notice thereof to PSB and use its best efforts to
prevent or promptly remedy the same.
SECTION 5.03. CONSUMMATION OF AGREEMENT. Southside and National Bank
shall use their respective best efforts to perform and fulfill all conditions
and obligations on their part to be performed or fulfilled under this Agreement
and to effect the Merger in accordance with the terms and conditions of this
Agreement.
SECTION 5.04. EMPLOYEE BENEFITS. Southside shall, with respect to each
employee of PSB who remains an employee of Surviving Bank following the Closing
Date (each a "Continued Employee"), provide the benefits described in this
Section 5.04. Subject to the right of subsequent amendment or termination in
Southside's discretion, each Continued Employee shall be entitled, as a new
employee of a subsidiary or subsidiaries of Southside, to participate in
whatever employee benefit plans, as defined in Section 3(3) of ERISA, or other
non-qualified employee plans that may be in effect generally for employees of
Southside's subsidiaries from time to time (the "Southside Plans"), if and as a
Continued Employee such Continued Employee shall be eligible for participation
therein and otherwise shall not be participating in a similar plan maintained by
PSB after the Effective Time. Continued Employees will be eligible to
participate on the same basis as similarly situated employees of other Southside
subsidiaries. All such participation shall be subject to such terms of such
plans as may be in effect from time to time and this Section 5.04 is not
intended to give Continued Employees any rights or privileges superior to those
of other employees of Southside's subsidiaries. Southside may terminate or
modify all PSB Employee Plans except insofar as benefits thereunder shall have
accrued or vested on the Closing Date, and Southside's obligation under this
Section 5.04 shall not be deemed or construed so as to provide duplication of
similar benefits. For purposes of vesting and eligibility to begin participation
with respect to any Southside Plans in which Continued Employees may
participate, each Continued Employee shall be credited with the lesser of (i)
one (1) year of service, or (ii) his or her term of service with PSB. With
respect to vacation policies, each Continued Employees shall be credited with
his or her full term of service with PSB. It is National Bank's intention to
employ all existing personnel of PSB on the Closing Date. Should any termination
due to eliminating/streamlining of positions occur after the Effective Time,
Southside will pay severance in accordance with its severance policy. This
policy states that employees with three years or more of service shall receive
one week of pay for each year of service up to a maximum of ten weeks pay. Those
employees with less than three years of service do not receive severance. This
does not include any personnel with employment contracts. For purposes of the
severance policy only, Continued Employees will be given credit for their term
of service with PSB.
SECTION 5.05. DIRECTORS AND OFFICERS' INDEMNIFICATION AND INSURANCE.
Southside (and any successor) shall indemnify, defend and hold harmless the
present and former directors, officers and employees of PSB against all
liabilities, claims, losses, damages or judgements, or amounts paid in
settlement with the approval of Southside (which approval shall not be
unreasonably withheld) of any claim, action, or suit arising out of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement) regardless of
whether such matter is asserted or claimed prior to, at or after the Effective
Time, to the fullest extent such persons may be indemnified under Missouri Law
as in effect on the date hereof, including provisions
A-29
<PAGE> 134
relating to the advancement of expenses incurred in the defense of any
litigation. Southside shall use its reasonable best efforts to cause the persons
serving as officers and directors of PSB immediately prior to the Effective Time
to be covered for a period of three years from the Effective Time by single
(one-time) premium tail coverage under the directors' and officers' liability
insurance policy maintained by PSB (provided that Southside may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions which are not materially less advantageous than such policy) with
respect to acts or omissions occurring prior to the Effective Time which were
committed by such officers and directors in their capacity as such; provided,
however, that in no event shall Southside be required to expend in the aggregate
more than 150% of the annual amount currently expended by PSB (the "Insurance
Amount") to maintain or procure insurance coverage pursuant hereto and further
provided that if Southside is unable to maintain or obtain the insurance called
for by this Section 5.05, Southside shall use its reasonable best efforts to
obtain as much comparable insurance as is available for the Insurance Amount.
SECTION 5.06. ACCESS TO INFORMATION. Southside shall afford to PSB's
accountants, counsel and other representatives, reasonable access during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, shall furnish promptly to PSB
(i) a copy of each report, schedule and other document filed or received by it
during such period pursuant to the requirements of federal and state securities
laws and (ii) all other information concerning its business, properties and
personnel as PSB may reasonably request. In addition, PSB and its accountants,
attorneys or other representatives, at all reasonable times during normal
business hours and in a manner which will avoid undue disruption or interference
with the normal operations of Southside and its affiliates, may make such
accounting, financial and operating inspections, reviews and analyses with
respect to auditors' reports and such other financial statements concerning
Southside and its affiliates, and perform such other tests or reviews as PSB may
request. Furthermore, PSB and its accountants, attorneys and other
representatives, shall be permitted to contact and consult with the accounting
firm or personnel responsible for preparing the Southside Financial Statements
or any other audited financial information concerning Southside or its
affiliates. Except as may be required by law, PSB shall cause its advisors and
representatives to, (A) hold confidential all information obtained in connection
with any transaction contemplated hereby with respect to the other party which
is not otherwise public knowledge, (B) return all documents (including copies
thereof) obtained hereunder from the other party to such other party and (C) use
its best efforts to cause all information obtained pursuant to this Agreement or
in connection with the negotiation of this Agreement to be treated as
confidential and not use, or knowingly permit others to use, any such
information unless such information becomes generally available to the public.
SECTION 5.07. EMPLOYMENT AGREEMENT. Southside agrees that the Merger
shall constitute a "Change of Control" as that term is defined in the Employment
Agreement between Robert Spinzig and PSB, as set forth in Section 2.19 of the
Disclosure Schedule, and that Mr. Spinzig shall be deemed to have suffered a
termination of employment as of the Effective Time.
ARTICLE SIX
CONDITIONS PRECEDENT TO THE MERGER
SECTION 6.01. CONDITIONS TO SOUTHSIDE'S AND NATIONAL BANK'S
OBLIGATIONS. The obligations of Southside and National Bank to effect the Merger
shall be subject to the satisfaction (or waiver by Southside) prior to or on the
Closing Date of the following conditions:
A-30
<PAGE> 135
(a) The representations and warranties made by PSB in this Agreement
shall be true and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made or given on and as of
the Closing Date; and
(b) PSB shall have performed and complied in all material respects with
all of its obligations and agreements required to be performed on or prior to
the Closing Date under this Agreement; and
(c) No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of the
Merger shall be in effect, nor shall any proceeding by any Regulatory Agency or
other person seeking any of the foregoing be pending. There shall not be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger which makes the consummation of the
Merger illegal; and
(d) All necessary regulatory approvals, consents, authorizations and
other approvals, including the requisite approval of this Agreement and the
Merger by the shareholders of PSB, required by law for consummation of the
Merger shall have been obtained and all waiting periods required by law shall
have expired; and
(e) The Registration Statement shall be effective under the Securities
Act and no stop orders suspending the effectiveness of the Registration
Statement shall be in effect or proceedings for such purpose pending before or
threatened by the S.E.C. or any state securities agency; and
(f) Southside and National Bank shall have received a legal opinion
substantially in the form of Exhibit 1.10(a) attached hereto.
SECTION 6.02. CONDITIONS TO PSB'S OBLIGATIONS. The obligations of PSB
to effect the Merger shall be subject to the satisfaction (or waiver by PSB)
prior to or on the Closing Date of the following conditions:
(a) The representations and warranties made by Southside and National
Bank in this Agreement shall be true and correct on and as of the Closing Date
with the same effect as though such representations and warranties had been made
or given on the Closing Date; and
(b) Southside and National Bank shall have performed and complied in
all material respects with all of their obligations and agreements hereunder
required to be performed on or prior to the Closing Date under this Agreement;
and
(c) No Injunction preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any Regulatory Agency seeking any of the
foregoing be pending. There shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation of the Merger illegal; and
(d) All necessary regulatory approvals, consents, authorizations and
other approvals, including the requisite approval of this Agreement and the
Merger by the shareholders of PSB, required by law for consummation of the
Merger shall have been obtained and all waiting periods required by law shall
have expired; and
A-31
<PAGE> 136
(e) PSB shall have received all documents required to be received from
Southside and National Bank on or prior to the Closing Date, all in form and
substance reasonably satisfactory to PSB; and
(f) The Registration Statement shall be effective under the Securities
Act and no stop orders suspending the effectiveness of the Registration
Statement shall be in effect or proceedings for such purpose pending before or
threatened by the S.E.C. or any state securities agency; and
(g) PSB shall have received a legal opinion substantially in the form
of Exhibit 1.10(b) attached hereto; and
(h) Southside shall have deposited with the Exchange Agent an amount of
cash equal to the product of the number of Cash Election Shares and the Per
Share Cash Amount; and
(i) PSB shall have received from Manchester Partners, L.C.C. a fairness
opinion, in form and substance reasonably satisfactory to PSB, to the effect
that the consideration to be received by PSB shareholders pursuant to this
Agreement is fair, from a financial point of view, to the shareholders of PSB
(the "Fairness Opinion"), and the Fairness Opinion shall not have been withdrawn
or modified as of the date of the PSB Shareholders' Meeting; and
(j) PSB shall have received an opinion from its counsel to the effect
that if the Merger is consummated in accordance with the terms set forth in this
Agreement (i) the Merger shall constitute a reorganization within the meaning of
Section 368(a) of the Code, (ii) no gain or loss shall be recognized by the
holders of shares of PSB Common Stock to the extent they receive shares of
Southside Common Stock in exchange for their shares of PSB Common Stock, (iii)
the basis of shares of Southside Common Stock received by the shareholders of
PSB shall be the same as the basis of shares of PSB Common Stock exchanged
therefor, and (iv) the holding period of the shares of Southside Common Stock
received by such shareholders shall include the holding period of the shares of
PSB Common Stock exchanged therefor, provided such shares were held as capital
assets as of the Effective Time.
ARTICLE SEVEN
TERMINATION OR ABANDONMENT
SECTION 7.01. MUTUAL AGREEMENT. This Agreement may be terminated by the
mutual written agreement of the parties at any time prior to the Closing Date,
regardless of whether approval of this Agreement and the Merger by the
shareholders of PSB shall have been previously obtained.
SECTION 7.02. BREACH OF AGREEMENTS. In the event that there is a
material breach in any of the representations and warranties or agreements of
Southside, National Bank or PSB, which breach is not cured within thirty (30)
days after notice to cure such breach is given to the breaching party by the
non- breaching party, then the non-breaching party, regardless of whether
shareholder approval of this Agreement and the Merger shall have been previously
obtained, may terminate and cancel this Agreement by providing written notice of
such action to the other party hereto.
SECTION 7.03. FAILURE OF CONDITIONS. In the event any of the conditions
to the obligations of any party are not satisfied or waived on or prior to the
Closing Date, and if any applicable cure period provided in Section 7.02 hereof
has lapsed, then such party may, regardless of whether approval of this
A-32
<PAGE> 137
Agreement and the Merger by the shareholders of PSB shall has been previously
obtained, terminate and cancel this Agreement by delivery of written notice of
such action to the other parties on such date.
SECTION 7.04. REGULATORY APPROVAL DENIAL. If any regulatory application
filed pursuant to Section 5.01 hereof should be finally denied or disapproved by
the respective regulatory authority, then this Agreement thereupon shall be
deemed terminated and canceled; provided, however, that a request for additional
information or undertaking by Southside or National Bank, as a condition for
approval, shall not be deemed to be a denial or disapproval so long as Southside
or National Bank diligently provides the requested information or undertaking.
In the event an application is denied pending an appeal, petition for review, or
similar such act on the part of Southside or National Bank (hereinafter referred
to as the "appeal") then the application shall be deemed denied unless Southside
or National Bank prepares and timely files such appeal and continues the
appellate process for purposes of obtaining the necessary approval.
SECTION 7.05. SHAREHOLDER APPROVAL DENIAL. If this Agreement and the
relevant transactions contemplated by this Agreement, including the Merger, are
not approved by the requisite vote of the shareholders of PSB at the PSB
Shareholders' Meeting, then either Southside or PSB may terminate this
Agreement. Southside may terminate this Agreement if PSB's Board of Directors
shall have withdrawn, modified or changed in any manner adverse to Southside its
approval or recommendation of the matters to be voted upon by the shareholders
of PSB at the PSB Shareholders' Meeting. In the event PSB enters into an
agreement or other understanding with a person or group of persons (other than
Southside and/or its affiliates) for such person or group of persons to acquire,
merge or consolidate with PSB or to purchase or acquire PSB or all or
substantially all of PSB's assets, then PSB may terminate this Agreement
provided PSB pays Southside the fee specified in Section 7.09.
SECTION 7.06. REGULATORY ENFORCEMENT MATTERS. In the event that
Southside or PSB or any of their subsidiaries shall, after the date hereof,
become a party or subject to any new or amended written agreement, memorandum of
understanding, cease and desist order, imposition of civil money penalties or
other regulatory enforcement action or proceeding with Regulatory Agency, which
would have a material adverse effect upon the financial condition, business or
results of operations of Southside, PSB and their subsidiaries taken as a whole,
then Southside or PSB may terminate this Agreement as the case may be.
SECTION 7.07. AUTOMATIC TERMINATION. If the Closing Date does not occur
on or prior to the expiration of the first anniversary of the date hereof, then
this Agreement may be terminated by either Southside or PSB by giving written
notice thereof to the other, unless the failure of the Closing to occur by such
date shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe the covenants and agreements of such party set
forth in this Agreement.
SECTION 7.08. SOUTHSIDE TERMINATION FEE. In the event that Southside or
National Bank willfully breaches a representation, warranty or covenant
contained herein and, as a result thereof (i) PSB exercises its right to
terminate this Agreement at a time when Southside was not entitled to terminate
this Agreement and (ii) the Merger is not consummated then Southside agrees to
pay to PSB a fee of $200,000 within five business days of Southside's receipt of
written demand thereof.
SECTION 7.09. PSB TERMINATION FEE.
(a) Upon the occurrence of one or more of the following events (each, a
"Triggering Event"), PSB shall pay to Southside the sum of $425,000.
A-33
<PAGE> 138
(i) upon termination of this Agreement by Southside pursuant
to Section 7.02 upon a breach thereof by PSB (including, without
limitation, the entering into of an agreement between PSB and any third
party which is inconsistent with the transactions contemplated by this
Agreement), provided that within eighteen (18) months of the date of
such termination, an event described in clause (iii) or (iv) below
shall have occurred; or
(ii) the failure of PSB's shareholders to approve the Merger
and this Agreement at a meeting called for such purpose, provided that
within eighteen (18) months of the date of such termination, an event
described in clause (iii) or (iv) below shall have occurred; or
(iii) any person or group of persons (other than Southside)
shall acquire, or have the right to acquire, 20% or more of the
outstanding shares of PSB Common (exclusive of any shares of PSB Common
sold directly or indirectly to such person or group of persons by
Southside); or
(iv) upon the entry by PSB into an agreement or other
understanding with a person or group of persons (other than Southside
and/or its affiliates) for such person or group of persons to acquire,
merge or consolidate with PSB or any of its subsidiaries or to purchase
or acquire PSB or any of its subsidiaries or all or substantially all
of PSB's or any of its subsidiaries' assets.
ARTICLE EIGHT
GENERAL
SECTION 8.01. CONFIDENTIAL INFORMATION. The parties acknowledge the
confidential and proprietary nature of the "Information" (as described below in
this Section 8.01) which has heretofore been exchanged and which shall be
received from each other hereunder and agree to hold and keep the same
confidential. Such Information shall include any and all financial, technical,
commercial, marketing, customer or other information concerning the business,
operations and affairs of a party that may be provided to the other,
irrespective of the form of the communications, by such party's employees or
agents. Such Information shall not include information which is or becomes
generally available to the public other than as a result of a disclosure by a
party or its representatives in violation of this Agreement. The parties agree
that the Information shall be used solely for the purposes contemplated by this
Agreement and that such Information shall not be disclosed to any person other
than employees and agents of a party who are directly involved in evaluating the
transaction. The Information shall not be used in any way detrimental to a
party, including use directly or indirectly in the conduct of the other party's
business or any business or enterprise in which such party may have an interest,
now or in the future, and whether or not now in competition with such other
party.
SECTION 8.02. PUBLICITY. Southside and PSB shall cooperate with each
other in the development and distribution of all news releases and other public
disclosures concerning this Agreement and the Merger and shall not issue any
news release or make any other public disclosure without the prior consent of
the other party, unless it reasonably believes such is required by law upon the
advice of counsel or is in response to published newspaper or other mass media
reports regarding the transactions contemplated by this Agreement, in which such
latter event the parties shall give reasonable notice, and to the extent
practicable, consult with each other regarding such responsive public
disclosure.
A-34
<PAGE> 139
SECTION 8.03. RETURN OF DOCUMENTS. Upon termination of this Agreement
without the Merger becoming effective, each party (i) shall deliver to the other
originals and all copies of all Information made available to such party, (ii)
shall not retain any copies, extracts or other reproductions in whole or in part
of such Information, and (iii) shall destroy all memoranda, notes and other
writings prepared by any party based on the Information.
SECTION 8.04. NOTICES. Any notice or other communication shall be in
writing and shall be deemed to have been given or made on the date of delivery,
in the case of hand delivery, or three (3) business days after deposit in the
United States Registered Mail, postage prepaid, or upon receipt if transmitted
by facsimile telecopy or any other means, addressed (in any case) as follows:
(a) if to Southside and National Bank:
Southside Bancshares Corp.
3606 Gravois Avenue
St. Louis, Missouri 63116
Attention: Mr. Thomas M. Teschner, President
Facsimile: 314/776-2332
with a copy to:
Lewis, Rice & Fingersh, L.C.
500 North Broadway, Suite 2000
St. Louis, Missouri 63102
Attention: John K. Pruellage, Esq.
Telecopy No. (314) 444-7788
and
(b) if to PSB:
Public Service Bank, a Federal Savings Bank
6025 Chippewa Street
St. Louis, Missouri 63109
Attention: Mr. Robert C. Spinzig, President
Facsimile: (314) 351-1577
with a copy to:
Breyer & Aguggia
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
Attention: Mr. Paul M. Aguggia, Esq.
Facsimile: (202) 737-7979
or to such other address as any party may from time to time designate by notice
to the others.
A-35
<PAGE> 140
SECTION 8.05. LIABILITIES AND EXPENSES. Except as provided in Section
7.08 and 7.09 hereof, in the event that this Agreement is terminated pursuant to
the provisions of Article Seven hereof, no party hereto shall have any liability
to any other party for costs, expenses, damages or otherwise; provided, however,
that, notwithstanding the foregoing, in the event that this Agreement is
terminated pursuant to Article Seven hereof on account of a willful breach of
any of the representations and warranties set forth herein or any breach of any
of the agreements set forth herein, then the non-breaching party shall be
entitled to recover appropriate damages from the breaching party.
SECTION 8.06. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. Except for, and as provided in, this Section 8.06, no
representation, warranty or agreement contained herein shall survive the Closing
Date or the earlier termination of this Agreement. The agreements set forth in
Sections 5.04, 5.05 and 5.07 hereof shall survive the Closing Date and the
agreements set forth in Sections 7.09, 8.01, 8.03 and 8.05 hereof and this
Section 8.06 shall survive the Closing Date or the earlier termination of this
Agreement.
SECTION 8.07. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes and cancels any and all prior
discussions, negotiations, undertakings, agreements in principle or other
agreements between the parties relating to the subject matter hereof.
SECTION 8.08. HEADINGS AND CAPTIONS. The captions of Articles and
Sections hereof are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this Agreement.
SECTION 8.09. WAIVER, AMENDMENT OR MODIFICATION. The conditions of this
Agreement which may be waived may only be waived by notice to the other party
waiving such condition. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect the right at a
later time to enforce the same. This Agreement may be amended or modified by the
parties hereto, at any time before or after PSB shareholder approval of the
Agreement; provided, however, that after any such approval no such amendment or
modification shall decrease the amount or change the form of the Merger
Consideration contemplated by this Agreement to be received by shareholders of
PSB. This Agreement not be amended or modified except by a written document duly
executed by the parties hereto.
SECTION 8.10. RULES OF CONSTRUCTION. Unless the context otherwise
requires: (i) a term has the meaning assigned to it, (ii) an accounting term not
otherwise defined has the meaning assigned to it in accordance with GAAP, (iii)
"or" is not exclusive, and (iv) words in the singular may include the plural and
in the plural include the singular.
SECTION 8.11. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
shall be deemed one and the same instrument. For purposes of executing this
Agreement, a document (or signature page thereto) signed and transmitted by
facsimile machine or telecopier is to be treated as an original document. The
signature of any party thereon, for purposes hereof, is to be considered as an
original signature, and the document transmitted is to be considered to have the
same binding effect as an original signature on an original document. At the
request of any party, any facsimile or telecopy document shall be re-executed in
original form by the parties who executed the facsimile or telecopy document. No
party may raise the use of a facsimile machine or telecopier or the fact that
any signature was transmitted through the use of a facsimile or telecopier
machine as a defense to the enforcement of this Agreement or any amendment or
other document executed in compliance with this Section 8.11.
A-36
<PAGE> 141
SECTION 8.12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. This Agreement is not intended to confer upon any person
not a party hereto any rights or remedies hereunder, except as provided herein.
