<PAGE>   1
                                                                      EXHIBIT 13


                           SOUTHSIDE BANCSHARES CORP.

                                  Annual Report

                                December 31, 2000

                   (With Independent Auditors' Report Thereon)







<PAGE>   2

                           SOUTHSIDE BANCSHARES CORP.


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                             Page

<S>                                                                                                          <C>
Southside Bancshares Corp. - Organization.................................................................     3

Financial Highlights......................................................................................     4

Management's Discussion and Analysis of Financial Condition and Results of Operations.....................     5

Statement of Management's Responsibility for Financial Statements.........................................    26

Independent Auditors' Report..............................................................................    27

Consolidated Financial Statements of Southside Bancshares Corp. and Subsidiaries:

     Balance Sheets.......................................................................................    28

     Statements of Income.................................................................................    29

     Statements of Shareholders' Equity and Comprehensive Income..........................................    30

     Statements of Cash Flows.............................................................................    31

     Notes to Consolidated Financial Statements...........................................................    32

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>

                                        2


<PAGE>   3



                    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 $737,427,000 at December 31, 2000. The following
table shows the total assets at December 31, 2000, 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, 2000
                  SUBSIDIARY BANKS                                                  (IN THOUSANDS)
                  --------------------------------------------                      --------------
<S>                                                                                <C>
                  South Side National Bank in St. Louis (SSNB)                        $498,300

                  State Bank of Jefferson County (SBJC)                                 73,806

                  Bank of Ste. Genevieve (BSG)                                          95,528

                  The Bank of St. Charles County (BSCC)                                 63,060
</TABLE>


     The Company's subsidiary banks, which operate 17 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. At
December 31, 2000, the combined market value of trust assets, including
fiduciary and custodial accounts, was approximately $223,000,000. 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 seven officers, the majority of whom are
also officers of South Side National Bank in St. Louis. South Side National Bank
in St. Louis is a national banking organization and employs 162 full-time and 19
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 88 full-time and 18 part-time employees.



                                       3

<PAGE>   4




                              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
                                                            2000         00/99       1999             99/98
---------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>      <C>                <C>
EARNINGS:
     Total interest income                            $   49,827           15%    $    43,168            2%
     Total interest expense                               26,482           31          20,263            2
     Net interest income                                  23,345            2          22,905            2
     Provision for loan losses                               361          702              45          (27)
     Net interest income after
       provision for loan losses                          22,984            1          22,860            2
     Net income                                            6,487            5           6,203           (9)
---------------------------------------------------------------------------------------------------------------------
SHARE DATA:
     Earnings per common share:
        Basic                                         $     0.78            5%    $      0.74          (10)%
        Diluted                                             0.77            7            0.72          (10)
     Dividends paid per common share                        0.32            -            0.32           10
     Book value (1)                                         8.42           10            7.66           (1)
     Tangible book value (1)                                8.01           11            7.21           (1)
     Shares outstanding (year end)(1)                  8,393,528           (2)      8,593,628           (1)
     Average shares outstanding                        8,363,828           (1)      8,414,752            1
     Average shares outstanding,
        including potentially
        dilutive shares                                8,437,139           (2)      8,598,161           (1)
---------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
     Total assets                                       $737,427            9%    $   678,152           11%
     Total deposits                                      574,194           11         515,810           (1)
     Total loans                                         463,406           18         392,437           10
     Allowance for loan losses                             5,179          (11)          5,830           (6)
     Short-term borrowings                                13,702           59           8,603          192
     FHLB borrowings                                      70,947          (15)         83,921          487
     Other borrowings                                      2,500          317             600          100
     Debt of Employee Stock
        Ownership Plan                                       988          (17)          1,186          100
     Total shareholders' equity                           69,401            8          64,408           (1)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                                                          As of and For the Years Ended December 31,
                                        -----------------------------------------------------------------------------
                                                              %                               %
                                                            Change                          Change
                                             1998            98/97          1997            97/96         1996
---------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                  <C>       <C>                   <C>      <C>
EARNINGS:
     Total interest income             $    42,227              7%    $    39,320              4%    $    37,868
     Total interest expense                 19,857              9          18,243              4          17,526
     Net interest income                    22,370              6          21,077              4          20,342
     Provision for loan losses                  62              3              60              -              60
     Net interest income after
       provision for loan losses            22,308              6          21,017              4          20,282
     Net income                              6,810              8           6,302              2           6,158
---------------------------------------------------------------------------------------------------------------------
SHARE DATA:
     Earnings per common share:
        Basic                               $ 0.82              6%    $      0.77              1%    $      0.76
        Diluted                               0.80              7            0.75              -            0.75
     Dividends paid per common share          0.29             26            0.23             35            0.17
     Book value (1)                           7.70             10            6.97              8            6.43
     Tangible book value (1)                  7.26              5            6.94              9            6.39
     Shares outstanding (year end)(1)    8,661,358              2       8,393,010             (1)      8,510,010
     Average shares outstanding          8,297,250              1       8,207,577              1       8,138,325
     Average shares outstanding,
        including potentially
        dilutive shares                  8,554,635              2       8,394,315              2       8,190,642
---------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
     Total assets                      $   610,293             11%    $   549,864              4%    $   527,907
     Total deposits                        523,289              8         483,363              3         467,276
     Total loans                           356,988              9         326,437             11         294,463
     Allowance for loan losses               6,192              1           6,120              9           5,602
     Short-term borrowings                   2,949            (45)          5,333            229           1,623
     FHLB borrowings                        14,287            100               -              -               -
     Other borrowings                            -              -               -              -               -
     Debt of Employee Stock
        Ownership Plan                           -              -               -           (100)          1,779
     Total shareholders' equity             64,964             15          56,653              7          52,841
---------------------------------------------------------------------------------------------------------------------
</TABLE>