SECTION 8.13. SEVERABILITY. In the event that any provisions of this
Agreement or any portion thereof shall be finally determined to be unlawful or
unenforceable, such provision or portion thereof shall be deemed to be severed
from this Agreement, and every other provision, and any portion of a provision,
that is not invalidated by such determination, shall remain in full force and
effect. To the extent that a provision is deemed unenforceable by virtue of its
scope but may be made enforceable by limitation thereof, such provision shall be
enforceable to the fullest extent permitted under the laws and public policies
of the State whose laws are deemed to govern enforceability. It is declared to
be the intention of the parties that they would have executed the remaining
provisions without including any that may be declared unenforceable.
SECTION 8.14. GOVERNING LAW; ASSIGNMENT. This Agreement shall be
governed by the laws of the State of Missouri, except to the extent that the
Corporate Law must govern the Merger procedures, and applicable federal laws and
regulations. This Agreement may not be assigned by either of the parties hereto.
SECTION 8.15. ENFORCEMENT OF AGREEMENT. Except as otherwise provided in
Section 7.08 and 7.09, the parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties hereto shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction and such right shall be in addition to any other remedy to
which they shall be entitled at law or in equity.
(THE REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY)
A-37
<PAGE> 142
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
By /s/ Robert C. Spinzig
-----------------------------------------
-----------------------------------------
-----------------------------------------
SOUTHSIDE BANCSHARES CORP.
By /s/ Thomas M. Teschner
-----------------------------------------
-----------------------------------------
-----------------------------------------
SOUTH SIDE NATIONAL BANK IN ST. LOUIS
By /s/ Thomas M. Teschner
-----------------------------------------
-----------------------------------------
-----------------------------------------
A-38
<PAGE> 143
EXHIBIT 1.10(a)
PSB'S LEGAL OPINION MATTERS
1. The due organization, valid existence and good standing of PSB
under the laws of the United States, its power and authority to own and operate
its properties and to carry on its business as described in the Prospectus/Proxy
Statement, and its power and authority to enter into the Agreement, to merge
with National Bank in accordance with the terms of the Agreement and to
consummate the transactions contemplated by the Agreement.
2. The due incorporation or organization, valid existence and good
standing of each of the other subsidiaries of PSB and any subsidiary of any such
subsidiary listed in Section 2.03 of the Disclosure Schedule, their power and
authority to own and operate their properties.
3. The due and proper performance of all corporate acts and other
proceedings necessary or required to be taken by PSB to authorize the execution,
delivery and performance of the Agreement, the due execution and delivery of the
Agreement by PSB, and the Agreement as a valid and binding obligation of PSB,
enforceable against PSB in accordance with its terms (subject to the provisions
of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws affecting the enforceability of creditors' rights generally from
time to time in effect, and equitable principles relating to the granting of
specific performance and other equitable remedies as a matter of judicial
discretion).
4. The execution of the Agreement by PSB, and the consummation of the
Merger and the other transactions contemplated therein, does not violate or
cause a default under PSB's Articles of Incorporation or Bylaws, or any statute,
regulation or rule or to counsel's knowledge, any judgment, order or decree
against or any material agreement binding upon PSB or its subsidiaries.
5. To the best knowledge of such counsel, the receipt of all required
consents, approvals (including the requisite approval of the shareholders of
PSB), orders or authorizations of, or registrations, declarations or filings
with or notices to, any governmental authority required to be obtained or made
by PSB or its subsidiaries in connection with the execution and delivery of the
Agreement or the consummation of the transactions contemplated therein.
6. To the knowledge of such counsel, the nonexistence of any material
actions, suits, proceedings, orders, investigations or claims pending or
threatened against PSB or its subsidiaries which, if adversely determined, would
have a material adverse effect upon their respective properties or assets or the
transactions contemplated by the Agreement.
A-Ex.-1.10(a)-1
<PAGE> 144
EXHIBIT 1.10(b)
SOUTHSIDE'S LEGAL OPINION MATTERS
1. The due incorporation or organization, valid existence and good
standing of Southside and National Bank under the laws of the State of Missouri
and United States, respectively, and their respective power and authority to
enter into the Agreement and to consummate the transactions contemplated
thereby.
2. The due and proper performance of all corporate acts and other
proceedings required to be taken by each of Southside and National Bank to
authorize the execution, delivery and performance of the Agreement, their due
execution and delivery of the Agreement, and the Agreement as a valid and
binding obligation of Southside and National Bank enforceable against Southside
and National Bank in accordance with its terms (subject to the provisions of
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforceability of creditors' rights generally from time to time in effect, and
equitable principles relating to the granting of specific performance and other
equitable remedies as a matter of judicial discretion).
3. The due authorization and, when issued to the shareholders of PSB in
accordance with the terms of the Agreement, the valid issuance of the shares of
Southside Common to be issued pursuant to the Merger, such shares being fully
paid and non-assessable, with no personal liability attaching to the ownership
thereof.
4. The execution and delivery of the Agreement by Southside and the
consummation of the transactions contemplated therein, as neither conflicting
with, in breach of or in default under, resulting in the acceleration of,
creating in any party the right to accelerate, terminate, modify or cancel, or
violate, any provision of Southside Articles of Incorporation or Bylaws, or any
statute, regulation, rule, judgment, order or decree binding upon Southside
which would be materially adverse to the business of Southside and its
subsidiaries taken as a whole.
5. To the best knowledge of such counsel, the receipt of all required
consents, approvals, orders or authorizations of, or registrations, declarations
or filings with or without notices to, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, or any other person or entity required to be obtained or made by or
with respect to Southside or National Bank in connection with the execution and
delivery of the Agreement or the consummation of the transactions contemplated
by the Agreement.
6. The Registration Statement and the Prospectus and the other
documents incorporated therein by reference (other than the financial statements
or other financial data included therein or omitted therefrom and Underwriter's
Information, as to which we express no opinion) comply as to form in all
material respects with the requirements of the 1933 Act and the regulations
issued thereunder as of their respective dates of effectiveness or filing, as
the case may be.
A-Ex.-1.10(b)-1
<PAGE> 145
7. We have been advised by the staff of the Commission that the
Registration Statement has become effective under the 1933 Act; any required
filing of the Prospectus pursuant to Rule 424(b) under the 1933 Act has been
made within the time period required by such Rule; to the best of our knowledge,
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for a stop order are pending or threatened by the
Commission.
A-Ex.-1.10(b)-2
<PAGE> 146
- -------------------
, 19
- ------------- --
Page 1
EXHIBIT 4.08
, 1998
-------------------
Southside Bancshares Corp.
3606 Gravois Avenue
St. Louis, Missouri 63116
Attention: Mr. Joseph W. Pope
Vice President and CFO
Re: Agreement and Plan of Merger, dated February , 1998 (the
"Merger Agreement"), by and among Public Service Bank, a
Federal Savings Bank ("PSB"), Southside Bancshares Corp.
("Southside"), and South Side National Bank in St. Louis
("National Bank")
Gentlemen:
I have been advised that I may be deemed to be an affiliate of PSB, as
that term is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule
145") of the Rules and Regulations of the Securities and Exchange Commission
(the "Commission") promulgated under the Securities Act of 1933, as amended (the
"Securities Act").
Pursuant to the terms and conditions of the Merger Agreement, each
share of common stock of PSB owned by me as of the effective time of the merger
contemplated by the Merger Agreement (the "Merger") may be converted into the
right to receive shares of common stock of Southside and cash in lieu of any
fractional share. As used in this letter, the shares of common stock of
Southside which may be received by me in the Merger in exchange for my shares of
common stock of PSB are referred to as the "Post-Merger Shares." This letter is
delivered to Southside pursuant to Section 4.08 of the Merger Agreement.
A. I represent and warrant to Southside and agree that:
1. I shall not make any sale, transfer or other disposition of
the Post-Merger Shares I receive pursuant to the Merger in violation of
the Securities Act or the Rules and Regulations of the Commission
promulgated thereunder.
2. I understand that the issuance of the Post-Merger Shares to
me pursuant to the Merger shall be registered with the Commission under
the Securities Act. I also understand that because I may be deemed an
"affiliate" of PSB and because any distributions by me of the Post-
Merger Shares shall not be registered under the Securities Act, such
Post-Merger Shares must be held by me unless (i) the sale, transfer or
other distribution has been registered under the Securities Act, (ii)
the sale, transfer or other distribution of such Post-Merger Shares is
made in
A-Ex.-4.08-1
<PAGE> 147
- ----------------
, 19
- ---------- --
Page 2
accordance with the provisions of Rule 145, or (iii) in the opinion of
counsel acceptable to Southside some other exemption from registration
under the Securities Act is available with respect to any such proposed
distribution, sale, transfer or other disposition of such Post-Merger
Shares.
B. I understand and agree that:
1. Stop transfer instructions shall be issued with respect to
the Post-Merger Shares and there shall be placed on the certificates
representing such Post-Merger Shares, or any certificate delivered in
substitution therefor, a legend stating in substance:
"The shares represented by this Certificate were issued in a
transaction to which Rule 145 under the Securities Act of
1933, as amended, applied. The shares represented by this
certificate may be transferred only in accordance with the
terms of a letter agreement dated _________________, 19__, by
the registered holder in favor of Southside Bancshares Corp.,
a copy of which agreement is on file at the principal offices
of Southside Bancshares Corp."
2. Unless the transfer by me of Post-Merger Shares is a sale
made in compliance with the provisions of Rule 145(d) or made pursuant
to an effective registration statement under the Securities Act,
Southside reserves the right to place the following legend on the
Certificates issued to my transferee:
"The shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, and
were acquired from a person who received such shares in a
transaction to which Rule 145 under the Securities Act of
1933, as amended, applied. The shares have not been acquired
by the holder with a view to, or for resale in connection
with, any distribution thereof within the meaning of the
Securities Act of 1933, as amended, and may not be sold or
otherwise transferred unless the shares have been registered
under the Securities Act of 1933, as amended, or an exemption
from registration is available."
I understand and agree that the legends set forth in paragraphs 1 and 2
above shall be removed by delivery of substitute Certificates without any legend
if I deliver to Southside a copy of a letter from the staff of the Commission,
or an opinion of counsel in form and substance satisfactory to Southside, to the
effect that no such legend is required for the purpose of the Securities Act.
A-Ex.-4.08-2
<PAGE> 148
- ----------------
, 19
- ---------- --
Page 3
I have carefully read this letter and the Merger Agreement and
understand the requirements of each and the limitations imposed upon the
distribution, sale, transfer or other disposition of Post-Merger Shares by me.
Very truly yours,
A-Ex.-4.08-3
<PAGE> 149
AGREEMENT TO MERGE
between
PUBLIC SERVICE BANK, A FEDERAL SAVINGS BANK
and
SOUTH SIDE NATIONAL BANK IN ST. LOUIS
under the charter of
SOUTH SIDE NATIONAL BANK IN ST. LOUIS
and with the title of
SOUTH SIDE NATIONAL BANK IN ST. LOUIS
THIS AGREEMENT TO MERGE (this "Merger Agreement") made between PUBLIC
SERVICE BANK, A FEDERAL SAVINGS BANK (hereinafter referred to as "PSB"), being
located at 6025 Chippewa Street, St. Louis, Missouri, with capital of $102,182
divided into 102,182 shares of common stock, each of $1.00 par value, surplus of
approximately $744,000, and undivided profits, including capital reserves of
approximately $3,571,000, as of December 31, 1997, and SOUTH SIDE NATIONAL BANK
IN ST. LOUIS (hereinafter referred to as "National Bank"), a national banking
association organized under the laws of the United States, being located at 3606
Gravois Avenue, St. Louis, Missouri, with capital of $1,195,310 divided into
119,531 shares of common stock, each of $10.00 par value, surplus of
approximately $4,030,000, and undivided profits, including capital reserves of
approximately $30,748,000, as of December 31, 1997, each acting pursuant to a
resolution of its board of directors adopted by the vote of a majority of its
directors, as applicable, pursuant to the authority given by and in accordance
with the provisions of the Act of November 7, 1918, as amended, 12 U.S.C. 215a,
witnesseth as follows:
SECTION 1.
PSB shall be merged with and into National Bank under the charter of the latter
(the "Merger").
SECTION 2.
The name of the receiving association (hereinafter referred to as the "surviving
association") shall be South Side National Bank in St. Louis.
SECTION 3.
The business of the surviving association shall be that of a national banking
association. This business shall be conducted by the surviving association at
its main office which shall be located at 3606 Gravois
B-1
<PAGE> 150
Avenue, St. Louis, Missouri, and at its legally established branches (including
the existing locations of PSB and National Bank).
SECTION 4.
The amount of the capital stock of the surviving association shall be
approximately $1,195,310 divided into 119,531 shares of common stock, each of
$10.00 par value, and at the time the Merger shall become effective, the
surviving association shall have a surplus of approximately $12,342,000 and
undivided profits, including capital reserves, of approximately $27,423,000;
adjusted however, for normal earnings and expenses and any permitted dividends
between December 31, 1997 and the effective time of the Merger.
SECTION 5.
All assets of PSB and National Bank as they exist at the effective time of the
Merger shall pass to and vest in the surviving association without any
conveyance or other transfer. The surviving association shall be responsible for
all of the liabilities of every kind and description, including PSB's
obligations under its liquidation account, of each of PSB and National Bank
existing as of the effective time of the Merger.
SECTION 6.
National Bank shall contribute to the surviving association acceptable assets
having a book value, over and above its liability to its creditors, of at least
$35,973,000; adjusted, however, for normal earnings and expenses between
December 31, 1997 and the effective time of the Merger.
At the effective time of the Merger, PSB shall have on hand acceptable assets
having a book value of at least $4,364,000 over and above its liability to its
creditors, and having a fair value, over and above its liability to its
creditors, of at least $5,250,000; adjusted, however, for normal earnings and
expenses and dividends between December 31, 1997 and the effective time of the
Merger. The difference between the book and fair value of excess acceptable
assets, as set forth above, is $886,000 which is the result of the adjustment to
estimated fair value of (i) PSB's bank premises and equipment, $928,000; (ii)
PSB's investment securities, $132,000; and (iii) PSB's loan portfolio
($174,000).
SECTION 7.
Of the capital stock of National Bank, Southside Bancshares Corp. (hereinafter
referred to as "Southside"), a Missouri corporation and the sole shareholder of
the presently issued and outstanding 119,531 shares of common stock of National
Bank, each of $10.00 par value, shall retain its present rights in such shares
unaffected by the Merger.
(a) Merger Consideration
(i) As of the time the Merger shall become effective, the shares of
common stock of PSB, each of $1.00 par value (as used in this Section 7, the
"PSB Common Stock"), issued and outstanding immediately prior thereto (except
for shares the holders of which have duly exercised and perfected their
B-2
<PAGE> 151
dissenters rights as permitted by applicable regulations) shall, by virtue of
the Merger and without any action on the part of the holders thereof, be
converted into the right to receive from Southside either (1) cash, without
interest ("Per Share Cash Amount"), in an amount (rounded to the nearest cent)
equal to the "Exchange Ratio" (as defined below) multiplied by the Southside
Average Price (as defined below), or (2) that number of shares of common stock
of Southside, each of $1.00 par value (as used in this Section 7, the "Southside
Common Stock"), equal to the Exchange Ratio, or (3) a combination of shares of
Southside Common Stock and cash, all as determined in accordance the provisions
of this Section 7.
(ii) The "Exchange Ratio" shall equal the quotient (rounded to the
nearest one-thousandth) of (x) two times the "Capital" of PSB divided by the
number of outstanding shares of PSB Common Stock at the time the Merger shall
become effective, divided by (y) the Southside Average Price. The "Capital" of
PSB shall equal total stockholders' equity of PSB as reflected in the
consolidated balance sheet of PSB as of the last day of the quarter immediately
preceding the month in which the Merger shall become effective minus any and all
attorneys fees, accounting fees, and financial services/ brokerage fees incurred
by PSB in connection with the Merger that have been or will be paid or accrued
by PSB before and after the date hereof and not expensed on the financial
statements of PSB. The "Southside Average Price" shall be the average (rounded
to the nearest one thousandth) of the average of the closing bid and ask prices
per share of Southside Common Stock reported by the National Association of
Securities Dealers, Inc./Small Cap Market System during the period of ten
trading days which ends on the fifth trading day prior to the date the Merger is
closed.
(iii) Notwithstanding any other provision of this Merger Agreement, any
shares of PSB Common Stock issued and outstanding immediately prior to the time
the Merger shall become effective, which are then owned beneficially or of
record by Southside, PSB or by any direct or indirect subsidiary of any of them,
other than in a fiduciary capacity, or are held in the treasury of PSB shall, by
virtue of the Merger, be canceled without payment of any consideration therefor
and without any conversion thereof.
(iv) Notwithstanding any other provision hereof, no fractional shares
of Southside Common Stock and no certificates or scrip therefor, or other
evidence of ownership thereof, will be issued in the Merger; instead, Southside
shall pay to each holder of PSB Common Stock who would otherwise be entitled to
a fractional share an amount in cash determined by multiplying such fraction by
the Southside Average Price (as defined above).
(b) ELECTION PROCEDURES
(i) The number of shares of PSB Common Stock to be converted into the
right to receive cash in the Merger shall equal 40% of the number of shares of
such PSB Common Stock outstanding immediately prior to the time the Merger shall
become effective ("Cash Election Number"), and the number of shares of such PSB
Common Stock to be converted into the right to receive shares of Southside
Common Stock in the Merger shall equal 60% of the number of shares of PSB Common
Stock outstanding immediately prior to the time the Merger shall become
effective ("Stock Election Number").
(ii) Subject to the allocation and election procedure set forth
elsewhere in this Section 7(b), each record holder of PSB Common Stock will be
entitled (1) to elect to receive cash for all of such shares ("Cash Election"),
(2) to elect to receive Southside Common Stock for all of such shares ("Stock
Election"), (3) to elect to receive Southside Common Stock for a stated
percentage of such shares ("Partial Stock Election") and to receive cash for the
balance of such shares ("Partial Cash Election")
B-3
<PAGE> 152
or (4) to indicate that such record holder has no preference as to the receipt
of cash or Southside Common Stock for such shares ("Non-Election"). All such
elections shall be made on a form designated for that purpose ("Form of
Election"). Holders of record of shares of PSB Common Stock who hold such shares
as nominees, trustees or in any other representative capacities
("Representative") may submit multiple Forms of Election, provided that such
Representative certifies that each such Form of Election covers the shares of
PSB Common Stock held by each Representative for a particular beneficial owner.
(iii) If the sum of the number of shares covered by Cash Elections and
Partial Cash Elections ("Cash Election Shares") exceeds the Cash Election
Number, all shares of PSB Common Stock covered by Stock Elections and Partial
Stock Elections ("Stock Election Shares") and all shares of PSB Common Stock
covered by Non-Elections ("Non-Election Shares") shall be converted into the
right to receive Southside Common Stock and the Cash Election Shares shall be
converted into the right to receive Southside Common Stock and cash in the
following manner:
Each Cash Election Share shall be converted into the right to receive
(i) an amount in cash (rounded to the nearest cent), without interest, equal to
the product of (x) the Per Share Cash Amount and (y) a fraction ("Cash
Fraction"), the numerator of which shall be the Cash Election Number and the
denominator of which shall be the total number of Cash Election Shares, and (ii)
a number of shares of Southside Common Stock equal to the product (rounded to
the nearest one-thousandth) of (x) the Exchange Ratio and (y) a fraction equal
to one minus the Cash Fraction.
(iv) If the aggregate number of Stock Election Shares exceeds the Stock
Election Number, all Cash Election Shares and all Non-Election Shares shall be
converted into the right to receive cash, and all Stock Election Shares shall be
converted into the right to receive Southside Common Stock and cash in the
following manner:
Each Stock Election Share shall be converted into the right to receive (i) a
number of shares of Southside Common Stock equal to the product (rounded to the
nearest one-thousandth) of (x) the Exchange Ratio and (y) a fraction ("Stock
Fraction"), the numerator of which shall be the Stock Election Number and the
denominator of which shall be the total number of Stock Election Shares, and
(ii) an amount in cash (rounded to the nearest cent), without interest, equal to
the product of (x) the Per Share Cash Amount and (y) a fraction equal to one
minus the Stock Fraction.
(v) In the event that neither of Section 7(b)(iii) nor Section 7(b)(iv)
above is applicable, all Cash Election Shares shall be converted into the right
to receive cash, all Stock Election Shares shall be converted into the right to
receive Southside Common Stock, and the Non-Election Shares, if any, shall be
converted into the right to receive cash and Southside Common Stock in the
following manner:
Each Non-Election Share shall be converted into the right to receive (i) an
amount in cash (rounded to the nearest cent), without interest, equal to the
product of (x) the Per Share Cash Amount and (y) a fraction ("Non-Election
Fraction") the numerator of which shall be the excess of the (a) Cash Election
Number over (b) the number of Cash Election Shares and the denominator of which
shall be the excess of (A) the number of shares of PSB Common Stock outstanding
immediately prior to the Effective Time over (B) the sum of the total number of
Cash Election Shares and (ii) a number of shares of Southside Common Stock equal
to the product (rounded to the nearest one-thousandth) of (x) the Exchange Ratio
and (y) a fraction equal to one minus the Non-Election Fraction.