                                 SELECTED RATIOS
<TABLE>
<CAPTION>
                                                                           As of and For the Years Ended December 31,
                                                               -----------------------------------------------------------------
                                                                2000            1999           1998           1997        1996
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>           <C>            <C>         <C>
Loan-to-deposit ratio                                           80.71%          76.08%         68.22%         67.53%      63.02%
Allowance for loan losses to total loans                         1.12            1.49           1.73           1.87        1.90
Dividend payout ratio                                           41.03           43.24          35.37          29.87       22.37
Return on average assets                                         0.92            0.97           1.15           1.18        1.20
Return on average shareholders' equity                           9.76            9.54          11.12          11.44       12.27
Average shareholders' equity to average total assets             9.37           10.22          10.38          10.28        9.75
Net interest margin on average interest-earning assets           3.76            4.05           4.15           4.34        4.42
Allowance for loan losses to nonperforming loans               114.10           84.30         136.08         175.16      473.54
Allowance for loan losses as a multiple of net charge-offs       5.1X           14.3x          25.1x         N/A(2)       60.2x
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Shares outstanding at December 31, 2000, 1999, 1998, 1997, and 1996 include
     148,248, 185,310, 222,372, 259,434, and 296,496 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)  The ratio was not applicable in 1997 as recoveries exceeded charge-offs for
     the year.




                                       4
<PAGE>   5



                    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, 2000 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. The national banking subsidiary, South Side National Bank in St.
Louis (SSNB), is subject to supervision and regulation by the Office of the
Comptroller of the Currency. 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 $59,275,000 to
$737,427,000 at December 31, 2000 compared to $678,152,000 at December 31, 1999.
In addition, total assets have increased by $187,563,000 or 34% since December
31, 1997. Beginning in 1998, the Company's strategic business plan placed
increased emphasis on growth of the organization. This has included the
acquisition of Public Service Bank in June 1998, two facilities opened during
1999, and increased marketing efforts over the past several years. These efforts
have resulted in a compound annual growth rate over the past three years of
approximately 10%, compared to approximately 2% for the three-year period ended
December 31, 1997. The Company's investment in increasing the size of the
organization has not come without cost. A highly competitive market place for
both loans and deposits has caused a decline in the net interest margin on
average earning assets, and the additional locations added in 1998 and 1999 have
increased operating expenses. Consequently, earnings growth has not kept pace
with asset growth in recent years; however, management continues to believe that
the growth achieved over the past few years will allow the Company to achieve
enhanced efficiency levels, expand its lending capacity, and offer a greater
variety of products and services to its customers because fixed costs can be
spread over a large customer base.