B-4
<PAGE> 153
(vi) Elections shall be made by holders of PSB Common Stock by mailing
to the designated exchange agent (the "Exchange Agent") the Form of Election
delivered to the shareholders of PSB with the Prospectus/Proxy Statement for the
Merger (the "Proxy Statement/Prospectus"). To be effective, a Form of Election
must be properly completed, signed and submitted by the shareholder (or by an
appropriate trust company in the United States or a member of a registered
national securities exchange or the National Association of Securities Dealers)
together with the certificate or certificates representing the shares of PSB
Common Stock for which an election is made to the Exchange Agent not later than
seven days following the date of the special meeting of the shareholders of PSB
held to approve the Merger (the "Election Deadline"). Southside shall have the
discretion, which it may delegate in whole or in part to the Exchange Agent, to
determine whether Forms of Election have been properly completed, signed and
submitted and to disregard immaterial defects in Forms of Election. The decision
of Southside, or the Exchange Agent, as to such matters shall be conclusive and
binding. Neither Southside nor the Exchange Agent will be under any obligation
to notify any person of any defect in a Form of Election submitted to the
Exchange Agent. The Exchange Agent also shall make all computations contemplated
by this Section 7 and all such computations shall be conclusive and binding on
the holders of PSB Common Stock.
(vii) For the purposes hereof, a holder of PSB Common Stock who does
not submit a properly completed Form of Election that is received by the
Exchange Agent prior to the Election Deadline will be deemed to have made a
Non-Election. If Southside or the Exchange Agent determines that any purported
Cash Election, Partial Cash Election, Stock Election or Partial Stock Election
was not properly made, such purported election will be deemed to be of no force
and effect and the shareholder making such purported Cash Election, Partial Cash
Election, Stock Election or Partial Stock Election will for purposes hereof be
deemed to have made a Non-Election.
(viii) Southside and PSB will mail the Form of Election with the
Prospectus/Proxy Statement to all holders of PSB Common Stock on the record date
for the PSB special shareholders' meeting and shall make the Form of Election
available to all persons who become holders of PSB Common Stock subsequent to
such day and no later than the close of business on the business day prior to
the Election Deadline. All elections may be revoked until the Election Deadline.
SECTION 8.
National Bank and PSB may continue to declare and pay dividends and make other
distributions to their respective shareholders in such amounts and at such times
as are in accordance with their respective historical practices. Neither
National Bank nor PSB shall sell or otherwise dispose of any of its assets or
take any actions out of the ordinary course of business.
SECTION 9.
The present board of directors of National Bank, as listed below, shall continue
to serve as the board of directors of the surviving association until the next
annual meeting or until such time as their successors have been elected and have
qualified: Howard F. Etling, Joseph W. Beetz, Ralph Crancer, Jr., Douglas P.
Helein, Earle J. Kennedy, Jr., Norville K. McClain, Daniel J. Queen, Richard G.
Schroeder, Sr., and Thomas M. Teschner.
B-5
<PAGE> 154
SECTION 10.
Effective as of the time this Merger shall become effective as specified in the
merger approval to be issued by the Comptroller of the Currency, the articles of
association of the resulting bank, which shall be the present articles of
association of National Bank, shall read in their entirety as set forth in
Exhibit 1 attached hereto and incorporated herein by reference.
SECTION 11.
This Merger Agreement may be terminated in the same manner provided for in
Article Seven of that certain Agreement and Plan of Merger (the "Agreement and
Plan of Merger"), of even date herewith, by and among, PSB, National Bank and
Southside, with respect to the Agreement and Plan of Merger, which provides,
among other matters, for termination by the mutual written agreement of the
boards of directors of the participants before or after any shareholder group
has taken affirmative action. Consummation of the Merger contemplated in this
Merger Agreement shall be subject to and conditioned upon consummation of the
transactions contemplated in the Agreement and Plan of Merger in accordance with
and in the manner provided for in such Agreement and Plan of Merger.
SECTION 12.
This Merger Agreement shall be ratified and confirmed by the written consent of
Southside, as the sole shareholder of National Bank, and by the affirmative vote
of the shareholders of PSB, as required by applicable law, at a meeting to be
held on the call of directors of PSB; and the Merger shall become effective at
the time specified in a merger approval issued by the Comptroller of the
Currency of the United States.
WITNESS, the signatures and seals of said merging banks as of this
_____ day of ____________, 1998, each set by its President and attested to by
its Cashier or Secretary, pursuant to a resolution of its board of directors,
acting by a majority and the signatures of a majority of each of its board of
directors.
PUBLIC SERVICE BANK, A FEDERAL SAVINGS
BANK
By:
------------------------------------
Robert C. Spinzig
President and Chief Executive Officer
Attest:
- ------------------------------
Name:
-------------------------
Title:
------------------------
(Seal)
B-6
<PAGE> 155
----------------------------------
Robert C. Spinzig, Director
----------------------------------
Clement H. Albers, Director
----------------------------------
Richard E. Clift, Director
----------------------------------
Robert E. Lamear, Jr., Director
----------------------------------
Daniel T. Rabbitt, Director
----------------------------------
James A. Sheets, Director
----------------------------------
William S. Bahn, Director
----------------------------------
James F. Conway, Director
Directors of Public Service Bank, a Federal Savings
Bank
B-7
<PAGE> 156
STATE OF MISSOURI )
) ss:
CITY OF ST. LOUIS )
On this __________ day of _______________, 1998, before me, a notary public for
this state and city, personally came Robert C. Spinzig, President, and
____________________, as ______________________________, of Public Service Bank,
a Federal Savings Bank, and each in his or her capacity acknowledged this
instrument to be the act and deed of the association and the seal affixed to it
to be its seal; and also came: Robert C. Spinzig, Clement H. Albers, Richard E.
Clift, Robert E. Lamear, Jr., Daniel T. Rabbitt, James A. Sheets, Williams S.
Bahn, and James F. Conway, being a majority of the board of directors of the
association, and each of them acknowledged this instrument to be the act and
deed of the association and of himself as director of it.
WITNESS my official seal and signature this day and year.
-----------------------------------
(Seal of Notary) Notary Public
My commission expires
--------------
B-8
<PAGE> 157
SOUTH SIDE NATIONAL BANK IN ST. LOUIS
By:
------------------------------
Thomas M. Teschner
President and Chief Executive
Officer
Attest:
- ----------------------------------
Name:
-----------------------------
Title:
----------------------------
(Seal of Bank)
---------------------------------------
Howard F. Etling, Director
---------------------------------------
Joseph W. Beetz, Director
---------------------------------------
Ralph Crancer, Jr., Director
---------------------------------------
Douglas P. Helein, Director
---------------------------------------
Earle J. Kennedy, Jr., Director
---------------------------------------
Norville K. McClain, Director
---------------------------------------
Daniel J. Queen, Director
---------------------------------------
Richard G. Schroeder, Jr., Director
B-9
<PAGE> 158
---------------------------------------
Thomas M. Teschner, Director
Directors of South Side National Bank in St. Louis
B-10
<PAGE> 159
STATE OF MISSOURI )
) ss:
CITY OF ST. LOUIS )
On this __________ day of _______________, 1998, before me, a notary public for
this state and city, personally came Thomas M. Teschner, as President and Chief
Executive Officer, and ____________________, as ______________________________,
of South Side National Bank in St. Louis, and each in his or her capacity
acknowledged this instrument to be the act and deed of the association and the
seal affixed to it to be its seal; and also came: Howard F. Etling, Joseph W.
Beetz, Ralph Crancer, Jr., Douglas P. Helein, Earle J. Kennedy, Jr., Norville K.
McClain, Daniel J. Queen, Richard G. Schroeder, Sr., and Thomas M. Teschner,
being a majority of the board of directors of the bank, and each of them
acknowledged this instrument to be the act and deed of the bank and of himself
as director of it.
WITNESS my official seal and signature this day and year.
(Seal of Notary) ------------------------------------------
Notary Public
My commission expires
--------------------
B-11
<PAGE> 160
EXHIBIT I
ARTICLES OF ASSOCIATION
B-12
<PAGE> 161
APPENDIX C
[Letterhead of Manchester Partners, L.L.C.]
February 25, 1998
Board of Directors
Public Service Bank, FSB
6025 Chippewa
St. Louis, Missouri 63109
Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of Public Service Bank, FSB ("PSB") of the
consideration to be paid to PSB's shareholders by Southside National Bank in St.
Louis ("Southside"), pursuant to the terms of the Agreement and Plan of Merger
by and between PSB and Southside, dated as of February 25, 1998 (the
"Agreement"). Pursuant to the Agreement, the holder of each share of common
stock of PSB would be entitled to receive $82.37 per share in cash or common
stock of Southside, subject to limitations on the portion of the offer to be
paid in cash or stock and to adjustment as set forth in the Agreement. For the
purposes of our opinion, we have assumed that the transaction will constitute a
tax-free reorganization as contemplated by the Agreement.
Manchester Partners, L.L.C., as part of its investment banking
services, is engaged in the independent valuation of businesses and securities
in connection with mergers, acquisitions, and sales of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
We are familiar with PSB and Southside and have completed our financial analysis
of this transaction.
In rendering our opinion, we have reviewed the Agreement, as well as
financial and other information that was publicly available or furnished to us
by PSB and Southside, including information provided during Manchester Partners'
discussions with their respective managements. We have conducted conversations
with Southside's senior management regarding recent developments and
management's financial projections for Southside and PSB. In addition, we have
spoken to members of Southside's management and PSB's management regarding
factors which affect each entity's business. We have also compared certain
financial and securities data (as appropriate) of Southside and PSB with various
other companies whose securities are traded in public markets, reviewed the
historical stock prices and trading volumes of the common stock of Southside and
PSB, reviewed prices and premiums paid in other business combinations and
conducted such other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information that was provided to us or that was otherwise reviewed by
us. With respect to the financial projections supplied to us, we have assumed
that such information was reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the respective managements
C-1
<PAGE> 162
of Southside and PSB as to the future operating and financial performance of
Southside and PSB and that such information provided a reasonable basis upon
which we could form our opinion. We also assumed that there were no material
changes in the assets, liabilities, financial condition, results of operations,
business or prospects of either Southside or PSB since the date of the most
recent financial statements made available to us. We did not make or obtain any
independent evaluation, appraisal or physical inspection of Southside's or PSB's
assets or liabilities nor did we review loan files of Southside or PSB. We
relied on advice of counsel to PSB as to all legal matters with respect to the
Agreement and the transactions and other matters contained or contemplated
therein.
Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to us
as of the date of this letter. Our opinion is directed to the Board of Directors
of PSB and does not constitute a recommendation to any shareholder as to how
such shareholder should vote on the proposed transaction, nor have we expressed
any opinion as to the prices at which any securities of Southside or PSB might
trade in the future. Except as required by applicable law, including (without
limitation) federal securities laws, our opinion may not be published or
otherwise used or referred to, nor shall any public reference to Manchester
Partners be made, without our consent.
Based upon the foregoing and such other factors as we deem relevant, we
are of the opinion, as of the date hereof, that the consideration to be paid to
the shareholders of PSB pursuant to the Agreement is fair, from a financial
point of view, to the shareholders of PSB.
Very truly yours,
/s/ Manchester Partners, L.L.C
MANCHESTER PARTNERS, L.L.C.
C-2
<PAGE> 163
APPENDIX D
TITLE 12, CODE OF FEDERAL REGULATIONS
ss. 552.14 Dissenter and Appraisal Rights
(a) Right to demand payment of fair or appraised value. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with ss.552.13 of this part shall have the
right to demand payment of the fair or appraised value of his stock: Provided,
That such stockholder has not voted in favor of the combination and complies
with the provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to ss.552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.
(c) Procedure - (1) Notice. Each constituent Federal stock association
shall notify all stockholders entitled to rights under this section, not less
than twenty days prior to the meeting at which the combination agreement is to
be submitted for stockholder approval, of the right to demand payment of
appraised value of shares, and shall include in such notice a copy of this
section. Such written notice shall be mailed to stockholders of record and may
be part of management's proxy solicitation for such meeting.
(2) Demand for appraisal and payment. Each stockholder
electing to make a demand under this section shall deliver to the
Federal stock association, before voting on the combination, a writing
identifying himself or herself and stating his or her intention thereby
to demand appraisal of and payment for his or her shares. Such demand
must be in addition to and separate from any proxy or vote against the
combination by the stockholder.
(3) Notification of effective date and written offer. Within
ten days after the effective date of the combination, the resulting
association shall:
(i) Give written notice by mail to stockholders of
constituent Federal stock associations who have complied with
the provisions of paragraph (c)(2) of this section and have
not voted in favor of the combination, of the effective date
of the combination;
(ii) Make a written offer to each stockholder to pay
for dissenting
D-1
<PAGE> 164
shares at a specified price deemed by the resulting
association to be the fair value thereof; and
(iii) Inform them that, within sixty days of such
date, the respective requirements of paragraphs (c)(5) and
(c)(6) of this section (set out in the notice) must be
satisfied.
The notice and offer shall be accompanied by a balance sheet and
statement of income of the association the shares of which the dissenting
stockholder holds, for a fiscal year ending not more than sixteen months before
the date of notice and offer, together with the latest available interim
financial statements.
(4) Acceptance of offer. If within sixty days of the effective
date of the combination the fair value is agreed upon between the
resulting association and any stockholder who has complied with the
provisions of paragraph (c)(2) of this section, payment therefor shall
be made within ninety days of the effective date of the combination.
(5) Petition to be filed if offer not accepted. If within
sixty days of the effective date of the combination the resulting
association and any stockholder who has complied with the provisions of
paragraph (c)(2) of this section do not agree as to the fair value,
then any such stockholder may file a petition with the Office, with a
copy by registered or certified mail to the resulting association,
demanding a determination of the fair market value of the stock of all
such stockholders. A stockholder entitled to file a petition under this
section who fails to file such petition within sixty days of the
effective date of the combination shall be deemed to have accepted the
terms offered under the combination.
(6) Stock certificates to be noted. Within sixty days of the
effective date of the combination, each stockholder demanding appraisal
and payment under this section shall submit to the transfer agent his
certificates of stock for notation thereon that an appraisal and
payment have been demanded with respect to such stock and that
appraisal proceedings are pending. Any stockholder who fails to submit
his or her stock certificates for such notation shall no longer be
entitled to appraisal rights under this section and shall be deemed to
have accepted the terms offered under the combination.
(7) Withdrawal of demand.. Notwithstanding the foregoing, at
any time within sixty days after the effective date of the combination,
any stockholder shall have the right to withdraw his or her demand for
appraisal and to accept the terms offered upon the combination.
(8) Valuation and payment. The Director shall, as he or she
may elect, either appoint one or more independent persons or direct
appropriate staff of the Office to appraise the shares to determine
their fair market value, as of the effective date of the combination,
exclusive of any element of value arising from the accomplishment or
expectation of the combination. Appropriate staff of the Office shall
review and provide
D-2
<PAGE> 165
an opinion on appraisals prepared by independent persons as to the
suitability of the appraisal methodology and the adequacy of the
analysis and supportive data. The Director after consideration of the
appraisal report and the advice of the appropriate staff shall, if he
or she concurs in the valuation of the shares, direct payment by the
resulting association of the appraised fair market value of the shares,
upon surrender of the certificates representing such stock. Payment
shall be made, together with interest from the effective date of the
combination, at a rate deemed equitable by the Director.
(9) Costs and expenses. The costs and expenses of any
proceeding under this section may be apportioned and assessed by the
Director as he or she may deem equitable against all or some of the
parties. In making this determination the Director shall consider
whether any party has acted arbitrarily, vexatiously, or not in good
faith in respect to the rights provided by this section.
(10) Voting and distribution. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any purpose nor
be entitled to the payment of dividends or other distributions on the
stock (except dividends or other distribution payable to, or a vote to
be taken by stockholders of record at a date which is on or prior to,
the effective date of the combination): Provided, That if any
stockholder becomes unentitled to appraisal and payment of appraised
value with respect to such stock and accepts or is deemed to have
accepted the terms offered upon the combination, such stockholder shall
thereupon be entitled to vote and receive the distributions described
above.
(11) Status. Shares of the resulting association into which
shares of the stockholders demanding appraisal rights would have been
converted or exchanged, had they assented to the combination, shall
have the status of authorized and unissued shares of the resulting
association.
D-3
<PAGE> 166
APPENDIX E
SOUTHSIDE BANCSHARES CORP.
Annual Report
December 31, 1997
(With Independent Auditors' Report Thereon)
E-1
<PAGE> 167
SOUTHSIDE BANCSHARES CORP.
Annual Report
December 31, 1997
(With Independent Auditors' Report Thereon)
E-2
<PAGE> 168
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 ............... 27
Independent Auditors' Report .................................................... 28
Consolidated Financial Statements of Southside Bancshares Corp. and Subsidiaries:
Balance Sheets ............................................................... 29
Statements of Income ......................................................... 30
Statements of Shareholders' Equity ........................................... 31
Statements of Cash Flows ..................................................... 32
Notes to Consolidated Financial Statements ................................... 33
Southside Bancshares Corp. and Subsidiaries - Directors and Officers:
Southside Bancshares Corp. ................................................... 47
South Side National Bank in St. Louis ........................................ 48
State Bank of Jefferson County ............................................... 49
Bank of Ste. Genevieve ....................................................... 49
The Bank of St. Charles County ............................................... 50
</TABLE>
E-3
<PAGE> 169
LETTER TO OUR SHAREHOLDERS
Southside Bancshares Corp. and Subsidiaries
Dear Shareholders:
This past year was marked by several significant milestones: the Company
achieved its fourth consecutive increase in core annual net earnings, which
also represent a new record level for the Company; the quarterly dividend was
increased each quarter during 1997; and, on February 25, 1998, the Company
entered into a definitive agreement that provides for the acquisition and
merger of Public Service Bank, fsb (PSB) with the Company's lead subsidiary
bank, South Side National Bank in St. Louis. This acquisition is expected to
be completed in the third quarter of 1998 and represents the Company's first
acquisition since 1990.
The Company earned $6,302,000 or $2.30 per common share in 1997, compared
to $6,158,000 or $2.27 per share in 1996, which represents an increase of
$144,000 or approximately 2% during 1997. This increase in net earnings was
largely attributable to an increase in net interest income. The 1997 earnings
resulted in a return on average assets (ROA) of 1.18% and a return on average
shareholders' equity (ROE) of 11.44%, compared to an ROA of 1.20% and an ROE of
12.27% in 1996. The slight decline in ROA during 1997 was largely the result
of growth at the Company's subsidiary banks, as average assets increased
$20,819,000 or 4%. Due to four straight years of strong earnings, the ROE also
declined slightly. Management and the Board of Directors has taken steps to
utilize this excess capital during the year, including the aforementioned
acquisition of PSB, increased dividends to shareholders, and the purchase of
treasury stock.
With the increase in the March 15, 1998 dividend to $.20 per common share,
the quarterly dividend has been raised a total of 25% over the past four
quarters, and over the past two years, the quarterly dividend rate doubled from
$.10 in March 1996 to its present level. We believe these increases in the
dividend level demonstrate our commitment to increasing shareholder
value and our confidence in the Company's ability to sustain current levels of
profitability.
We are very excited about the potential of the PSB acquisition. With the
acquisition we will acquire facilities in two markets, which the Company views
as a natural fit, one in St. Louis Hills in the City of St. Louis and the other
in West St. Louis County. PSB also has a very successful residential mortgage
loan origination business, which will give the Company an opportunity to enter
this highly competitive area with an experienced staff, a solid referral
network, and instant credibility with investors. Finally, the acquisition
gives PSB's employees and customers access to additional products and resources
not previously available to them, including commercial and construction loan
products, an ATM and debit card network, increased lending capacity, and
additional branch locations.
Total assets of the Company increased by approximately $22,000,000 or 4%
during 1997, and total assets have increased by approximately $37,000,000 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. 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.
Total nonperforming assets increased to $4,518,000, as of December 31,
1997, from $2,043,000, in 1996. This increase was primarily due to one
commercial borrowing relationship, which is currently undergoing a
reorganization through the bankruptcy courts. Even with the increase,
nonperforming assets represent only .82% of total assets, which is comparable
to our peers in the industry.
E-4
<PAGE> 170
LETTER TO OUR SHAREHOLDERS (CONT.)
Southside Bancshares Corp. and Subsidiaries
Much has been written about the year 2000 and its potential impact on the
business community. We began reviewing and testing our computer hardware,
computer software, and other affected areas during 1997. Based on the results
of the preliminary procedures, management does not believe year 2000 will pose
any major problems for the Company, nor should it result in any significant
expense or capital expenditures. We will continue to review and test our
systems during 1998 and 1999 to ensure that our entry into the new millennium
is without incident.
Looking ahead to 1998 and beyond, we are very excited about the potential
for the Company. As mergers and acquisitions change the face of the financial
institution landscape, it is our belief that strong independent organizations,
like ours, will thrive. We have the capabilities to provide products and
services comparable to larger institutions, we have the capital structure to
sustain continued growth, and we have a commitment to customer service that
should allow the Company to capitalize on our competitors weaknesses.
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,
/s/ Howard F. Etling /s/ Thomas M. Teschner
Howard F. Etling Thomas M. Teschner
Chairman of the Board President and Chief Executive Officer
E-5
<PAGE> 171
Dear Shareholders:
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 $549,864,000 at December 31, 1997.
The following table shows the total assets at December 31, 1997, 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, 1997
SUBSIDIARY BANKS (IN THOUSANDS)
-------------------------------------------- -----------------
<S> <C>
South Side National Bank in St. Louis (SSNB) $353,316
State Bank of Jefferson County (SBJC) 57,683
Bank of Ste. Genevieve (BSG) 84,805
The Bank of St. Charles County (BSCC) 54,120
</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, 1997, the combined market value of
fiduciary and custodial assets under management of the trust department was
approximately $307,000,000. 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 132 full-time and 16 part-time
employees. State Bank of Jefferson County, Bank of Ste. Genevieve, and The
Bank of St. Charles County are Missouri state-chartered banks and employ a
total of 79 full-time and 9 part-time employees.
E-6
<PAGE> 172
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
1997 97/96 1996 96/95 1995 95/94
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Total interest income $39,355 4% $37,868 2% $37,263 8%
Total interest expense 18,243 4 17,526 1 17,335 18
Net interest income 21,112 4 20,342 2 19,928 2
Provision for possible loan losses 60 - 60 (14) 70 (64)
Net interest income after
provision for possible loan losses 21,052 4 20,282 2 19,858 2
Net income 6,302 2 6,158 (9) 6,734 34
- -----------------------------------------------------------------------------------------------------------------------------------
SHARE DATA
Earnings per common share:
Basic $2.30 1% $2.27 (11)% $2.55 32%
Diluted 2.25 (1) 2.26 (11) 2.54 34
Dividends paid per common share .70 40 .50 37 .365 103
Book value 20.90 8 19.30 9 17.64 20
Tangible book value 20.81 8 19.18 10 17.49 21
Shares outstanding (year-end)(1) 2,797,670 (1) 2,836,670 - 2,849,650 10
Average shares outstanding 2,735,859 1 2,712,775 3 2,643,890 2
Average shares outstanding,
including potentially
dilutive shares 2,798,105 3 2,730,214 3 2,650,551 2
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets $549,864 4% $527,907 3% $ 512,908 (1)%
Total deposits 483,363 3 467,276 2 457,567 (2)
Total loans 326,437 11 294,463 (3) 303,824 1
Allowance for possible loan losses 6,120 9 5,602 (1) 5,635 (21)
Short-term borrowings 5,333 229 1,623 108 779 (77)
ESOP debt - (100) 1,779 (40) 2,987 100
Subordinated capital notes - - - - (100)
Total shareholders' equity 56,653 7 52,841 12 47,300 24
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
As of and For the Years Ended December 31,
------------------------------------------
%
Change
1994 94/93 1993
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS
Total interest income $34,383 (5)% $ 36,052
Total interest expense 14,753 (8) 16,059
Net interest income 19,630 (2) 19,993
Provision for possible loan losses 193 (93) 2,608
Net interest income after
provision for possible loan losses 19,437 12 17,385
Net income 5,014 65 3,041
- ------------------------------------------------------------------------------
SHARE DATA
Earnings per common share:
Basic $1.93 65% $ 1.17
Diluted 1.93 62 1.17
Dividends paid per common share .18 9 .165
Book value 14.66 5 13.93
Tangible book value 14.43 6 13.66
Shares outstanding (year-end)(1) 2,591,440 - 2,591,440
Average shares outstanding 2,591,440 - 2,591,440
Average shares outstanding,
including potentially
dilutive shares 2,600,022 - 2,591,440
- ------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets $517,118 (3)% $ 530,649
Total deposits 468,093 (3) 484,308
Total loans 301,397 (2) 308,231
Allowance for possible loan losses 7,144 (14) 8,334
Short-term borrowings 3,378 (8) 3,678
ESOP debt - - -
Subordinated capital notes 4,190 - 4,190
Total shareholders' equity 38,002 5 36,102
- ------------------------------------------------------------------------------
</TABLE>
SELECTED RATIOS
<TABLE>
<CAPTION>
As of and For the Years Ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loan-to-deposit ratio 67.53% 63.02% 66.40% 64.39% 63.64%
Allowance for possible loan losses to total loans 1.87 1.90 1.85 2.37 2.70
Dividend payout ratio (2) 30.43 22.03 14.31 9.33 14.10
Return on average assets 1.18 1.20 1.33 .97 .57
Return on average shareholders' equity 11.44 12.27 15.47 13.48 8.86
Average shareholders' equity to average total assets 10.28 9.75 8.62 7.19 6.48
Net interest margin on average interest-earning assets 4.34 4.42 4.41 4.27 4.30
Allowance for possible loan losses to nonperforming loans 175.16 473.54 172.11 136.13 62.95
Allowance for possible loan losses as a multiple of net charge-offs N/A (3) 60.2x 4.5x 5.2x 2.0x
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Shares outstanding at December 31, 1997 and 1996 include 86,478 and
98,832 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 basic earnings per common
share.
(3) The ratio was not applicable in 1997 as recoveries exceeded charge-offs
for the year.
E-7
<PAGE> 173
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, 1997 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 $21,957,000 to
$549,864,000 at December 31, 1997 when compared to $527,907,000 at December 31,
1996. 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, profitable growth at
each of the subsidiary banks and, as a result, total assets have increased
$36,956,000 over the past two years.
LOAN PORTFOLIO
The Company's loan portfolio consists of business loans to small and
medium size companies, commercial, construction and residential real estate
loans, and consumer loans. Traditionally, the majority of the loan portfolio
has focused on real estate as an integral component of a credit's underlying
source of collateral. Management expects real estate to continue to be a major
factor in future loan relationships, but recognizes that continued competitive
pressure from the secondary market for traditional residential loans will
result in further diversification in the portfolio.
The table below sets forth the components of the Company's loan portfolio
for each of the last five years:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995 1994 1993
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural $ 69,168 $ 62,016 $ 62,214 $ 69,219 $ 73,566
Real estate - commercial 98,759 82,045 88,321 82,807 86,258
Real estate - construction 30,836 26,067 15,510 11,019 9,540
Real estate - residential 92,028 96,039 102,418 108,134 110,806
Consumer 23,627 17,304 17,626 18,334 18,849
Industrial revenue bonds 5,517 6,373 7,789 9,311 8,544
Other 6,502 4,619 9,946 2,573 668
-------- -------- -------- -------- --------
$326,437 $294,463 $303,824 $301,397 $308,231
======== ======== ======== ======== ========
</TABLE>
E-8
<PAGE> 174
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
Total loans increased $31,974,000 during 1997, as the Company experienced
growth in all lending categories, with the exception of residential real estate
loans and industrial revenue bonds. St. Louis and the surrounding communities
continue to remain a very competitive lending environment; however, recent
acquisitions and mergers by other institutions have created opportunities to
compete for lending relationships with customers who feel displaced or
uncomfortable with their recently merged or acquired lender. With the
continued economic stability in the Company's market areas, management decided
that 1997 was an appropriate time to take a more aggressive approach toward
obtaining new lending relationships. While pursuing a slightly more aggressive
approach, management continues to remain committed to maintaining acceptable
asset quality levels and a solid net interest margin.
Total loans decreased by $9,361,000 during 1996 due to an intensely
competitive lending environment. Unlike 1997, management believed that 1996
was not the appropriate time to begin a more aggressive lending approach.
Consequently, some of the Company's more aggressive competitors were able to
take advantage of the situation, and offered more attractive financing packages
than the Company.
Following is a more detailed analysis of the changes in the individual
loan categories during 1997.
- Commercial, financial, and agricultural loans increased $7,152,000
during 1997, after having remained relatively stable during 1996. The
1997 increase can be largely attributed to two credit relationships
with customers in the broadcasting industry. This was an entry into a
new lending area for the Company; however, given the merger and
consolidation activity which is currently taking place in the radio and
television industry, it is unlikely that this is an area which will
provide an opportunity for significant continued growth.
- Commercial and construction real estate loans increased $16,714,000
and $4,769,000, respectively, during 1997, while residential real
estate loans declined by $4,011,000 during the year. The increase in
commercial real estate loans was due, in part, to a strong economic
environment which has encouraged businesses to expand operations and
invest in real property. Also contributing to the loan growth was
consolidation among some of the Company's competitors for commercial
and construction real estate loans. The Company's legal lending
capacity allows it to fulfill the financial needs of medium-sized
commercial customers who are too large for smaller independent
financial institutions. The increase in construction loans relates to
the aforementioned consolidation within the banking industry; however,
this lending category has also benefited from new home sales remaining
strong throughout 1997. Residential real estate loans declined for the
fifth straight year. In the current interest rate environment, the
majority of residential loan activity is being placed with the
secondary market mortgage lenders.
- Consumer loans increased by $6,323,000 during 1997, which reversed
a trend of four straight years in which the balance of this category
had declined. During the fourth quarter of 1996, the Company began to
renew its focus on automobile financing. The majority of the growth
occurred after the Company began utilizing the services of a direct
marketing firm. The firm identifies recent purchasers of new and used
vehicles, and the Company's subsidiary banks solicit refinancing of the
vehicles in their individual market territories, which proved very
successful during 1997.
- 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, as tax law changes in the late 1980s made it more difficult and
less advantageous to pursue this form of financing.
E-9
<PAGE> 175
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
ALLOWANCE FOR POSSIBLE 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 possible loan losses, which is designed to provide for the
risk of loss inherent in the lending process, is increased by the provision for
possible loan losses charged to expense and decreased by the amount of loans
charged off, net of recoveries. The allowance for possible 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,
----------------------------------------------------------
1997 1996 1995 1994 1993
------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $5,602 $5,635 $7,144 $8,334 $9,994
Provision charged to expense 60 60 70 193 2,608
Adjustment due to sale of
Bay-Hermann-Berger Bank - - (327) - -
Loans charged off (367) (1,219) (2,174) (2,318) (5,499)
Recoveries 825 1,126 922 935 1,231
------ ------- ------- ------- --------
Net recoveries (charge-offs) 458 (93) (1,252) (1,383) (4,268)
------ ------- ------- ------- --------
BALANCE AT END OF YEAR $6,120 $5,602 $5,635 $7,144 $8,334
====== ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
RATIOS:
Allowance for possible loan losses:
As % of total loans 1.87% 1.90% 1.85% 2.37% 2.70%
As % of nonperforming loans 175.16 473.54 172.11 136.13 62.95
As multiple of net charge-offs * 60.2x 4.5x 5.2x 2.0x
Net charge-offs:
As % of total loans at year-end * .03% .41% .46% 1.38%
As % of average total loans * .03 .42 .47 1.29
As % of allowance for possible
loan losses at year-end * 1.66 22.22 19.36 51.21
</TABLE>
* Ratios are not applicable for 1997, as recoveries exceeded charge-offs
for the year.
E-10
<PAGE> 176
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
The allowance for possible loan losses at December 31, 1997 was $6,120,000
or 1.87% of the total loans outstanding compared to $5,602,000 or 1.90% in 1996
and $5,635,000 or 1.85% in 1995. The $518,000 increase in the allowance for
possible loan losses reflects recoveries of loans previously charged-off
exceeding loan charge-offs for the year, as the provision for possible loan
losses remained at $60,000. The ratio of the allowance for possible loan
losses as a percentage of total loans declined slightly because loan growth
outpaced the increase in the allowance for possible loan losses.
As indicated above, the Company experienced net recoveries during 1997 of
$458,000, after having posted net charge-offs of $93,000 and $1,252,000 in 1996
and 1995, respectively. This represents the first time in the 15-year history
of the Company that net recoveries were achieved for an entire fiscal year,
and, as a result, management of the Company was able to maintain a relatively
low provision for possible loan losses. The provision for possible loan losses
charged to expense was $60,000, $60,000, and $70,000 in 1997, 1996, and 1995,
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,
-------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $2,977 $1,037 $1,811 $2,829 $8,038
Past due 90 days and still accruing interest 517 146 1,463 2,419 5,187
Loans not included above which are
"troubled debt restructurings" as
defined in SFAS 15 - - - - 15
------ -------- ------- ------- -------
TOTAL NONPERFORMING LOANS 3,494 1,183 3,274 5,248 13,240
Other real estate owned 1,024 860 554 1,833 4,316
------ -------- ------- ------- -------
TOTAL NONPERFORMING ASSETS $4,518 $2,043 $3,828 $7,081 $17,556
====== ======== ======= ======= =======
RATIOS:
Nonperforming loans as % of
total loans 1.07% 0.40% 1.08% 1.74% 4.30%
Nonperforming assets as % of
total loans and other real
estate owned 1.38 0.69 1.26 2.34 5.62
Nonperforming assets as % of
total assets 0.82 0.39 0.75 1.37 3.31
Allowance for possible loan losses
as % of nonperforming loans 175.16 473.54 172.11 136.13 62.95
</TABLE>
E-11
<PAGE> 177
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
Nonperforming loans totaled $3,494,000 or 1.07% of the loan portfolio at
December 31, 1997 compared to $1,183,000 or .40% of the loan portfolio at
December 31, 1996. Nonperforming assets totaled $4,518,000 or 0.82% of total
assets at December 31, 1997 compared to $2,043,000 or .39% of total assets at
December 31, 1996. The increase in both nonperforming loans and nonperforming
assets was primarily the result of a $2.5 million commercial lending
relationship which was placed on nonaccrual status during the year. The
borrower is currently in bankruptcy and has a reorganization plan pending
before the court. The Company is receiving payments on the debt as part of the
bankruptcy court proceedings, and management believes this borrower will
ultimately fulfill its financial obligations to the Company. However, in the
event foreclosure becomes necessary, management believes adequate reserves have
been allocated to this credit.
Current standards require 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.
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, 1997, 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 $113,000 and $27,000 for the years ended December 31,
1997 and 1996, respectively. If the contractual interest on these loans had
been recognized, such income would have been $232,000 and $133,000,
respectively. There were no restructured loans at December 31, 1997 or 1996.
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. 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. Debt
securities included in the held to maturity category are stated at cost,
adjusted for 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 carrying value of the Company's investment portfolio decreased by
$14,155,000 during 1997 as funds from maturing investments were used to fund
the increase in loan volume. The Company's loan-to-deposit ratios throughout
1997 remained below 70%. Accordingly, management believes that utilizing
maturing investment securities to fund loan growth is a more effective means of
increasing net income, as compared to aggressively
E-12
<PAGE> 178
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
pursuing time deposits to fund loan growth. This strategy was particularly
effective during 1997 because of the intense deposit rate competition within
the subsidiary banks' markets and the relatively low yield available on
investment securities.
The carrying value of the Company's investment portfolio increased by
$27,520,000 in 1996, largely because of a decrease in loan demand 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, 1997, 1996, and
1995 are shown below:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
------------------------- -------------------------- -------------------------
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 $ 26,899 $ 27,058 $ 18,861 $ 18,845 $ 7,569 $ 7,609
Obligations of states and
political subdivisions 300 304 445 451 530 543
Other securities 1,575 1,575 1,279 1,279 1,260 1,262
--------- --------- --------- --------- --------- ---------
28,774 28,937 20,585 20,575 9,359 9,414
Mortgage-backed securities 44,483 44,523 46,444 46,075 40,981 40,738
--------- --------- --------- --------- --------- ---------
$ 73,257 $ 73,460 $ 67,029 $ 66,650 $ 50,340 $ 50,152
========= ========= ========= ========= ========= =========
HELD TO MATURITY:
U.S. Treasury securities
and obligations of U.S.
Government agencies
and corporations $ 72,065 $ 72,348 $ 92,469 $ 92,396 $ 83,086 $ 82,939
Obligations of states and
political subdivisions 23,544 24,316 21,709 22,461 21,875 22,822
Other securities - - 300 300 471 471
--------- --------- --------- --------- --------- ---------
95,609 96,664 114,478 115,157 105,432 106,232
Mortgage-backed securities 4,070 4,174 6,166 6,220 4,190 4,262
--------- --------- --------- --------- --------- ---------
$ 99,679 $ 100,838 $ 120,644 $ 121,377 $ 109,622 $ 110,494
========= ========= ========= ========= ========= =========
</TABLE>
The Company has designated certain debt securities with a market value of
approximately $73,460,000 and $66,650,000 as available for sale at December 31,
1997 and 1996, respectively, with the differences of $203,000 and $379,000,
respectively, between the market value and amortized cost of such securities
being recorded in a valuation reserve. Debt securities with an amortized cost
of $99,679,000 and $120,644,000 at December 31, 1997 and 1996, respectively,
remain as held to maturity securities, to be used for the Company's longer-term
liquidity needs. The held to maturity securities at December 31, 1997 and 1996
reflected market values of $100,838,000 and $121,377,000, respectively, which
represent net unrealized gains of $1,159,000 and $733,000 in 1997 and 1996,
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.
E-13
<PAGE> 179
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
The market value of the Company's portfolio in relationship to the
amortized cost of the portfolio remained relatively stable during 1997 and 1996
after having improved significantly during 1995.
There were no sales of securities during 1997, 1996, and 1995.
At December 31, 1997, 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 $16,087,000 and $9,709,000
in 1997 and 1996, respectively.
The increase in deposits during 1997 was due to a combined increase in
interest-bearing and noninterest-bearing demand deposits of $13,965,000 and
time deposits $100,000 and over of $3,882,000, which was partially offset by a
$488,000 decline in savings deposits and a $1,272,000 decline in time deposits
under $100,000. The increase in noninterest-bearing demand deposits was the
result of normal activity within this category. The increase in
interest-bearing demand deposit accounts was largely due to an increase in
money market deposits. In recent years, commercial and retail customers have
become increasingly more sophisticated in managing their cash positions and
more sensitive to the rate of interest being earned. During much of 1997,
there was very little spread between the rates paid on a preferred money market
account, which is tied to the 90-day U.S. Treasury bill rate, and the rates
being offered on longer term certificates of deposit. Consequently, many
depositors opted for the increased flexibility of the money market account over
the small increase in yield offered by the certificates of deposit. This also
explains the decline in certificates of deposit under $100,000. Time deposits
$100,000 and over continue to increase, although the Company has not actively
pursued these deposits. Much of the growth in the current year can be directly
attributed to the mergers and consolidations within the industry. Many of the
city, county, and local government offices in the Company's markets prefer to
conduct business with banks headquartered in their area. Oftentimes, these
relationships are rather large relationships, which exceed $100,000.
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 during 1996, with the majority of this growth
attributable to deposit migration from noninterest-bearing demand and savings
deposits. Time deposits $100,000 and over increased $12,929,000 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. 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.
E-14
<PAGE> 180
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
The following table shows the breakdown of deposits at December 31, 1997,
1996, and 1995:
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996 1995
------------------ ------------------------ ------------------
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 $ 61,308 12% $ 58,046 12% $ 60,999 13%
Interest-bearing demand deposits 139,177 29 128,474 28 123,624 27
Savings deposits 56,627 12 57,115 12 60,134 13
Time deposits under $100,000 172,830 36 174,102 37 176,200 39
-------- ---- -------- --- -------- ----
Total core deposits 429,942 89 417,737 89 420,957 92
Time deposits $100,000 and
over 53,421 11 49,539 11 36,610 8
-------- ---- -------- --- -------- ----
Total deposits $483,363 100% $467,276 100% $457,567 100%
======== ==== ======== === ======== ====
</TABLE>
The following table shows the amount of time deposits $100,000 and over by
time remaining until maturity at December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Three months or less $24,733 $12,899 $17,039
Over three through six months 12,494 19,850 9,723
Over six through twelve months 11,328 11,904 4,016
Over twelve months 4,866 4,886 5,832
------- -------- -------
$53,421 $49,539 $36,610
======= ======== =======
</TABLE>
The following table reflects the average daily balances, by category, at
December 31, 1997, 1996, and 1995, and their weighted average interest rates
for the respective years:
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996 1995
----------------- ------------------------ -----------------
AVERAGE AVERAGE Average Average Average Average
BALANCE RATE Balance Rate Balance Rate
-------- ------- ----------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits $ 55,323 - % $ 54,965 - % $59,162 - %
Interest-bearing demand deposits 130,046 3.34 123,924 3.33 120,098 3.41
Savings deposits 58,029 2.51 60,332 2.53 64,381 2.62
Time deposits under $100,000 173,382 5.37 175,239 5.40 176,943 5.36
Time deposits $100,000 and over 52,601 5.32 41,456 5.18 29,270 5.40
-------- ===== ----------- ==== -------- =====
$469,381 $455,916 $449,854
======== =========== ========
</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
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
E-15
<PAGE> 181
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
Management Committee, these funds are used on a short-term basis. Securities
sold under agreements to repurchase (REPO) increased during 1997 and 1996
because of the introduction of a daily REPO Sweep account. This cash
management product allows commercial customers to more effectively invest their
operating capital.