LOAN PORTFOLIO
     The Company's loan portfolio consists of business loans to small and medium
size companies; commercial, construction, and residential real estate loans; and
consumer loans. Traditionally, the majority of the loan portfolio has focused on
real estate as an integral component of a credit's underlying source of
collateral.

     The table below sets forth the components of the Company's loan portfolio
for each of the last five years:
<TABLE>
<CAPTION>
                                                                        (in thousands)
                                               2000           1999            1998           1997           1996
                                               ----           ----            ----           ----           ----
<S>                                         <C>            <C>           <C>            <C>              <C>
Commercial, financial, and
     agricultural                           $  78,586      $   73,943    $    68,166    $    69,168      $   62,016
Real estate - commercial                      157,771         136,697        115,214         98,759          82,045
Real estate - construction                     28,808          19,078         21,993         30,836          26,067
Real estate - residential                     161,252         131,074        119,917         92,028          96,039
Consumer                                       27,189          23,130         22,219         23,627          17,304
Industrial revenue bonds                        5,339           3,879          4,717          5,517           6,373
Other                                           4,461           4,636          4,762          6,502           4,619
                                             --------       ---------      ---------      ---------       ---------
                                             $463,406      $  392,437    $   356,988    $   326,437      $  294,463
                                             ========       =========      =========      =========       =========
</TABLE>



                                       5

<PAGE>   6


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


     Total loans increased $70,969,000 during 2000 due largely to growth in the
Company's commercial and residential real estate loan portfolios. While
competition for lending relationships remained strong during 2000, the Company
was able to build on the momentum generated during 1999 and increase the loan
portfolio by an additional 18.08% during 2000. Management believes it is
important to achieve growth in all sectors of the Company's loan portfolio,
which helps ensure diversification and mitigate credit risk.

     Following is a more detailed analysis of the changes in the individual loan
categories during 2000:

     -    Commercial, financial, and agricultural loans increased $4,643,000
          during 2000. This increase was due to normal growth from new loan
          relationships, as the Company continues to get opportunities to
          develop credit relationships with borrowers seeking the type of
          personalized service the Company is able to provide.

     -    Commercial real estate loans increased by $21,074,000 during 2000.
          This growth was the result of the Company's continued focus on
          attracting borrowers seeking personal service from their lending
          institution; the additional personnel hired in prior years, who have
          been able to bring established lending relationships with them; and
          the increased involvement of subsidiary bank directors.

     -    Real estate construction loans increased by $9,730,000 during 2000.
          After declining each of the past two years, activity in this area
          increased during 2000. This increase can also be attributed to
          increased involvement of subsidiary bank directors.

     -    Residential real estate loans increased $30,178,000 during 2000. The
          growth in this category includes both traditional one-to-four family
          and home equity loans. The acquisition of PSB in 1998 provided the
          Company with the necessary infrastructure to increase its
          participation in the residential lending area. Initially, it was
          anticipated that the majority of the loans would be sold into the
          secondary market; however, the interest rate environment during 2000
          caused most customers to choose adjustable rate mortgage products.
          Adjustable rate mortgage loans are typically retained by the Company,
          as they can be managed within the framework of the Company's overall
          asset/liability management philosophy. Long-term fixed rate loans are
          not as easy to match with deposits or borrowings and have
          traditionally been sold into the secondary market. With interest rates
          projected to decline during 2001, management anticipates some of the
          loans made during 1999 and 2000 will be refinanced into the secondary
          market during 2001.

     -    Consumer loans increased $4,059,000 during 2000. This increase can be
          attributed to a combination of increased marketing efforts in the
          retail area of the Company aimed at generating additional consumer
          loan business and the addition of several new sources of indirect
          consumer loans.

     -    Industrial revenue bonds increased $1,460,000 due to the addition of
          one new credit, which was partially offset by normal principal
          payments on existing loans.

     -    The decrease in other loans was due to normal principal reductions
          during the year. Very few types of credits fall into this category;
          accordingly, new loan generation is minimal.

     Total loans increased $35,449,000 during 1999 due largely to increases in
commercial and residential real estate loans. The increase in the commercial
real estate portfolio was the result of the Company's focus on attracting
borrowers seeking personal service, experienced lenders hired in 1998 and 1999
who were able to bring established lending relationships to the bank and
increased involvement of subsidiary bank directors. The increase in the
residential real estate portfolio was due to an increased demand for adjustable
rate mortgage loans.