The following table is a summary of short-term borrowings at December 31,
1997, 1996, and 1995:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
------ ------- ----
<S> <C> <C> <C>
Securities sold under agreements
to repurchase $5,333 $1,623 $307
U.S. Treasury tax and loan notes - - 472
------ ------- ----
$5,333 $1,623 $779
====== ======= ====
</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)
1997 1996 1995
-------------------- ------------------------ ----------------
AVERAGE AVERAGE Average Average Average Average
BALANCE RATE Balance Rate Balance Rate
-------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased $ 42 5.41% $ 188 5.85% $399 5.76%
Securities sold under
agreements to
repurchase 5,053 4.47 893 4.37 747 4.82
U.S. Treasury tax and loan
notes - - 703 5.97 1,333 5.40
Other short-term borrowings - - - - 479 8.77
-------- ======= ------- ===== ------- ====
$ 5,095 $ 1,784 $2,958
======== ======= =======
Total maximum short-term
borrowings outstanding
at any month-end during
the year $ 10,693 $ 3,308 $8,161
======== ======= =======
Average short-term borrowings
rate at end of year 4.40% 4.85% 6.70%
===== ===== ====
</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.
E-16
<PAGE> 182
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 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, 1997 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. Current model projections indicate annual net
interest income would change by less than 10% should rates rise or fall within
200 basis points from their current level. 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 1.08x is within an acceptable range.
E-17
<PAGE> 183
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
REPRICING AND INTEREST RATE SENSITIVITY ANALYSIS
(dollars in thousands)
December 31, 1997
<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 $ 17,200 $ - $ - $ - $ 17,200
Investments available for sale 19,928 9,247 37,615 6,670 73,460
Investments held to maturity 6,763 18,858 55,736 18,322 99,679
Loans, net of unearned discount (1) 175,586 53,668 78,623 18,560 326,437
-------- --------- --------- ------- --------
Total interest-earning
assets 219,477 81,773 171,974 43,552 516,776
-------- --------- --------- ------- --------
Cumulative interest-earning assets 219,477 301,250 473,224 516,776 516,776
-------- --------- --------- ------- --------
Interest-bearing liabilities:
Interest-bearing demand deposits 48,712 27,835 34,795 27,835 139,177
Savings deposits 19,819 11,325 14,158 11,325 56,627
Time deposits under $100,000 44,472 70,513 57,845 - 172,830
Time deposits $100,000 and over 26,034 23,821 3,566 - 53,421
Short-term borrowings 5,333 - - - 5,333
-------- --------- --------- ------- --------
Total interest-bearing
liabilities 144,370 133,494 110,364 39,160 427,388
-------- --------- --------- ------- --------
Cumulative interest-bearing
liabilities 144,370 277,864 388,228 427,388 427,388
-------- --------- --------- ------- --------
Gap analysis:
Interest sensitivity gap $ 75,107 $ (51,721) $ 61,610 $ 4,392 $ 89,388
======== ========= ========= ======= ========
Cumulative interest
sensitivity gap $ 75,107 $ 23,386 $ 84,996 $89,388 $ 89,388
======== ========= ========= ======= ========
Cumulative gap ratio of interest-
earning assets to interest-bearing
liabilities 1.52x 1.08x 1.22x 1.21x 1.21x
======== ========= ========= ======= ========
</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.
E-18
<PAGE> 184
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
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.
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.
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 risk-based capital guidelines, adopted
in 1990, 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.
E-19
<PAGE> 185
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
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, 1997 and 1996 were 17.38% and 17.88%, respectively, which included Tier I
capital ratios of 16.12% and 16.62%, respectively. In addition, the Company
and its subsidiary banks must maintain a minimum Tier I leverage ratio (Tier I
capital to adjusted total assets) of at least 3%. The Company's Tier I
leverage ratios were 10.34% and 10.12% at December 31, 1997 and 1996,
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, 1997, 1996, and 1995.
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, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996 1995
------- ----------- -----------
<S> <C> <C> <C>
RISK-BASED CAPITAL:
Tier I capital $56,279 $52,778 $47,030
Total capital 60,664 56,767 50,986
Risk-weighted assets 349,079 317,494 314,770
RISK-BASED CAPITAL RATIOS:
Tier I capital to risk-weighted assets 16.12% 16.62% 14.94%
Minimum requirement 4.00 4.00 4.00
Total capital to risk-weighted assets 17.38 17.88 16.20
Minimum requirement 8.00 8.00 8.00
======= ======== ========
- -------------------------------------------------------------------------------
TIER I CAPITAL:
Tier I capital $56,279 $52,778 $47,030
Average fourth quarter total
consolidated assets less
intangibles 544,380 521,523 507,108
LEVERAGE CAPITAL RATIOS:
Tier I capital to average total
consolidated assets less
intangibles 10.34% 10.12% 9.27%
Minimum requirement 3.00 3.00 3.00
======= ======= =======
</TABLE>
E-20
<PAGE> 186
RESULTS OF OPERATIONS
Southside Bancshares Corp. and Subsidiaries
RESULTS OF OPERATIONS
EARNINGS SUMMARY
The consolidated net income of the Company was $6,302,000, $6,158,000, and
$6,734,000 for the years ended December 31, 1997, 1996, and 1995, respectively,
which resulted in basic earnings per common share of $2.30, $2.27, and $2.55 in
each of those years. The results for 1997 represent the fourth consecutive
year in which the Company has achieved record core net earnings, as 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 in 1995. The increases in core net earnings were
$144,000, $794,000, $350,000 in 1997, 1996, and 1995, respectively. The net
income in 1997 results in a return on average assets (ROA) of 1.18%, compared
to 1.20% and 1.33% in 1996 and 1995, respectively. The slight decline in ROA
in 1997 was largely the result of growth at the Company's subsidiary banks, as
average assets increased $20,819,000 or 4.0%. In addition, the return on
average shareholders' equity (ROE) in 1997 was 11.44%, compared to 12.27% and
15.47% in 1996 and 1995, 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 the Company's subsidiary,
Bay-Hermann-Berger Bank.
NET INTEREST INCOME
Net interest income on a tax-equivalent basis increased by $529,000,
$584,000, and $298,000 in 1997, 1996, and 1995, respectively. The 1997
increase was the result of an increase in average earning assets, which was
partially offset by a narrowing net interest margin. Average earning assets
increased $20,281,000 or 4% during 1997, with the majority of the growth in the
loan portfolio. However, rate competition in the Company's markets caused the
average yield on the loan portfolio to decline by 21 basis points from 9.19% in
1996 to 8.98% in 1997. This decrease in yield was the primary cause for the
drop in the net interest margin from 4.42% in 1996 to 4.34% in 1997, as the
Company's cost of funds remained relatively unchanged for the year at 4.3%.
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.
E-21
<PAGE> 187
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,
---------------------------
1997
---------------------------
AVERAGE
INTEREST RATES
AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID
-------- ------- --------
<S> <C> <C> <C>
ASSETS:
Loans, net of unearned discount (1) (2) (3) $311,266 $27,937 8.98%
Investments in debt securities:
Taxable (4) 155,938 9,478 6.08
Exempt from Federal income taxes (3) (4) 23,124 1,953 8.45
Short-term investments 16,103 871 5.41
-------- --------
Total interest-earning assets/
interest income/overall yield (3) 506,431 40,239 7.95
-------- ====
Allowance for loan losses (6,061)
Cash and due from banks 14,817
Other assets 20,622
--------
TOTAL ASSETS $535,809
========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing demand deposits $130,046 4,346 3.34
Savings deposits 58,029 1,459 2.51
Time deposits under $100,000 173,382 9,309 5.37
Time deposits $100,000 and over 52,601 2,796 5.32
Short-term borrowings 5,095 228 4.47
ESOP debt 1,235 105 8.50
Subordinated capital notes - - -
-------- --------
Total interest-bearing liabilities/
interest expense/overall rate 420,388 18,243 4.34
-------- =====
Noninterest-bearing demand deposits 55,323
Other liabilities 5,022
Shareholders' equity 55,076
--------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $535,809
========
NET INTEREST INCOME $21,996
========
NET INTEREST MARGIN ON AVERAGE INTEREST-EARNING ASSETS 4.34%
====
</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.
E-22
<PAGE> 188
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
<TABLE>
<CAPTION>
(dollars in thousands)
Years ended December 31,
----------------------------------------------------------------------
1996 1995
------------------------------------ -------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
------------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C>
$295,683 $ 27,164 9.19% $297,480 $27,331 9.19%
148,780 8,917 5.99 140,073 8,175 5.84
22,943 1,918 8.36 22,273 1,924 8.64
18,744 994 5.30 13,708 788 5.75
-------- -------- -------- -------
486,150 38,993 8.02 473,534 38,218 8.07
-------- ==== ------- ====
(5,646) (6,175)
15,317 17,356
19,169 20,015
-------- --------
$514,990 $504,730
======== ========
$123,924 4,125 3.33% $120,098 4,095 3.41%
60,332 1,529 2.53 64,381 1,685 2.62
175,239 9,462 5.40 176,943 9,491 5.36
41,456 2,148 5.18 29,270 1,582 5.40
1,784 92 5.16 2,958 173 5.85
2,060 170 8.25 2,160 190 8.80
- - - 1,233 119 9.65
-------- -------- ------- -------
404,795 17,526 4.33 397,043 17,335 4.37
-------- ==== ------- ====
54,965 59,162
5,038 4,997
50,192 43,528
-------- --------
$514,990 $504,730
======== ========
$ 21,467 $20,883
======== =======
4.42% 4.41%
==== ====
</TABLE>
E-23
<PAGE> 189
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,
------------------------------------------------------------------------------
1997 COMPARED TO 1996 1996 Compared to 1995
------------------------------------------ ----------------------------------
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 $ 773 $ 1,405 $(632) $(167) $(167) $ -
Investment securities:
Taxable 561 427 134 742 525 217
Exempt from Federal income
taxes 35 15 20 (6) 57 (63)
Short-term investments (123) (143) 20 206 272 (66)
-------- ------- ----- ----- ----- ------
TOTAL INTEREST INCOME 1,246 1,704 (458) 775 687 88
-------- ------- ----- ------ ----- ------
Changes in interest expense on:
Interest-bearing demand
deposits 221 208 13 30 128 (98)
Savings deposits (70) (58) (12) (156) (101) (55)
Time deposits under $100,000 (153) (100) (53) (29) (96) 67
Time deposits $100,000
and over 648 589 59 566 633 (67)
Short-term borrowings 136 150 (14) (81) (62) (19)
ESOP debt (65) (70) 5 (20) (9) (11)
Subordinated capital notes - - - (119) (119) -
-------- ------- ----- ----- ----- ------
TOTAL INTEREST EXPENSE 717 719 (2) 191 374 (183)
-------- ------- ----- ------ ----- ------
CHANGE IN NET INTEREST INCOME $ 529 $ 985 $(456) $584 $313 $ 271
======== ======= ===== ====== ===== ======
</TABLE>
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was again relatively low in 1997,
largely due to the fact that the Company experienced $458,000 in net recoveries
during the year. The provision for possible loan losses was $60,000 in 1997
and 1996 compared to $70,000 in 1995.
NONINTEREST INCOME
Noninterest income increased $127,000 in 1997 due to increases in trust
department and service charge revenue, which were partially offset by net
losses on the disposition of other real estate owned (OREO). The $128,000
increase in trust revenue was the result of a strong stock market and growth
resulting from recent acquisitions and mergers in the industry. Because the
majority of trust fees are based on the market value of the individual
accounts, a strong stock market translates into increased revenue for the
department. Merger activity in the Company's market has left some small to
mid-sized trust customers feeling unappreciated by their trust company's new
owners, as a result, many of the individuals have sought out smaller more
personalized trust departments, like the Company's. Trust department growth
was approximately $30,000,000 or 10% during 1997.
E-24
<PAGE> 190
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
The increase in service charge revenue was attributable to a continuing
focus on this area. Because the Company has historically trailed its peers in
this category, the focus has been on reversing that trend. The increase in net
losses in OREO transactions is part of the normal course of business.
Depending on the timing of foreclosures, buyer interest levels and other
factors, sales of properties result in small gains or losses. Management
believes the valuation of OREO is based on the fair market value of the
underlying property.
Noninterest income decreased by $2,083,000 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 Bank, 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.
NONINTEREST EXPENSE
Noninterest expense increased $622,000 during 1997 as a result of small
increases in employee costs and net occupancy and equipment expense and a
$530,000 increase in other expenses. The primary components of other expense
resulting in the increase over the prior year were other real estate owned
expense, amortization of investments in low-income housing projects and
advertising expense. The increase in other real estate owned expense relates
to a 61 unit mobile home park which the Company's lead bank acquired through
foreclosure. The units were renovated during 1997 and occupancy was at
approximately 50% at year end. Once the project is near full capacity it will
be self sufficient, until that time it will continue to generate losses. The
amortization of investments in low-income projects relate to the aforementioned
mobile home park, as well as, investments in four partnerships with the St.
Louis Equity Fund. The amortization of these investments is more than offset
by the federal and state tax credits generated by the projects and assist the
Company in reducing its effective tax rate. Late in 1996, the Company began to
increase its marketing efforts including expanded radio and media advertising.
With the mergers and consolidations occurring in the Company's markets,
management believes it is the appropriate time to focus on image enhancement
and customer awareness.
Total noninterest expense declined by $702,000 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 $147,000. 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.
INCOME TAXES
Federal income tax expense was $2,308,000 in 1997 compared to $2,177,000
in 1996 and $2,558,000 in 1995. The changes in Federal income tax expense have
been relatively consistent with the changes in pretax income,
E-25
<PAGE> 191
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
although the Company's effective tax rate increased to 26.8% in 1997 from 26.1%
in 1996 and 27.5% in 1995. The increase in 1997 in the effective tax rate was
the result of a decrease in tax-exempt loan income.
ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, Disclosures about Segments of an Enterprise on Related Information
(SFAS 131). SFAS 131 establishes standards for the way public business
enterprises report information about operating segments in annual financial
statements and requires those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
Additionally, SFAS 131 establishes standards for related disclosures about
products and services, geographic areas, and major customers superseding SFAS
No. 14, Financial Reporting for Segments of a Business Enterprise. The Company
does not believe expanded disclosure information will be required to be
included in its consolidated financial statements beginning in 1998.
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 15 to the Company's consolidated financial
statements, the fair value of financial instrument assets exceeded the balance
sheet amounts of those instruments by $6,663,000 and $6,854,000 as of December
31, 1997 and 1996, respectively, while the fair value of financial instrument
liabilities was less than the amounts included in the balance sheet by $508,000
and $704,000 as of December 31, 1997 and 1996, respectively.
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, 1997 and do not reflect amounts which would be
ultimately realized in the normal course of business.
E-26
<PAGE> 192
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
YEAR 2000 COMPLIANCE
The Company began reviewing and testing its computer hardware, computer
software, and other affected areas during 1997 for their compliance with the
year 2000 considerations. Based on the results of the preliminary procedures,
management does not believe year 2000 will pose any major problems for the
Company, nor should it result in any significant expense or capital
expenditures. The Company will continue to review and test its systems during
1998 and 1999 to ensure that its entry into the new millennium is without
incident.
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>
1997 1996
------------------------------- -------------------------------
QUARTER 1ST 2ND 3RD 4TH 1st 2nd 3rd 4th
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Low bid $22.75 $21.50 $33.50 $33.25 $19.00 $19.00 $20.25 $20.50
High bid 25.00 37.00 40.50 35.50 21.00 20.00 20.50 22.75
Dividends paid
per common
share .16 .17 .18 .19 .10 .12 .13 .15
====== ====== ===== ====== ====== ====== ===== ======
</TABLE>
The market price of the Company's common stock on February 25, 1998 was
$35.25 bid, $36.00 asked. The approximate number of shareholders of the common
stock of the Company as of February 25, 1998 was 700.
FINANCIAL REPORT
A copy of the Company's 1997 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 23, 1998 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.
E-27
<PAGE> 193
COMMON STOCK - MARKET PRICE AND DIVIDENDS (CONT.)
Southside Bancshares Corp. and Subsidiaries
TRANSFER AGENT AND STOCK LISTING
The Company's transfer agent is UMB Bank, N.A., Securities Transfer
Division, P.O. Box 410064, Kansas City, Missouri 64141-0064, (816) 860-7786.
The stock is traded on the NASDAQ SmallCap Market under the symbol SBCO.
E-28
<PAGE> 194
SOUTHSIDE BANCSHARES CORP.
3606 Gravois Avenue
St. Louis, MO 63116
(314) 776-7000
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
February 25, 1998
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.
/s/ Thomas M. Teschner /s/ Joseph W. Pope
Thomas M. Teschner Joseph W. Pope
President and Chief Executive Officer Senior Vice President and
Chief Financial Officer
E-29
<PAGE> 195
[KPMG PEAT MARWICK LLP LETTERHEAD]
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
St. Louis, Missouri
February 25, 1998
E-30
<PAGE> 196
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1997 1996
-------- -------
<S> <C> <C>
Cash and due from banks ............................................. $ 18,302 $ 17,156
Short-term investments .............................................. 17,200 13,500
Investments in debt securities:
Available for sale, at market value .............................. 73,460 66,650
Held to maturity, at amortized cost (approximate
market value of $100,838 in 1997 and $121,377 in 1996) ......... 99,679 120,644
-------- --------
Total investments in debt securities ....................... 173,139 187,294
-------- --------
Loans, net of unearned discount ..................................... 326,437 294,463
Less allowance for possible loan losses .......................... 6,120 5,602
-------- --------
Loans, net ................................................. 320,317 288,861
-------- --------
Bank premises and equipment ......................................... 10,866 10,785
Other assets ........................................................ 10,040 10,311
-------- --------
TOTAL ASSETS ............................................... $549,864 $527,907
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing .............................................. $ 61,308 $ 58,046
Interest-bearing ................................................. 422,055 409,230
-------- --------
Total deposits ............................................. 483,363 467,276
Securities sold under agreements to repurchase ...................... 5,333 1,623
ESOP debt.... ....................................................... - 1,779
Other liabilities ................................................... 4,515 4,388
-------- --------
Total liabilities .......................................... 493,211 475,066
-------- --------
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. ......................................................... 6,023 5,819
Retained earnings ................................................ 50,841 46,448
Unearned ESOP shares ............................................. (1,384) (1,581)
Treasury stock, at cost, 61,340 and 22,340 shares, respectively .. (1,820) (450)
Net unrealized gain (loss) on available for sale securities ...... 134 (254)
-------- --------
Total shareholders' equity ................................. 56,653 52,841
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. $549,864 $527,907
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
E-31
<PAGE> 197
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans ..................................... $ 27,717 $ 26,691 $ 27,030
Interest on investments in debt securities available for sale:
Taxable ...................................................... 4,336 3,701 3,238
Exempt from Federal income taxes ............................. 24 32 41
Interest on investments in debt securities held to maturity:
Taxable ...................................................... 5,142 5,216 4,937
Exempt from Federal income taxes ............................. 1,265 1,234 1,229
Interest on short-term investments ............................. 871 994 788
--------- --------- ---------
TOTAL INTEREST INCOME .................................. 39,355 37,868 37,263
--------- --------- ---------
Interest expense:
Interest on deposits ........................................... 17,910 17,264 16,853
Interest on short-term borrowings .............................. 228 92 173
Interest on ESOP debt .......................................... 105 170 190
Interest on subordinated capital notes ......................... - - 119
--------- --------- ---------
TOTAL INTEREST EXPENSE ................................. 18,243 17,526 17,335
--------- --------- ---------
NET INTEREST INCOME .................................... 21,112 20,342 19,928
Provision for possible loan losses ................................. 60 60 70
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES ........................... 21,052 20,282 19,858
--------- --------- ---------
Noninterest income:
Trust department ............................................... 1,046 918 940
Service charges on deposit accounts ............................ 1,330 1,256 1,230
Net (losses) gains on sales of other real estate owned and other
foreclosed property .......................................... (64) 29 (88)
Settlement of litigation ...................................... - - 1,400
Gain on sale of Bay-Hermann-Berger Bank ........................ - - 825
Other .......................................................... 485 467 446
--------- --------- ---------
TOTAL NONINTEREST INCOME ............................... 2,797 2,670 4,753
--------- --------- ---------
Noninterest expense:
Salaries and employee benefits ................................. 7,561 7,463 6,940
Net occupancy and equipment expense ............................ 2,384 2,328 2,067
Data processing ................................................ 465 467 838
Federal Deposit Insurance Corporation assessment ............... 47 138 986
Attorney fees .................................................. 407 376 496
Other .......................................................... 4,375 3,845 3,992
--------- --------- ---------
TOTAL NONINTEREST EXPENSE .............................. 15,239 14,617 15,319
--------- --------- ---------
INCOME BEFORE FEDERAL INCOME
TAX EXPENSE ........................................ 8,610 8,335 9,292
Federal income tax expense ......................................... 2,308 2,177 2,558
--------- --------- ---------
NET INCOME ............................................. $ 6,302 $ 6,158 $ 6,734
========= ========= =========
SHARE DATA:
Earnings per common share - basic ............................. $ 2.30 $ 2.27 $ 2.55
========= ========= =========
Earnings per common share - diluted ............................ $ 2.25 $ 2.26 $ 2.54
========= ========= =========
Dividends paid per common share ................................ $ .70 $ .50 $ .365
========= ========= =========
Average common shares outstanding .............................. 2,735,859 2,712,775 2,643,890
========= ========= =========
Average common shares outstanding, including
potentially dilutive shares .................................. 2,798,105 2,730,214 2,650,551
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
E-32
<PAGE> 198
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN
(LOSS) 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, 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 gain
(loss) 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 ($.50 per
share) ............................. - - (1,365) - - - (1,365)
Allocation of 12,354 shares to
ESOP participants .................. - 53 - 198 - - 251
Purchase of 56,814 shares by ESOP
participants ....................... - - - 909 - - 909
Purchase of 12,980 common shares
for treasury ....................... - - - - (283) - (283)
Change in net unrealized gain
(loss) on available for sale
securities, net of tax effect ...... - - - - - (129) (129)
------ ------- -------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1996 ........... 2,859 5,819 46,448 (1,581) (450) (254) 52,841
Net income ............................. - - 6,302 - - - 6,302
Cash dividends paid ($.70 per share) ... - - (1,909) - - - (1,909)
Allocation of 12,354 shares to
ESOP participants .................. - 204 - 197 - - 401
Purchase of 39,000 common shares
for treasury ....................... - - - - (1,370) - (1,370)
Change in net unrealized gain
(loss) on available for sale
securities, net of tax effect ...... - - - - - 388 388
------ ------- -------- ------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1997 ........... $2,859 $6,023 $50,841 $(1,384) $(1,820) $ 134 $ 56,653
====== ======= ======== ======= ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
E-33
<PAGE> 199
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................................. $ 6,302 $6,158 $6,734
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ..................................... 1,626 1,920 1,877
Provision for possible loan losses ................................ 60 60 70
Provision for deferred income taxes ............................... (286) 50 395
Net losses (gains) on sales of other real estate owned and
other foreclosed property ...................................... 64 (29) 88
Gain on sale of Bay-Hermann-Berger Bank ........................... - - (825)
Increase (decrease) in income taxes payable ....................... (245) (381) 571
Decrease in accrued interest receivable ........................... 34 118 111
Increase in accrued interest payable .............................. 32 10 364
ESOP compensation expense ......................................... 401 251 356
Other operating activities, net ................................... 403 (495) (183)
-------- -------- --------
Total adjustments ............................................. 2,089 1,504 2,824
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................... 8,391 7,662 9,558
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in short-term investments ....................... (3,700) 5,618 (9,271)
Proceeds from maturities of and principal payments on debt securities:
Available for sale ................................................... 14,092 7,984 4,636
Held to maturity ..................................................... 33,461 37,260 23,455
Purchases of debt securities:.