                                       6
<PAGE>   7

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


ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS

     Implicit in lending activities is the consideration that losses will be
experienced and the amount of such losses will vary from time to time, depending
upon the risk characteristics of the portfolio, as affected by economic
conditions, competition, and the financial experience of borrowers. The
allowance for loan losses, which is designed to provide for probable losses
inherent in the lending process, is increased by the provision for loan losses
charged to expense and decreased by the amount of loans charged off, net of
recoveries. The allowance for loan losses provides for anticipated probable 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 LOAN LOSSES
<TABLE>
<CAPTION>
                                                                           (in thousands)
                                                                      Years Ended December 31,
                                                  -----------------------------------------------------------------
                                                    2000           1999          1998          1997          1996
                                                    ----           ----          ----          ----          ----
<S>                                               <C>           <C>            <C>           <C>           <C>
BALANCE AT BEGINNING OF YEAR                      $  5,830      $  6,192       $ 6,120       $ 5,602       $  5,635
Provision charged to expense                           361            45            62            60             60
Allowance of PSB at acquisition                          -             -           257             -              -
Loans charged off                                   (1,487)         (670)         (536)         (367)        (1,219)
Recoveries                                             475           263           289           825          1,126
                                                   -------        ------        ------        ------         ------
     Net (charge-offs) recoveries                   (1,012)         (407)         (247)          458            (93)
                                                   -------        ------        ------        ------         ------
BALANCE AT END OF YEAR                            $  5,179      $  5,830       $ 6,192       $ 6,120       $  5,602
                                                   =======        ======        ======        ======         ======
</TABLE>
<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                  -----------------------------------------------------------------
                                                    2000           1999          1998          1997         1996
                                                    ----           ----          ----          ----         ----
<S>                                               <C>              <C>           <C>          <C>           <C>
RATIOS:
     Allowance for loan losses:
        As % of total loans                          1.12%          1.49%        1.73%        1.87%          1.90%
        As multiple of net charge-offs                5.1X          14.3x        25.1x          *           60.2x
     Net charge-offs:
        As % of average total loans                   .23%           .11%         .07%          *             .03%
        As % of allowance for
          loan losses at year end                   19.54           6.98         3.99           *            1.66
</TABLE>

*    Ratios are not applicable for 1997, as recoveries exceeded charge-offs for
     the year.





                                       7

<PAGE>   8
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries


     The allowance for loan losses at December 31, 2000 was $5,179,000 or 1.12%
of the total loans outstanding compared to $5,830,000 or 1.49% in 1999 and
$6,192,000 or 1.73% in 1998. The balance of the allowance for loan losses
decreased $651,000 in 2000, as net charge-offs exceeded the provision for the
year. The increase in net charge-offs was primarily due to the disposition of
one large commercial credit, which is discussed in more detail below. This
decrease in the allowance, coupled with loan growth during the year, caused the
allowance as a percentage of total loans to decrease to its present level of
1.12%. The Company increased the provision during 2000 in light of the increase
in the loan portfolio. The $362,000 decrease in the allowance for loan losses
during 1999 was the result of net charge-offs exceeding the provision amount for
the year.

     Management records provisions for loan losses in amounts sufficient to
result in an allowance for loan losses that covers current net charge-offs and
probable losses 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 loan losses. Company
management believes the allowance for loan losses is adequate to cover probable
losses in the loan portfolio under current conditions.


                              NONPERFORMING ASSETS
<TABLE>
<CAPTION>
                                                                          (dollars in thousands)
                                                                               December 31,
                                                       ----------------------------------------------------------
                                                         2000         1999         1998         1997         1996
                                                         ----         ----         ----         ----         ----