Available for sale ................................................... (19,391) (24,729) (4,700)
Held to maturity ..................................................... (13,720) (48,720) (18,462)
Purchase of life insurance .............................................. - (1,250) -
Net (increase) decrease in loans ........................................ (32,596) 7,083 (17,266)
Recoveries of loans previously charged off .............................. 825 1,126 922
Purchases of bank premises and equipment ................................ (1,213) (1,194) (2,344)
Proceeds from sales of other real estate owned .......................... 258 798 1,774
Proceeds from sale of Bay-Hermann-Berger Bank, net of cash transferred .. - - 2,213
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES ......................... (21,984) (16,024) (19,043)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings deposits .................. 13,477 (1,122) (14,002)
Net increase in time deposits ........................................... 2,610 10,831 25,153
Net increase (decrease) in short-term borrowings ........................ 3,710 844 (138)
Payments for ESOP debt .................................................. (1,779) (299) -
Payments for maturing long-term debt .................................... - - (2,250)
Payments for subordinated capital notes ................................. - - (4,190)
Proceeds from issuance of common stock .................................. - - 4,279
Payments to acquire treasury stock ...................................... (1,370) (283) (167)
Cash dividends paid ..................................................... (1,909) (1,365) (969)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ..................... 14,739 8,606 7,716
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................................... 1,146 244 (1,769)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............................... 17,156 16,912 18,681
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR ..................................... $18,302 $17,156 $16,912
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings .................................. $18,275 $17,516 $16,971
Income taxes ......................................................... 2,498 2,497 2,026
======== ======== ========
Noncash transactions:
Transfers to other real estate owned in settlement of loans .......... $492 $1,059 $989
Loans made to facilitate the sale of other real estate owned ......... - - 388
Guarantee of ESOP debt ............................................... - - 2,987
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
E-34
<PAGE> 200
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
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
E-35
<PAGE> 201
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, to the extent deemed significant, are
deferred and amortized over the life of the underlying loan.
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. The Company continues to use existing
nonaccrual methods for recognizing interest income on impaired loans.
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
E-36
<PAGE> 202
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
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 transac-tions
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 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
Effective December 31, 1997, the Company adopted SFAS No. 128, Earnings
Per Share (SFAS 128). SFAS 128 supersedes APB Opinion No. 15, Earnings Per
Share (APB 15) and specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS) for entities with publicly held
common stock or potential common stock. SFAS 128 was issued to simplify the
com-putation of EPS and to make the U.S. standard more compatible with the EPS
standards of other countries and that of the International Accounting Standards
Committee (IASC). It replaces the presentation of primary EPS with a
presentation of basic EPS and fully diluted EPS with diluted EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures. Basic EPS, unlike
primary EPS, excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted EPS is computed similarly
to fully diluted EPS under APB 15.
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
Long-lived assets and certain identifiable intangibles are 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.
E-37
<PAGE> 203
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
TRANSFERS AND SERVICING FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES
The Company adopted the provisions of SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities
(SFAS 125) on January 1, 1997 which 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.
Under the financial-components approach, the Company recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS 125 also provides consistent
standards for distinguishing transfers of financial assets that are secured
borrowings. The adoption of SFAS 125 did not have a material impact on the
Company's consolidated 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, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997
-------------------------------------
GROSS
AMOR- UNREALIZED 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 $26,899 $167 $ (8) $27,058
Obligations of
states and
political
subdivisions 300 4 - 304
Mortgage-backed
securities 44,483 288 (248) 44,523
Other securities 1,575 - - 1,575
------- ---- ------ --------
$73,257 $459 $ (256) $ 73,460
======= ==== ======= ========
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
1996
---------------------------------
Gross
Amor- Unrealized 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>
The amortized cost and estimated market value of debt securities
classified as available for sale at December 31, 1997, 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 $ 9,367 $ 9,369
Due after one year through
five years 15,367 15,472
Due after five years through
ten years 2,565 2,621
Mortgage-backed securities 44,483 44,523
Federal Home Loan Bank stock -
no stated maturity 1,283 1,283
Federal National Mortgage Association
stock - no stated maturity 5 5
Federal Reserve Bank stock -
no stated maturity 187 187
------- -------
$73,257 $73,460
======= =======
</TABLE>
E-38
<PAGE> 204
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
The amortized cost and estimated market values of debt securities
classified as held to maturity at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997
----------------------------------
Gross
Amor- Unrealized 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 $72,065 $ 429 $(146) $ 72,348
Obligations of
states and
political
subdivisions 23,544 775 (3) 24,316
Mortgage-backed
securities 4,070 104 - 4,174
------- ------ ------ --------
$99,679 $1,308 $(149) $100,838
======= ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
1996
-----------------------------------
Amor- Gross Estimated
tized Unrealized 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
======== ====== ====== =========
</TABLE>
The amortized cost and estimated market value of debt securities
classified as held to maturity at December 31, 1997, 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 $21,892 $21,916
Due after one year through
five years 55,395 55,933
Due after five years through
ten years 16,498 16,951
Due after ten years 1,824 1,864
Mortgage-backed securities 4,070 4,174
------- ---------
$99,679 $100,838
======= =========
</TABLE>
There were no sales of debt securities during 1997, 1996, and 1995.
The carrying value of securities pledged to secure deposits and
collateralize borrowings amounted to $69,100,000 and $56,844,000 at December
31, 1997 and 1996, respectively.
NOTE 3 -- LOANS
Loans, by category, at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996
---- ----
<S> <C> <C>
Commercial, financial,
and agricultural $ 69,168 $ 62,016
Real estate - commercial 98,759 82,045
Real estate - construction 30,836 26,067
Real estate - residential 92,028 96,039
Consumer 23,627 17,304
Industrial revenue bonds 5,517 6,373
Other 6,502 4,619
-------- --------
Total loans 326,437 294,463
Less allowance for possible
loan losses 6,120 5,602
-------- --------
Loans, net $320,317 $288,861
======== ========
</TABLE>
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.
E-39
<PAGE> 205
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
The Company's investment in industrial revenue bonds are classified as
held to maturity. The estimated market value of these instruments was
$5,738,000 and $6,628,000 at December 31, 1997 and 1996, respectively.
Transactions in the allowance for possible loan losses for the years ended
December 31, 1997, 1996, and 1995 were as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
---- ----- -----
<S> <C> <C> <C>
Balance at beginning of
year $5,602 $5,635 $ 7,144
Provision charged
to expense 60 60 70
Adjustment due to sale of
Bay-Hermann-Berger
Bank - - (327)
Loans charged off (367) (1,219) (2,174)
Recoveries 825 1,126 922
------ ------- -------
Balance at end of year $6,120 $5,602 $ 5,635
====== ======= =======
</TABLE>
A summary of impaired loans, including nonaccrual loans, at December 31,
1997 and 1996 follows:
<TABLE>
<CAPTION> (in thousands)
1997 1996
------- ------
<S> <C> <C>
Nonaccrual loans $2,977 $1,037
Impaired loans continuing
to accrue interest 1,176 3,528
------- ------
Total impaired loans $4,153 $4,565
======= ======
Allowance for possible losses
on impaired loans $1,637 $1,759
======= ======
Impaired loans with no related
allowance for possible
loan losses $1,374 $ 951
======= ======
</TABLE>
As of January 1, 1995, the Company had impaired loans of $5,248,000 for
which specific reserves of $733,000 were allocated.
The average balance of impaired loans during the year was $2,997,000,
$6,821,000, and $5,569,000 at December 31, 1997, 1996, and 1995, respectively.
If interest on nonaccrual loans, including amounts computed on principal
balances charged off on such loans, had been accrued, such income would have
been $232,000, $133,000, and $160,000 for the years ended December 31, 1997,
1996, and 1995, respectively. The amount recognized as interest income
on nonaccrual loans was $113,000, $27,000, and $66,000 for the years ended
December 31, 1997, 1996, and 1995, respectively.
The amount recognized as interest income on other impaired loans
continuing to accrue interest was $102,000, $277,000, and $365,000 for the
years ended December 31, 1997, 1996, and 1995, respectively.
There were no restructured loans at December 31, 1997 and 1996.
Aggregate loan transactions involving executive officers and directors of
the Company and its subsidiaries for the year ended December 31, 1997 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 1997.
<TABLE>
<S> <C>
Aggregate balance, December 31, 1996 $12,084
New loans and advances 18,113
Repayments (20,860)
-------
Aggregate balance, December 31, 1997 $ 9,337
=======
</TABLE>
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, 1997.
NOTE 4 -- BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996
---- ----
<S> <C> <C>
Land $3,216 $2,804
Buildings 10,013 9,841
Furniture and equipment 5,868 6,033
------- -------
19,097 18,678
Less accumulated depreciation
and amortization 8,231 7,893
------- -------
$10,866 $10,785
======= =======
</TABLE>
E-40
<PAGE> 206
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 $1,108,000, $1,167,000, and $960,000 for 1997,
1996, and 1995, respectively.
Rents collected and credited to net occupancy expense of bank premises
amounted to $116,000, $137,000, and $102,000 for 1997, 1996, and 1995,
respectively.
NOTE 5 -- DEPOSITS
Deposits, by category, at December 31, 1997 and 1996 and the respective
weighted average interest rates paid thereon for the years then ended are as
follows:
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996
------------------ -----------------
Average Average
Amount Rate Amount Rate
------ ------- --------- -------
<S> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $61,308 -% $ 58,046 -%
Interest-bearing
demand deposits 139,177 3.34 128,474 3.33
Savings deposits 56,627 2.51 57,115 2.53
Time deposits:
Under $100,000 172,830 5.37 174,102 5.40
$100,000 and over 53,421 5.32 49,539 5.18
-------- ==== -------- ====
$483,363 $467,276
======== ========
</TABLE>
A summary of time deposits as of December 31, 1997 by time remaining until
maturity is as follows:
<TABLE>
<S> <C>
Due in one year or less $158,771
Due after one year through two years 42,404
Due after two years through three years 15,618
Due after three years through four years 4,604
Due after four years through five years 4,755
Thereafter 99
--------
$226,251
========
</TABLE>
Interest paid on deposits consists of the following for the years ended
December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Interest-bearing
demand deposits $4,346 $ 4,125 $ 4,095
Savings deposits 1,459 1,529 1,685
Time deposits:
Under $100,000 9,309 9,462 9,491
$100,000 and over 2,796 2,148 1,582
------- ------- -------
$17,910 $17,264 $16,853
======= ======= =======
</TABLE>
NOTE 6 -- SHORT-TERM BORROWINGS
A summary of short-term borrowings at December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996
---- ----
<S> <C> <C>
Securities sold under agree-
ments to repurchase $5,333 $1,623
====== ======
</TABLE>
The average balance of securities sold under agreements to repurchase for
1997, 1996, and 1995 was $5,053,000, $893,000, and $747,000, respectively.
The maximum month-end balance of such borrowings for 1997, 1996, and 1995 was
$9,693,000, $2,039,000, and $1,988,000, respectively.
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. During
September 1997, the Company borrowed $1,581,000 from South Side National Bank
and repaid the unaffiliated financial institution. As discussed more fully in
note 10, the debt is guaranteed by the Company and, while it was maintained at
an unaffiliated financial institution, was reflected on the Company's
consolidated balance sheet. The debt is secured by the remaining 98,832 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
8.50% at December 31, 1997.
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.
E-41
<PAGE> 207
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 1997,
1996, and 1995 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Current $2,594 $2,127 $2,163
Deferred tax expense (286) 50 395
------ ------- -------
Federal income tax
expense $2,308 $2,177 $2,558
====== ======= =======
</TABLE>
A reconciliation of reported Federal income tax expense to income tax
expense computed by applying the federal statutory rate of 34% in 1997, 1996,
and 1995 to income before Federal income tax expense is as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Computed income tax ex-
pense $2,928 $2,834 $3,159
Tax-exempt interest income (517) (674) (562)
Other, net (103) 17 (39)
------ ------- -------
Federal income tax
expense $2,308 $2,177 $2,558
====== ======= =======
</TABLE>
The components of deferred tax assets and liabilities at December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $2,081 $1,905
Deferred expense 288 214
Available for sale securities - 123
Other, net 78 28
------- -------
Total deferred tax assets 2,447 2,270
------- -------
Deferred tax liabilities:
Available for sale securities (67) -
Depreciation of premises and
equipment (388) (390)
Discount on debt securities, net (157) (111)
Deferred loan fees (133) (163)
------- -------
Total deferred tax liabilities (745) (664)
------- -------
Net deferred tax assets $1,702 $1,606
======= =======
</TABLE>
The Company has not established a valuation allowance for deferred tax
assets as of December 31, 1997 or 1996 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.
During 1997, the Board of Directors of the Company voted to terminate the
Company's noncon-tributory pension plan effective May 31, 1997. The benefits
under the plan were frozen as of March 31, 1997 and plan benefits ceased to
accrue. As the fair value of plan assets exceeded the value of accumulated
benefit obligations as of December 31, 1997, the Company has elected to provide
benefits with all plan assets. Although the termination of the plan has not
been approved by regulatory authorities, management expects the termination to
be approved in 1998 and the pension plan will be liquidated at the time of
regulatory approval. Upon termination, all benefits will become 100% vested,
and all persons entitled to benefits will be eligible to request an immediate
lump-sum settlement of the benefit entitlement. Management anticipates a
pension curtailment gain of approximately $400,000 in 1998 in conjunction with
the termination of the plan.
Accumulated plan benefit information, as estimated by the consulting
actuary, and plan net assets determined as of and for the years ended December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996
------- ------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligations $ 869 $ 790
===== ======
Accumulated benefit
obligations 869 $ 834
===== ======
Projected benefit obligation 1,075 1,397
Plan assets at fair value 1,075 879
----- ------
Projected benefit obligation in
excess of plan assets - (518)
Unrecognized portion of net
transition obligation - 120
Unrecognized net gain - -
----- ------
Accrued pension cost $ - $ (398)
===== ======
<CAPTION>
(in thousands)
1997 1996 1995
------ ------- -----
<S> <C> <C> <C>
Net pension cost included the
following components:
Service cost - benefits
earned during period $162 $139 $124
Interest cost on projected
benefit obligation 97 87 89
Return on plan assets (61) (60) (52)
Net amortization and
deferral 29 22 26
---- ---- ----
Net periodic pen-
sion cost $227 $188 $187
==== ==== ====
</TABLE>
E-42
<PAGE> 208
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
Assumptions used were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- -------- ------
<S> <C> <C> <C>
Discount rate in determining
benefit obligations 6.5% 7.0% 7.0%
Rate of increase in compensa-
tion levels 4.5 4.5 4.5
Expected long-term rate on assets 6.5 7.0 7.0
==== ==== ===
</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. In
September 1997, the Company repaid the unaffiliated financial institution
through borrowings from South Side National Bank. 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
service paid in the year. Accordingly, the debt of the ESOP was recorded as
debt and the shares pledged as collateral were 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 $401,000, $251,000,
and $356,000 for the years ended December 31, 1997, 1996, and 1995,
respectively. The ESOP shares as of December 31, 1997 were as follows:
<TABLE>
<S> <C>
Allocated shares 303,429
Shares released for allocation 12,354
Unreleased shares 86,478
----------
Total ESOP shares 402,261
==========
Fair value of unreleased shares at
December 31, 1997 $2,983,000
==========
</TABLE>
In addition, under the 401(k) provisions the ESOP provides for a 50%
matching contribution by the Company on employee elective deferral amounts up
to 6% of annual compensation. The matching contribu-tions charged to expense
for the years 1997, 1996, and 1995 were $107,000, $99,000, and $78,000,
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 1993, 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. In 1997, the remaining
100,000 options were granted at $24 per share, all of which remain outstanding
as of December 31, 1997.
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 and
1997 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>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Net income - as reported $ 6,302,000 $6,158,000
Net income - pro forma 6,170,000 6,115,000
Earnings per common share -
diluted, as reported 2.25 2.26
Earnings per common share -
pro forma diluted 2.21 2.24
============ ==========
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1997.
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
E-43
<PAGE> 209
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
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 1997 is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Volatility 30.0% 30.0%
Risk-free interest rate 6.0% 6.0%
Expected life 7 YEARS 5 years
Expected dividend yield 3.6% 2.6%
======= =======
</TABLE>
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 -- EARNINGS PER SHARE
The computation of EPS at December 31, 1997, 1996, and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Basic EPS:
Income available to
common shareholders $ 6,302 $ 6,158 $ 6,734
Average common shares
outstanding 2,735,859 2,712,775 2,643,890
========== ========== ==========
Basic EPS $ 2.30 $ 2.27 $ 2.55
========== ========== ==========
Diluted EPS:
Income available to
common shareholders $ 6,302 $ 6,158 $ 6,734
========== ========== ==========
Average common shares
outstanding 2,735,859 2,712,775 2,643,890
Dilutive potential due to
stock options 62,246 17,439 6,661
---------- ---------- ----------
Average number of
common shares and
dilutive potential
common shares
outstanding 2,798,105 2,730,214 2,650,551
========== ========== ==========
Diluted EPS $ 2.25 $ 2.26 $ 2.54
========== ========== ==========
</TABLE>
NOTE 12 -- 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
$3,292,000 and $3,131,000 at December 31, 1997 and 1996, 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).
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, 1997, $13,089,000 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.