<S>                                                    <C>           <C>           <C>         <C>           <C>
Nonaccrual loans                                       $4,200        $6,695        $3,189      $2,977        $1,037
Past due 90 days or more and still accruing interest      339           221         1,361         517           146
                                                       ------        ------        ------      ------        ------
            TOTAL NONPERFORMING LOANS                   4,539         6,916         4,550       3,494         1,183
Other real estate owned                                 1,597           835           886       1,024           860
                                                       ------        ------        ------      ------        ------
            TOTAL NONPERFORMING ASSETS                 $6,136        $7,751        $5,436      $4,518        $2,043
                                                       ======        ======        ======      ======        ======
RATIOS:
     Nonperforming loans as % of
         total loans                                     0.98%         1.76%         1.27%       1.07%         0.40%
     Nonperforming assets as % of
         total loans and other real
         estate owned                                    1.32          1.97          1.52        1.38          0.69
     Nonperforming assets as % of
         total assets                                    0.83          1.14          0.89        0.82          0.39
     Allowance for loan losses
         as % of nonperforming loans                   114.10         84.30        136.09      175.16        473.54
</TABLE>


     Nonperforming loans totaled $4,539,000 or .98% of the loan portfolio at
December 31, 2000 compared to $6,916,000 or 1.76% of the loan portfolio at
December 31, 1999. Nonperforming assets totaled $6,136,000 or .83% of total
assets at December 31, 2000 compared to $7,751,000 or 1.14% of total assets at
December 31, 1999. The decrease in both nonperforming loans and nonperforming
assets in 2000 was caused by the disposition of one commercial credit totaling
approximately $1,900.000. A portion of the collateral securing the credit was
sold and the proceeds were used to reduce the outstanding principal balance. The
remaining balance of $1,071,000, for which there was a specific allocation in
the allowance for loan losses, was charged against the allowance for loan
losses. Management continues to aggressively pursue collection of the remaining
collateral on this credit, however, because



                                       8
<PAGE>   9
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries


of the uncertainties involved in the collection process, management believes
charging off the balance in 2000 was the appropriate course of action.

     The 1999 increase in both nonperforming loans and nonperforming assets was
caused by an increase in nonaccrual loans, which was the result of the addition
of loans to two commercial borrowers. As discussed previously, one of these
credits went through the disposition process in 2000. The other borrower is
currently in the process of liquidating collateral to satisfy their obligations
and sufficient reserves have been allocated within the allowance for loan losses
should there be any shortfall.

     A loan is 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 90 days or more 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, 2000, there were no concentrations of
loans exceeding 10% of total loans, which were not disclosed as a category of
loans in note 4 to the consolidated financial statements of the Company.

     The amounts received in cash and recognized as interest income on
nonaccrual loans were $48,000, $62,000, and $194,000 for the years ended
December 31, 2000, 1999, and 1998, respectively. If the contractual interest on
these loans had been recognized, such income would have been $478,000, $623,000,
and $252,000 for the years ended December 31, 2000, 1999, and 1998,
respectively. There were no restructured loans at December 31, 2000 or 1999.


INVESTMENT PORTFOLIO

     The carrying value of the Company's investment portfolio decreased
$25,780,000 during 2000 as a result of growth in the loan portfolio. Because of
the increase in the Company's loan portfolio, the majority of the maturities and
paydowns in the investment portfolio were utilized to fund loan growth.

     The carrying value of the Company's investment portfolio increased
$38,294,000 during 1999 due to two leverage strategies executed during 1999,
which totaled $40,000,000. Similar to the strategy implemented in 1998, the
Company borrowed $40,000,000 from the Federal Home Loan Bank (FHLB) to fund the
purchase of mortgage-backed securities. Procedures have been established to
monitor the performance of these strategies on a monthly basis to ensure they
meet the original projections and continue to provide a reasonable spread
between the return on the assets purchased and the cost of the borrowings.
Excluding the effects of the leverage strategy, the Company's portfolio declined
slightly during 1999 because of growth in the loan portfolio.

     The Company's investment portfolio has historically provided a stable
earnings base, a secondary source of 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


                                       9

<PAGE>   10
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries


statements. Debt securities included in the available for sale category are
recorded in the consolidated financial statements at fair value.