E-44
<PAGE> 210
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
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, 1997, 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 (in
thousands) and ratios as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------
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 $60,664 17.38% $27,926 8% $ - - %
SSNB 38,434 17.21 17,871 8 22,339 10
SBJC 6,255 17.14 2,920 8 3,650 10
BSG 10,174 19.65 4,143 8 5,179 10
BSCC 4,842 13.89 2,790 8 3,487 10
TIER I CAPITAL (TO RISK-
WEIGHTED ASSETS)
COMPANY $56,279 16.12% $13,963 4% $ - - %
SSNB 35,624 15.95 8,935 4 13,403 6
SBJC 5,798 15.89 1,460 4 2,190 6
BSG 9,525 18.39 2,071 4 3,107 6
BSCC 4,405 12.63 1,395 4 2,092 6
TIER I CAPITAL (TO ADJUSTED
AVERAGE ASSETS)
COMPANY $56,279 10.34% $16,331 3% $ - - %
SSNB 35,624 10.26 10,416 3 17,359 5
SBJC 5,798 9.96 1,747 3 2,911 5
BSG 9,525 11.10 2,575 3 4,292 5
BSCC 4,405 8.67 1,523 3 2,539 5
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
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% $ - - %
SSNB 36,406 18.32 15,897 8.00 19,871 10.00
SBJC 5,929 18.09 2,621 8.00 3,277 10.00
BSG 9,752 19.77 3,945 8.00 4,931 10.00
BSCC 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% $ - - %
SSNB 33,906 17.06 7,949 4.00 11,923 6.00
SBJC 5,518 16.84 1,311 4.00 1,966 6.00
BSG 9,133 18.52 1,973 4.00 2,959 6.00
BSCC 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% $ - - %
SSNB 33,906 10.19 9,980 3.00 16,633 5.00
SBJC 5,518 10.22 1,621 3.00 2,701 5.00
BSG 9,133 10.52 2,604 3.00 4,340 5.00
BSCC 4,171 9.46 1,323 3.00 2,205 5.00
</TABLE>
NOTE 13 -- 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, 1997 AND 1996
(in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------- -------
<S> <C> <C>
Cash $ 1,198 $ 297
Investment in subsidiary banks 56,092 53,349
Other assets 1,736 1,490
------- -------
TOTAL ASSETS $59,026 $55,136
======= =======
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
ESOP debt $1,581 $ 1,779
Other liabilities 792 516
Shareholders' equity 56,653 52,841
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $59,026 $55,136
======= =======
</TABLE>
E-45
<PAGE> 211
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
REVENUE:
Dividends received from
subsidiary banks $5,050 $3,000 $ 239
Gain on sale of Bay-
Hermann-Berger Bank - - 825
Other 368 297 91
------ ------ ------
Total revenue 5,418 3,297 1,155
------ ------ ------
EXPENSES:
Interest expense 139 170 351
Other 1,952 1,558 623
------ ------ ------
Total expenses 2,091 1,728 974
------ ------ ------
Income before income
tax benefit and un-
distributed earnings
of subsidiary banks 3,327 1,569 181
Income tax benefit 496 431 52
------ ------ ------
Income before
undistributed earnings
of subsidiary banks 3,823 2,000 233
Undistributed earnings of
subsidiary banks 2,479 4,158 6,501
------ ------ ------
NET INCOME $6,302 $6,158 $6,734
====== ====== ======
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $6,302 $ 6,158 $ 6,734
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Undistributed earnings
of subsidiary banks (2,479) (4,158) (6,501)
Gain on sale of Bay-
Hermann-Berger Bank - - (825)
Other operating activities, net 555 688 479
-------- --------- -----
Net cash provided
by (used in)
operating activities 4,378 2,688 (113)
-------- --------- -----
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 (1,779) (299) -
Proceeds from ESOP debt 1,581 - -
Principal reductions
on notes payable - - (6,440)
Proceeds from issuance of
common stock - - 4,279
Payments to acquire treasury stock (1,370) (283) (167)
Cash dividends paid (1,909) (1,365) (969)
-------- --------- -----
Net cash used in
financing activities (3,477) (1,947) (3,297)
-------- --------- ------
Net increase (de-
crease) in cash 901 (509) (265)
Cash, beginning of year 297 806 1,071
-------- --------- ------
Cash, end of year $ 1,198 $ 297 $ 806
======== ========= =======
Supplemental disclosures of cash
flow information - cash paid
during the year for:
Interest on subordinated
capital notes and debt $ 139 $ 170 $ 351
Income taxes 2,498 2,497 2,026
Guarantee of ESOP debt - - 2,987
====== ========= ======
</TABLE>
NOTE 14 -- 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 15 -- 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, 1997 and 1996:
<TABLE>
<CAPTION>
(in thousands)
Contractual Amount
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Financial instruments whose
contractual amounts represent:
Commitments to extend
credit $60,971 $60,599
Standby letters of credit 2,758 1,984
========= =========
</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, 1997 and 1996, $8,428,000 and $8,121,000, respectively, represent
fixed rate loan commitments. Since many of the commitments are expected to
expire
E-46
<PAGE> 212
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
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.
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, 1997 and 1996:
<TABLE>
<CAPTION>
(in thousands)
1997 1996
------------------ ------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance sheet assets:
Cash and due
from banks $18,302 $ 18,302 $ 17,156 $ 17,156
Short-term
investments 17,200 17,200 13,500 13,500
Investments in
debt securities:
Available
for sale 73,460 73,460 66,650 66,650
Held to
maturity 99,679 100,840 120,644 121,377
Loans, net 320,317 325,819 288,861 294,982
======== ======== ======== ========
Balance sheet
liabilities:
Deposits $483,363 $482,855 $467,276 $466,572
Short-term
borrowings 5,333 5,333 1,623 1,623
ESOP debt - - 1,779 1,779
======== ======== ======== ========
</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
E-47
<PAGE> 213
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
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 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 16 -- 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 ten 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.
NOTE 17 -- SUBSEQUENT EVENT
On February 25, 1998, the Company entered into a definitive agreement that
provides for the acquisition and merger of Public Service Bank, FSB (PSB) with
the Company's subsidiary bank, South Side National Bank. As of September 30,
1997, PSB had total assets of $70,470,000, stockholders' equity of $4,364,000,
and three offices in the St. Louis metropolitan area. The agreement provides
for the Company to acquire 100% of PSB from its stockholders, who shall receive
either cash, shares of the Company's common stock, or a combination of cash and
the Company's common stock, at the election of each PSB stockholder subject to
certain limitations as set forth in the agreement. The value of the
transaction is expected to be approximately $8.5 million or two times PSB's
adjusted book value as of the closing date. The acquisition should be
completed in the third quarter of 1998, and it is subject to, among other
things, regulatory approval.
E-48
<PAGE> 214
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:
<TABLE>
<CAPTION>
BOARD OF DIRECTORS
<S><C>
JOSEPH W. BEETZ NORVILLE K. MCCLAIN
President President
Joseph H. Beetz Plumbing Company, Inc. Essex Contracting, Inc.
Director Director
South Side National Bank in St. Louis South Side National Bank in St. Louis
RALPH CRANCER, JR. DANIEL J. QUEEN
Deputy Sheriff President
St. Louis County, Missouri Highland Diversified
Former President Director
South Side Furniture Co. South Side National Bank in St. Louis
Director Director
South Side National Bank in St. Louis State Bank of DeSoto
HOWARD F. ETLING RICHARD G. SCHROEDER, SR.
Publisher Emeritus President
Journal Newspaper St. Louis Fabrication Services, Inc.
Former President Director
South County Publications, Inc. South Side National Bank in St. Louis
Chairman of the Board THOMAS M. TESCHNER
Southside Bancshares Corp. President and Chief Executive Officer
Chairman of the Board Southside Bancshares Corp.
South Side National Bank in St. Louis President and Chief Executive Officer
DOUGLAS P. HELEIN South Side National Bank in St. Louis
Insurance Broker Director
Welsch, Flatness & Lutz, Inc. South Side National Bank in St. Louis
Director Director
South Side National Bank in St. Louis Bank of Ste. Genevieve
EARLE J. KENNEDY, JR. Director
Former President State Bank of DeSoto
Westway Services, Inc. Director
Former President The Bank of St. Charles County
Continental Boiler Works, Inc.
Director
South Side National Bank in St. Louis
OFFICERS
THOMAS M. TESCHNER
President and Chief LAURA L. THOMAS
Executive Officer CAROLE A. MATT Assistant Secretary to the Board
JOSEPH W. POPE Vice President/Compliance NEIL P. FINNEGAN
Senior Vice President and STEVEN D. VOSS Assistant Vice President/
Chief Financial Officer Vice President and Auditor Loan Review
DAVID J. ABELN JOANNE M. SCHNEIDER NANETTE M. BELLER
Vice President/Investments Secretary to the Board Assistant Auditor
</TABLE>
E-49
<PAGE> 215
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 Honor and CIRRUS automated teller networks. The Bank serves St.
Louis City and St. Louis County.
The total assets of the Bank at December 31, 1997 were $353,316,000.
Total deposits at December 31, 1997 were $309,297,000. Total loans at December
31, 1997 were $197,175,000.
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
<TABLE>
<S> <C> <C>
THOMAS M. TESCHNER ROBERT D. JOSEPH PAMELA A. HALE
President and Chief Executive Officer Vice President Assistant Vice President
WILLIAM E. MUHLKE COLETTE A. LETENDRE DOLORES G. HENSEL
Senior Vice President and Comptroller Vice President Assistant Vice President
LAURIE A. PENNYCOOK JUDI M. SCHULZ CONNIE HORNAK
Senior Vice President and Cashier Vice President Assistant Vice President
STEVEN L. RAY DONALD A. SEILER BRENDA L. HUDDLESTON
Senior Vice President and Senior Trust Officer Vice President Assistant Vice President
MARK D. SKORNIA JOHN R. SHIVERS D. MICHAEL MINOR
Senior Vice President and Senior Loan Officer Vice President Assistant Vice President
KENNETH E. MARSCHUETZ JEFFERY M. BERRY ROLAND G. SPIES
Senior Vice President Assistant Vice President Assistant Vice President
JOSEPH W. POPE ANNA SMITH-CRAFT PAUL L. STEUBE
Senior Vice President Assistant Vice President Assistant Vice President
CAROLE A. MATT GAIL R. DICKSON JACQUELINE A. YOCHIM
Vice President and Compliance Officer Assistant Vice President Assistant Vice President
DAVID J. ABELND. SUE DOERING WENDY HAMILTON
Vice President/Investments Assistant Vice President Marketing Officer
RAYMOND H. BAYER BETTY J. DUNSCOMBE SHARON MOORE
Vice President Assistant Vice President Data Processing Officer
MARK D. CHAPMAN CRISTA ELLIOTT GLENDA L. POPPLETON
Vice President/Human Resources Assistant Vice President Loan Administration Officer
JAMES A. DEGUIRE DONNA M. FELDMANN SUSAN SUN
Vice President Assistant Vice President Community Banking Officer
BARBARA E. GLIEDT LISA M. FRICK JOANNE M. SCHNEIDER
Vice President Assistant Vice President Secretary to the Board
CYNTHIA L. GOLDSCHMIDT LAURA L. THOMAS
Assistant Vice President Assistant Secretary to the Board
DANNY C. GRAHAM
Assistant Vice President
</TABLE>
E-50
<PAGE> 216
STATE BANK OF JEFFERSON COUNTY
The main office of State Bank of Jefferson County 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 Honor 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, 1997 were $57,683,000. Total
deposits at December 31, 1997 were $51,533,000. Total loans at December 31,
1997 were $41,377,000.
<TABLE>
<S><C>
BOARD OF DIRECTORS
ROBERT G. PURCELL CLARENCE M. JONES
Chairman of the Board KENNETH MCCLAIN
CLAUDE J. COOK DANIEL J. QUEEN
PAUL F. DICKINSON STEVAN H. ROWE
RICHARD B. FRANCIS THOMAS M. TESCHNER
OFFICERS
RICHARD B. FRANCIS ANN GAMBER DIANE HUMPHREY
President and Chief Compliance Officer Assistant Cashier
Executive Officer KEVIN L. BOREN ELAINE WATTERS
MARGARET A. ARMBRUSTER Assistant Vice President Assistant Cashier
Vice President PHYLLIS POOLE PAULINE WILLIAMSON
BARBARA A. DONTRICH Assistant Vice President Assistant Cashier
Vice President, Cashier, and and Secretary to the Board
Security Officer
</TABLE>
BANK OF STE. GENEVIEVE
The main office of Bank of Ste. Genevieve is located at 198 Market Street
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 two 24-hour
automated teller machines at the Plaza Bank location and the Family Inn
Restaurant, 17050 Bremen Road, Ste, Genevieve, Missouri 63670. The Bank is a
member of the CIRRUS and Shazam automated teller networks. The Bank serves
Ste. Genevieve County.
The total assets of the Bank at December 31, 1997 were $84,805,000. Total
deposits at December 31, 1997 were $74,627,000. Total loans at December 31,
1997 were $55,005,000.
<TABLE>
<S><C>
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
PATRICK J. UDING JERRY V. BERGTHOLDT GARY D. FISCHER
President & Chief Executive Officer Assistant Vice President Vice President
WILLIAM E. MILES and Security Officer MARY ANN BAUMAN
Senior Vice President and MONICA J. KREITLER Assistant Cashier
CRA Officer Assistant Vice MARY ELLEN CABRAL
STEPHEN J. ABTS President and Executive Secretary
Vice President and Cashier Compliance Officer
</TABLE>
E-51
<PAGE> 217
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 Honor and CIRRUS automated teller networks. The Bank services
St. Charles County.
The total assets of the Bank at December 31, 1997 were $54,120,000. Total
deposits at December 31, 1997 were $49,311,000. Total loans at December 31,
1997 were $34,461,000
<TABLE>
<S><C>
BOARD OF DIRECTORS
LARRY RICHARDSON FREDERICK W. DRAKESMITH
Chairman of the Board WILLIAM O. MULLINS
TERRY E. ALEXANDER ALAN D. POHLMAN
MAX E. MCGOWAN THOMAS M. TESCHNER
TED E. GLOSIER
OFFICERS
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 JAMIE TATRO Assistant Vice President
Senior Vice President, Cashier, and Assistant Vice President and MARK H. KNOBLAUCH
Secretary to the Board Compliance Officer Assistant Vice President
DON R. HAYNES
Vice President
</TABLE>
E-52
<PAGE> 218
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Bylaws of Southside provide that Southside shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative, including, without limitation, any
action by or in the right of Southside, by reason of the fact that he is or was
a director or officer of Southside, or is or was a director or officer of
Southside who is or was serving at the request of Southside as a director,
officer, agent, employee, partner, trustee of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, including attorneys'
fees, judgments, fines, taxes and amounts paid in settlement, actually and
reasonably incurred by him in connection with such action, suit, or proceeding
if such person's conduct is not finally adjudged to be knowingly fraudulent,
deliberately dishonest or willful misconduct. Southside's Bylaws further provide
that the right to indemnification shall be a contract right and shall include
the right to be paid by Southside expenses incurred in defending any actual or
threatened civil or criminal action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding. Such right will be conditioned
upon receipt of an undertaking by or on behalf of the director or officer to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by Southside. The Bylaws further provide that the board of
directors may (i) authorize like indemnification of persons who are not
directors or officers of Southside but are employees or agents of Southside.
Sections 351.355(1) and (2) of The General Business Corporation Law of
the State of Missouri provides that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful, except that, in the case of an action or suit by or in the right
of the corporation, the corporation may not indemnify such persons against
judgments and fines, and no person shall be indemnified as to any claim, issue
or matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the corporation,
unless and only to the extent that the court in which the action or suit was
brought determines upon application that such person is fairly and reasonably
entitled to indemnity for proper expenses. Section 351.355(3) provides that, to
the extent that a director, officer, employee or agent of the corporation has
been successful in the defense of any such action, suit or proceeding or any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorney's fees, actually and reasonably incurred in connection with
such action, suit or proceeding. Section 351.355(7) provides that a Missouri
corporation may provide additional indemnification to any person indemnifiable
under subsection (1) or (2), provided such additional indemnification is
authorized by the corporation's articles of incorporation or an amendment
thereto or by a shareholder-approved bylaw or agreement, and provided further
that no person shall thereby be indemnified against conduct which was finally
adjudged to have been knowingly fraudulent, deliberately dishonest or willful
misconduct.
Southside's Bylaws further provide that Southside shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of Southside, or is or was serving at the
request of Southside as a director, officer, employee, partner, trustee or agent
of
II-1
<PAGE> 219
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not Southside would
have power to indemnify him against such liability under the Bylaws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement or incorporated by reference herein:
2(a) Agreement and Plan of Merger, dated February 25,
1998, by and among Public Service Bank, a federal
savings bank ("PSB"), South Side National Bank in St.
Louis, a national banking association ("National
Bank") and Southside Bancshares Corp., a Missouri
corporation and parent of National Bank (Appendix A
to Proxy/Statement Prospectus).
2(b) Agreement to Merge between PSB and National Bank
under the charter of National Bank and with the title
of National Bank (Appendix B to Proxy
Statement/Prospectus).
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.
5 Opinion of Lewis, Rice & Fingersh, L.C. (re:
legality).
8 Form of Opinion of Breyer & Aguggia (re: federal
income tax consequences).
23(a) Consent of Lewis, Rice & Fingersh, L.C. (in opinion
re legality).
23(b) Consent of Breyer & Aguggia.
23(c) Consent of KPMG Peat Marwick LLP.
23(d) Consent of Michael Trokey & Company, P.C.
23(e) Consent of Manchester Partners, L.L.C.
24 Powers of Attorney.
99(a) Form of Proxy Card for Public Service Bank Special
Meeting.
II-2
<PAGE> 220
99(b) Fairness Opinion of Manchester Partners, L.L.C.
(Appendix C to Proxy Statement/Prospectus).
(b) No financial statement schedules are required to be filed
herewith pursuant to Item 21(b) or (c) of this Form.
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through the use
of a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The undersigned Registrant undertakes that every prospectus (i)
that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act of
1933, as amended, and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, as
amended, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated document by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(4) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(5) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934, as amended) that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(6) The undersigned Registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
II-3
<PAGE> 221
in the aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
that, for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(7) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy expressed
in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the act and
will be governed by the final adjudication of such issue.
II-4
<PAGE> 222
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of St. Louis,
State of Missouri, on April 9, 1998.
SOUTHSIDE BANCSHARES CORP.
By /s/ Thomas M. Teschner
--------------------------------------
Thomas M. Teschner
President and Chief Executive Officer
(Principal Executive Officer)
By /s/ Joseph W. Pope
--------------------------------------
Joseph W. Pope
Senior Vice President and Chief
Financial Officer (Principal Financial
Officer, Controller and Principal
Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on April 9, 1998, by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
Name Title/Position
- ---- --------------
<S> <C>
* Chairman of the Board
- ----------------------
Howard F. Etling
/s/ Thomas M. Teschner President, Chief Executive Officer and Director
- ----------------------
Thomas M. Teschner
* Director
- ----------------------
Joseph W. Beetz
* Director
- ----------------------
Ralph Crancer, Jr.
* Director
- ----------------------
Douglas P. Helein
</TABLE>
II-5
<PAGE> 223
<TABLE>
<S> <C>
* Director
- ----------------------
Earle J. Kennedy, Jr.
* Director
- ----------------------
Norville K. McClain
* Director
- ----------------------
Daniel J. Queen
* Director
- ----------------------
Richard G. Schroeder
*By /s/ Thomas M. Teschner
----------------------
Attorney-in-fact
</TABLE>
II-6
<PAGE> 224
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Exhibit
------ -------
<S> <C>
2(a) Agreement and Plan of Merger, dated February 25, 1998, by and
among Public Service Bank, a federal savings bank ("PSB"),
South Side National Bank in St. Louis, a national banking
association ("National Bank"), and Southside Bancshares Corp.,
a Missouri corporation and parent of National Bank (Appendix A
to Proxy Statement/Prospectus).
2(b) Agreement to Merge between PSB and National Bank under the
charter of National Bank and with the title of National Bank
(Appendix B to Proxy Statement/Prospectus).
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.
5 Opinion of Lewis, Rice & Fingersh, L.C. (re: legality).
8 Form of Opinion of Breyer & Aguggia (re: federal income tax
consequences).
23(a) Consent of Lewis, Rice & Fingersh, L.C. (in opinion re
legality).
23(b) Consent of Breyer & Aguggia.
23(c) Consent of KPMG Peat Marwick LLP.
23(d) Consent of Michael Trokey & Company, P.C..
23(e) Consent of Manchester Partners, L.L.C.
24 Powers of Attorney.
99(a) Form of Proxy Card for Public Service Bank Special Meeting.
99(b) Fairness Opinion of Manchester Partners, L.L.C. (Appendix C to
Proxy Statement/Prospectus).
</TABLE>
<PAGE> 1
EXHIBIT 5
[LETTER HEAD OF LEWIS, RICE & FINGERSH, L.C.]
April 9, 1998
Southside Bancshares Corp.
3606 Gravois Avenue
St. Louis, Missouri 63116
RE: REGISTRATION STATEMENT ON FORM S-4
Dear Sirs:
In connection with a certain Registration Statement on Form S-4 (the
"Registration Statement") filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations promulgated thereunder, you have requested that we furnish to
you our opinion as to the legality of the shares of the common stock, stated
value $1.00 per share (the "Common Stock"), of Southside Bancshares Corp. (the
"Company") registered thereunder, which Common Stock is to be issued pursuant
to the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
February 25, 1998, by and among Public Service Bank, a federal savings bank,
South Side National Bank in St. Louis, a national banking association and
subsidiary of the Company, and the Company.
As counsel to the Company, we have participated in the preparation of
the Registration Statement. We have examined and are familiar with the
Company's Restated Articles of Incorporation, Restated Bylaws, records of
corporate proceedings and such other information and documents as we have
deemed necessary or appropriate.
Based upon the foregoing, we are of the opinion that the Common Stock
has been duly authorized and will, when issued as contemplated in the
Registration Statement and the Merger Agreement, be validly issued, fully paid
and non- assessable.
We consent to the use of this opinion as an Exhibit to the
Registration Statement.
Very truly yours,
/s/ Lewis, Rice & Fingersh, L.C.
LEWIS, RICE & FINGERSH, L.C.
<PAGE> 1
EXHIBIT 8
FORM OF FEDERAL TAX OPINION
___________, 1998
Board of Directors
Public Service Bank, a federal savings bank
6025 Chippewa Street
St. Louis, Missouri 63109
Re: Federal Income Tax Consequences of the Proposed Merger of Public
Service Bank, a Federal Savings Bank with and into Southside National
Bank in St. Louis
Dear Board Members:
You have requested our opinion concerning certain federal income tax
matters in connection with the contemplated merger (the "Merger") of Public
Service Bank, a federal savings bank ("Public Service"), a federally chartered
stock savings bank, with and into Southside National Bank in St. Louis
("Southside Bank"), a national bank. The proposed Merger will be effected
pursuant to the Agreement and Plan of Merger dated as of February 25, 1998 (the
"Agreement"), by and among Public Service, Southside and Southside Bancshares
Corp. (Southside") a Missouri corporation.
Except as otherwise defined herein, all terms defined in the Agreement
shall have the same meaning when used in this opinion.
The essential elements of the transaction are as follows:
(i) Public Service will merge with and into Southside Bank
(ii) Each outstanding shares of Public Service Common Stock will be
converted into the right to receive, at the election of the Public Service
shareholder and in accordance with the Agreement, (A) Southside Common
Stock with cash being paid in lieu of fractional share interests, (B) cash,
or (C) a combination of Southside Common Stock and cash; provided that, in
the aggregate, the total number of shares of Public Service Common Stock to
be converted into the right to receive cash must equal 40 percent of the
total number of shares of Public Service Common Stock
<PAGE> 2
Board of Directors
Public Service Bank.
___________, 1998
Page 2
outstanding prior to the Merger and the total number of shares of
Public Service Common Stock to be converted into Southside Common Stock
must equal at least 60 percent of the total number of shares of Public
Service Common Stock outstanding prior to the Merger. In the event that
the elections by Public Service shareholders do not result in the
required proportions of cash and stock being payable, the Agreement
sets forth a method for the allocation of cash and stock among Public
Service shareholders to achieve the required result.
(iii) The shares of Public Service Common Stock of Public
Service shareholders electing and who are allocated Southside Common
Stock automatically will be converted into shares of Southside Common
Stock. The shares of Public Service Common Stock of Public Service
shareholders electing cash and who are allocated cash will be entitled
to receive the cash so allocated in exchange for such shares. Holders
of Public Service Common Stock who make no election as between cash and
Southside Common Stock will receive cash and/or Southside Common Stock
as determined by Southside in implementing allocation procedures set
forth in the Agreement. Cash will be paid in lieu of fractional shares.
(iv) Following the Merger, Public Service Bank will cease its
separate existence and Southside Bank will be the continuing entity.
* * * * *
In rendering our opinion, we have examined and relied upon but have not
independently verified the accuracy and completeness of, the facts, information,
covenants and representations contained in the Agreement, the Form S-4
Registration Statement filed by Southside with the Securities and Exchange
Commission of ______________, 1998 (the "Registration Statement"), and such
other documents as we have deemed necessary or appropriate as a basis for our
opinion. In addition, we have relied upon certain representation letters
furnished to us by Public Service and Southside. Where such statements and
representations are made to the best knowledge and belief of the person making
such statement or representation, we have assumed the facts to be as so stated
and represented. We have also assumed that the Merger will be consummated in
accordance with the Agreement and Registration Statement. Our opinion is
conditioned on the initial and continuing accuracy of such facts, information,
covenants, representations, statements and assumptions.
In rendering our opinion, we have considered the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations promulgated
<PAGE> 3
Board of Directors
Public Service Bank.
___________, 1998
Page 3
thereunder, pertinent judicial authorities, and interpretive rulings as we have
considered relevant. Statutes, regulations, judicial decisions and
administrative interpretations are subject to change at any time and, in some
circumstances, with retroactive effect. A material change in the authorities
upon which our opinion is based could affect our conclusions.
Based solely upon the foregoing, we are of the opinion that under
current law for federal income tax purposes:
(i) The Merger qualifies as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code. Pursuant to Section
368(a)(2)(D) of the Code, the Merger is not disqualified from treatment
as a reorganization within the meaning of Section 368(a)(1)(A) because
Southside Common Stock will be conveyed to Public Service's
stockholders in exchange for their Public Service Common Stock.
(ii) No gain or loss will be recognized by a Public Service
shareholder upon the exchange of Public Service Common Stock solely for
Southside Common Stock.
(iii) Any gain realized by a Public Service shareholder who
receives Southside Common Stock and cash (excluding any cash received
in lieu of a fractional share of Southside Common Stock) in exchange
for Public Service Common Stock pursuant to the Merger will be
recognized in an amount not in excess of the amount of the cash
received (excluding any cash received in lieu of a fractional share of
Southside Common Stock), such gain will be capital gain unless the
receipt of the cash has the effect on the distribution of a dividend,
and any loss on the exchange will not be recognized.
(iv) The basis of the Southside Common Stock received by a
Public Service shareholder pursuant to the Merger will be the same as
the basis of the Public Service Common Stock exchanged therefor,
decreased by the amount of cash received, if any (excluding any cash
received in lieu of a fractional share of Southside Common Stock), and
increased by the amount of gain, if any, recognized on the exchange.
(v) The holding period of the Southside Common Stock received
by a Public Service shareholder pursuant to the Merger will include the
holding period of the Public Service Common Stock exchanged therefor;
provided the Public Service Common Stock is held as capital asset by
the shareholder at the Effective Time of the Merger.
(vi) A Public Service shareholder who receives cash in lieu of
a fractional share of Southside Common Stock will recognize gain or
loss equal to the difference
<PAGE> 4
Board of Directors
Public Service Bank.
___________, 1998
Page 4
between the cash received and the shareholder's basis in that
fractional share, and the gain or loss will be capital gain or loss if
the fractional share would have been a capital asset in the hands of
the shareholder.
(vii) Cash received by a Public Service shareholder who has
elected pursuant to a Cash Election to receive only cash and has
received only cash will be treated as a distribution in redemption of
the Public Service Common Stock held by that shareholder, subject to
the provisions and limitations of Section 302 of the Code.
* * * * *
Except as set forth above, we express no opinion as to the federal,
state, local or foreign consequences of the Merger or of any transactions
related thereto.
This opinion is solely for your benefit and is not to be used, quoted,
circulated or otherwise referred to without our express written permission.
Very truly yours,
BREYER & AGUGGIA
<PAGE> 1
Exhibit 23(b)
April 9, 1998
Board of Directors
Southside Bancshares, Inc.
3606 Gravois Avenue
St. Louis, Missouri 63116
RE: Registration Statement on Form S-4
To the Board of Directors:
We hereby consent to the filing of the form of our federal tax
opinion as an exhibit to the Registration Statement and to the reference to us
in the Proxy Statement/Prospectus included therein under the headings "THE
MERGER -- Certain Federal Income Tax Consequences" and "LEGAL AND TAX OPINIONS."
Sincerely,
/s/ Breyer & Aguggia
BREYER & AGUGGIA
Washington, D.C.
<PAGE> 1
EXHIBIT 23(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement on Form S-4 filed by Southside Bancshares Corp. of our report dated
February 25, 1998, on our audit of the consolidated balance sheets of Southside
Bancshares Corp. and subsidiaries as of December 31, 1997 and 1996, 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, 1997. We
also consent to the reference to our firm under the heading "Experts" in the
Proxy Statement/Prospectus.
/s/ KPMG PEAT MARWICK LLP
St. Louis, Missouri
April 9, 1998
<PAGE> 1
EXHIBIT 23(d)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Public Service Bank, a federal savings bank
We hereby consent to the use of our report on the consolidated financial
statements on Public Service Bank, a federal savings bank included in this
Registration Statement on Form S-4 and to the reference to our Firm under the
caption "Experts" in this Registration Statement.
MICHAEL TROKEY & COMPANY, P.C.
/s/ Michael Trokey & Company, P.C.
St. Louis, Missouri
April 9, 1998
<PAGE> 1
EXHIBIT 23(e)
CONSENT OF MANCHESTER PARTNERS, L.L.C.
Manchester Partners, L.L.C. hereby consents to the use of its name in the Proxy
Statement and Prospectus forming a part of the Registration Statement on Form
S-4 and to the filing of its letter attachment as Appendix B to the Proxy
Statement. In giving such consent, Manchester Partners, L.L.C. does not admit
that it falls within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, and the rules and
regulations issued thereunder.
St. Louis, Missouri
April 9, 1998 /s/ Manchester Partners, L.L.C.
------------------------------------
Manchester Partners, L.L.C.
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
1933 ACT REGISTRATION STATEMENT
of
SOUTHSIDE BANCSHARES CORP.
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below hereby constitutes and appoints THOMAS M. TESCHNER and JOSEPH W.
POPE, and each of them, as the true and lawful attorneys-in-fact and agents for
him and in his name, place or stead, in any and all capacities, to sign and
file, or cause to be signed and filed, with the Securities and Exchange
Commission (the "Commission"), any registration statement or statements on Form
S-4 under the Securities Act of 1933, as amended, relating to the issuance of
common stock of Southside Bancshares Corp. in connection with the Agreement and
Plan of Merger entered into by and between Public Service Bank, a federal
savings bank, South Side National Bank in St. Louis, a national banking
association, and Southside Bancshares Corp., a Missouri corporation, and any
and all amendments and supplements thereto, before or after effectiveness of
such statements, and any and all other documents required to be filed with the
Commission in connection therewith, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully and to all intents and purposes as
the undersigned might or could do in person, and ratifying and confirming all
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Dated: April 8, 1998
/s/ Howard F. Etling
Howard F. Etling
<PAGE> 2
POWER OF ATTORNEY
1933 ACT REGISTRATION STATEMENT
of
SOUTHSIDE BANCSHARES CORP.
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below hereby constitutes and appoints THOMAS M. TESCHNER and JOSEPH W.
POPE, and each of them, as the true and lawful attorneys-in-fact and agents for
him and in his name, place or stead, in any and all capacities, to sign and
file, or cause to be signed and filed, with the Securities and Exchange
Commission (the "Commission"), any registration statement or statements on Form
S-4 under the Securities Act of 1933, as amended, relating to the issuance of
common stock of Southside Bancshares Corp. in connection with the Agreement and
Plan of Merger entered into by and between Public Service Bank, a federal
savings bank, South Side National Bank in St. Louis, a national banking
association, and Southside Bancshares Corp., a Missouri corporation, and any
and all amendments and supplements thereto, before or after effectiveness of
such statements, and any and all other documents required to be filed with the
Commission in connection therewith, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully and to all intents and purposes as
the undersigned might or could do in person, and ratifying and confirming all
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Dated: April 8, 1998
/s/ Ralph Crancer, Jr.
Ralph Crancer, Jr.
<PAGE> 3
POWER OF ATTORNEY
1933 ACT REGISTRATION STATEMENT
of
SOUTHSIDE BANCSHARES CORP.
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below hereby constitutes and appoints THOMAS M. TESCHNER and JOSEPH W.
POPE, and each of them, as the true and lawful attorneys-in-fact and agents for
him and in his name, place or stead, in any and all capacities, to sign and
file, or cause to be signed and filed, with the Securities and Exchange
Commission (the "Commission"), any registration statement or statements on Form
S-4 under the Securities Act of 1933, as amended, relating to the issuance of
common stock of Southside Bancshares Corp. in connection with the Agreement and
Plan of Merger entered into by and between Public Service Bank, a federal
savings bank, South Side National Bank in St. Louis, a national banking
association, and Southside Bancshares Corp., a Missouri corporation, and any
and all amendments and supplements thereto, before or after effectiveness of
such statements, and any and all other documents required to be filed with the
Commission in connection therewith, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully and to all intents and purposes as
the undersigned might or could do in person, and ratifying and confirming all
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Dated: April 8, 1998
/s/ Joseph W. Beetz
Joseph W. Beetz
<PAGE> 4
POWER OF ATTORNEY
1933 ACT REGISTRATION STATEMENT
of
SOUTHSIDE BANCSHARES CORP.
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below hereby constitutes and appoints THOMAS M. TESCHNER and JOSEPH W.
POPE, and each of them, as the true and lawful attorneys-in-fact and agents for
him and in his name, place or stead, in any and all capacities, to sign and
file, or cause to be signed and filed, with the Securities and Exchange
Commission (the "Commission"), any registration statement or statements on Form
S-4 under the Securities Act of 1933, as amended, relating to the issuance of
common stock of Southside Bancshares Corp. in connection with the Agreement and
Plan of Merger entered into by and between Public Service Bank, a federal
savings bank, South Side National Bank in St. Louis, a national banking
association, and Southside Bancshares Corp., a Missouri corporation, and any
and all amendments and supplements thereto, before or after effectiveness of
such statements, and any and all other documents required to be filed with the
Commission in connection therewith, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully and to all intents and purposes as
the undersigned might or could do in person, and ratifying and confirming all
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Dated: April 8, 1998
/s/ Douglas P. Helein
Douglas P. Helein
<PAGE> 5
POWER OF ATTORNEY
1933 ACT REGISTRATION STATEMENT
of
SOUTHSIDE BANCSHARES CORP.
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below hereby constitutes and appoints THOMAS M. TESCHNER and JOSEPH W.
POPE, and each of them, as the true and lawful attorneys-in-fact and agents for
him and in his name, place or stead, in any and all capacities, to sign and
file, or cause to be signed and filed, with the Securities and Exchange
Commission (the "Commission"), any registration statement or statements on Form
S-4 under the Securities Act of 1933, as amended, relating to the issuance of
common stock of Southside Bancshares Corp. in connection with the Agreement and
Plan of Merger entered into by and between Public Service Bank, a federal
savings bank, South Side National Bank in St. Louis, a national banking
association, and Southside Bancshares Corp., a Missouri corporation, and any
and all amendments and supplements thereto, before or after effectiveness of
such statements, and any and all other documents required to be filed with the
Commission in connection therewith, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully and to all intents and purposes as
the undersigned might or could do in person, and ratifying and confirming all
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Dated: April 8, 1998
/s/Earle J. Kennedy, Jr.
Earle J. Kennedy, Jr.
<PAGE> 6
POWER OF ATTORNEY
1933 ACT REGISTRATION STATEMENT
of
SOUTHSIDE BANCSHARES CORP.
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below hereby constitutes and appoints THOMAS M. TESCHNER and JOSEPH W.
POPE, and each of them, as the true and lawful attorneys-in-fact and agents for
him and in his name, place or stead, in any and all capacities, to sign and
file, or cause to be signed and filed, with the Securities and Exchange
Commission (the "Commission"), any registration statement or statements on Form
S-4 under the Securities Act of 1933, as amended, relating to the issuance of
common stock of Southside Bancshares Corp. in connection with the Agreement and
Plan of Merger entered into by and between Public Service Bank, a federal
savings bank, South Side National Bank in St. Louis, a national banking
association, and Southside Bancshares Corp., a Missouri corporation, and any
and all amendments and supplements thereto, before or after effectiveness of
such statements, and any and all other documents required to be filed with the
Commission in connection therewith, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully and to all intents and purposes as
the undersigned might or could do in person, and ratifying and confirming all
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Dated: April 8, 1998
/s/ Norville K. McClain
Norville K. McClain
<PAGE> 7
POWER OF ATTORNEY
1933 ACT REGISTRATION STATEMENT
of
SOUTHSIDE BANCSHARES CORP.
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below hereby constitutes and appoints THOMAS M. TESCHNER and JOSEPH W.
POPE, and each of them, as the true and lawful attorneys-in-fact and agents for
him and in his name, place or stead, in any and all capacities, to sign and
file, or cause to be signed and filed, with the Securities and Exchange
Commission (the "Commission"), any registration statement or statements on Form
S-4 under the Securities Act of 1933, as amended, relating to the issuance of
common stock of Southside Bancshares Corp. in connection with the Agreement and
Plan of Merger entered into by and between Public Service Bank, a federal
savings bank, South Side National Bank in St. Louis, a national banking
association, and Southside Bancshares Corp., a Missouri corporation, and any
and all amendments and supplements thereto, before or after effectiveness of
such statements, and any and all other documents required to be filed with the
Commission in connection therewith, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully and to all intents and purposes as
the undersigned might or could do in person, and ratifying and confirming all
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Dated: April 8, 1998
/s/ Daniel J. Queen
Daniel J. Queen
<PAGE> 8
POWER OF ATTORNEY
1933 ACT REGISTRATION STATEMENT
of
SOUTHSIDE BANCSHARES CORP.
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below hereby constitutes and appoints THOMAS M. TESCHNER and JOSEPH W.
POPE, and each of them, as the true and lawful attorneys-in-fact and agents for
him and in his name, place or stead, in any and all capacities, to sign and
file, or cause to be signed and filed, with the Securities and Exchange
Commission (the "Commission"), any registration statement or statements on Form
S-4 under the Securities Act of 1933, as amended, relating to the issuance of
common stock of Southside Bancshares Corp. in connection with the Agreement and
Plan of Merger entered into by and between Public Service Bank, a federal
savings bank, South Side National Bank in St. Louis, a national banking
association, and Southside Bancshares Corp., a Missouri corporation, and any
and all amendments and supplements thereto, before or after effectiveness of
such statements, and any and all other documents required to be filed with the
Commission in connection therewith, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully and to all intents and purposes as
the undersigned might or could do in person, and ratifying and confirming all
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Dated: April 8, 1998
/s/ Richard G. Schroeder
Richard G. Schroeder
<PAGE> 9
\ POWER OF ATTORNEY
1933 ACT REGISTRATION STATEMENT
of
SOUTHSIDE BANCSHARES CORP.
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below hereby constitutes and appoints THOMAS M. TESCHNER as his true
and lawful attorney-in-fact and agent for him and in his name, place or stead,
in any and all capacities, to sign and file, or cause to be signed and filed,
with the Securities and Exchange Commission (the "Commission"), any
registration statement or statements on Form S-4 under the Securities Act of
1933, as amended, relating to the issuance of common stock of Southside
Bancshares Corp. in connection with the Agreement and Plan of Merger entered
into by and between Public Service Bank, a federal savings bank, South Side
National Bank in St. Louis, a national banking association, and Southside
Bancshares Corp., a Missouri corporation, and any and all amendments and
supplements thereto, before or after effectiveness of such statements, and any
and all other documents required to be filed with the Commission in connection
therewith, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done as fully and to all intents and purposes as the
undersigned might or could do in person, and ratifying and confirming all that
said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Dated: April 8, 1998
/s/ Joseph W. Pope
Joseph W. Pope
<PAGE> 10
POWER OF ATTORNEY
1933 ACT REGISTRATION STATEMENT
of
SOUTHSIDE BANCSHARES CORP.
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below hereby constitutes and appoints JOSEPH W. POPE as his true and
lawful attorney-in-fact and agent for him and in his name, place or stead, in
any and all capacities, to sign and file, or cause to be signed and filed, with
the Securities and Exchange Commission (the "Commission"), any registration
statement or statements on Form S-4 under the Securities Act of 1933, as
amended, relating to the issuance of common stock of Southside Bancshares Corp.
in connection with the Agreement and Plan of Merger entered into by and between
Public Service Bank, a federal savings bank, South Side National Bank in St.
Louis, a national banking association, and Southside Bancshares Corp., a
Missouri corporation, and any and all amendments and supplements thereto,
before or after effectiveness of such statements, and any and all other
documents required to be filed with the Commission in connection therewith,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite and necessary to be done as
fully and to all intents and purposes as the undersigned might or could do in
person, and ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Dated: April 8, 1998
/s/ Thomas M. Teschner
Thomas M. Teschner
<PAGE> 1
EXHIBIT 99(a)
REVOCABLE PROXY
SPECIAL MEETING OF SHAREHOLDERS
PUBLIC SERVICE BANK,
A FEDERAL SAVINGS BANK
______________, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
PUBLIC SERVICE BANK
The undersigned shareholder of Public Service Bank, a federal savings
bank ("PSB"), hereby appoints _____________________, and any of them, with full
power to act alone, as proxies, each with full power of substitution and
revocation, to vote all shares of Common Stock of PSB which the undersigned is
entitled to vote at the Special Meeting of Shareholders of PSB (the "Special
Meeting") to be held at ___________________________ on _________ __, 1998, at
_____ _.m., local time, and at any adjournment or adjournments thereof, with
all powers the undersigned would possess if personally present, on the
following:
Proposal to adopt and approve an Agreement and Plan of Merger, dated
February 25, 1998, by and among Public Service Bank, a federal savings
bank, and South Side National Bank in St. Louis, a National Banking
Association ("National Bank"), and Southside Bancshares Corp., a
Missouri corporation and parent corporation of National Bank,
providing for the merger of PSB with and into National Bank.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Proposal to permit the Special Meeting to be adjourned or postponed,
in the discretion of the proxies, which adjournment or postponement
could be used for the purpose, among others, of allowing time for the
solicitation of additional votes to approve the referenced Agreement
and Plan of Merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The undersigned hereby ratifies and confirms that all said proxies, or any of
them or their substitutes, may lawfully do or cause to be done by virtue
hereof, and acknowledges receipt of the notice of the Special Meeting and the
Proxy Statement/Prospectus accompanying it.
THIS PROXY WILL BE VOTED AS SPECIFIED BY YOU ABOVE. IF NO SPECIFICATION IS
MADE, YOUR SHARES WILL BE VOTED "FOR" THE PROPOSALS DESCRIBED ABOVE.
Dated ______________________, 1998. SIGN HERE:
------------------------------------
------------------------------------
Please insert date of signing. Sign
exactly as name appears at left.
Where stock is issued in two or more
names, all should sign. If signing
as attorney, administrator,
executor, trustee or guardian, give
full title as such. A corporation
should sign by an authorized officer
and affix seal.