     The amortized cost and fair value of the Company's available for sale and
held to maturity debt securities at December 31, 2000, 1999, and 1998 are shown
below:
<TABLE>
<CAPTION>
                                                                       (in thousands)
                                                  2000                      1999                      1998
                                        ----------------------     ----------------------     ---------------------
                                        AMORTIZED       FAIR        Amortized      Fair       Amortized     Fair
                                          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               $ 63,095      $ 63,140        $ 58,168      $ 56,970     $ 35,368    $ 35,835
    Obligations of states and
       political subdivisions            9,425         9,410           8,970         8,452        6,487       6,543
    Other securities                     5,258         5,258           4,915         4,914        2,321       2,323
                                      --------      --------        --------      --------     --------    --------
                                        77,778        77,808          72,053        70,336       44,176      44,701
    Mortgage-backed securities          81,016        80,220          91,801        88,294       53,328      53,194
                                      --------      --------        --------      --------     --------    --------
                                      $158,794      $158,028        $163,854      $158,630     $ 97,504    $ 97,895
                                      ========      ========        ========      ========     ========    ========

HELD TO MATURITY:
    U.S. Treasury securities
       and obligations of U.S.
       Government agencies
       and corporations               $ 14,899      $ 14,874        $ 36,784      $ 36,576     $ 55,769    $ 56,614
    Obligations of states and
       political subdivisions           20,039        20,300          23,165        23,094       25,647      26,568
    Other securities                      --            --               579           569         --          --
                                      --------      --------        --------      --------     --------    --------
                                        34,938        35,174          60,528        60,239       81,416      83,182
    Mortgage-backed securities           1,479         1,486           1,067         1,077        2,620       2,659
                                      --------      --------        --------      --------     --------    --------
                                      $ 36,417      $ 36,660        $ 61,595      $ 61,316     $ 84,036    $ 85,841
                                      ========      ========        ========      ========     ========    ========
</TABLE>

     The Company has designated certain debt securities with a fair value of
approximately $158,028,000 and $158,630,000 as available for sale at December
31, 2000 and 1999, respectively, with the differences of $766,000 and
$5,224,000, respectively, between the fair value and amortized cost of such
securities being recorded as an adjustment to the carrying value of the
securities. The offsetting adjustment is recorded, net of the related tax
effect, in shareholders' equity. Debt securities with an amortized cost of
$36,417,000 and $61,595,000 at December 31, 2000 and 1999, 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, 2000 and 1999
reflected fair values of $36,660,000 and $61,316,000, respectively, which
represent a net unrealized gain of $243,000 in 2000 and a net unrealized loss of
$279,000 in 1999. 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. The decrease in the held to maturity portfolio over the past few
years was largely due to maturities, and the fact that most new security
purchases are placed in the available-for-sale category.

     There were no sales of securities during 2000, 1999, and 1998.

     At December 31, 2000, there were no securities of a single issuer that
exceeded 10% of shareholders' equity.



                                       10

<PAGE>   11

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


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 $58,384,000 in 2000 and
decreased $7,479,000 in 1999.

     The increase in deposits during 2000 was largely to fund continued loan
growth. This growth necessitated taking a more aggressive approach towards
attracting and retaining deposits in order to meet current and future liquidity
needs. To accomplish this, the Company began a certificate of deposit promotion
priced near the upper end of deposit pricing in its local markets. The promotion
began in July and over the second half of 2000 resulted in approximately
$48,000,000 in new certificate of deposit relationships. In total, certificates
of deposits increased $62,587,000 during 2000. This increase was partially
offset by a $3,310,000 decrease in interest-bearing demand deposits and a
$3,512,000 decrease in savings deposits. Both decreases were due in large part
to the aforementioned certificates of deposit promotion. Because of the
attractive rate, some of the Company's money market and savings customers
decided to take advantage of the higher yield offered on the certificates of
deposits. Also contributing to the increase in total deposits were
noninterest-bearing demand deposits, which increased $2,619,000 due largely to
deposit accounts associated with new lending relationships. As the Company
attracted customers in both the commercial and residential real estate
portfolio, rate incentives were offered, which encouraged customers to also
develop deposit relationships with Company.

     The decrease in deposits during 1999 was largely due to a continued decline
in certificates of deposit. In 1997 and 1998, certificates of deposit
represented 47 percent of the Company's total deposits. In 1999, certificates of
deposit represent only 43 percent of deposits. This decline was caused by
several factors. First, the Company was not overly aggressive in its
certificates of deposit pricing because the loan-to-deposit ratio lagged behind
its peer group. Secondly, customers continued to liquidate certificates of
deposit in order to invest into mutual funds, equity securities and other
investment alternatives. Third, through much of 1999, depositors appeared more
inclined to keep their funds liquid, partially explaining the increase in money
market deposits, with the rising interest rate environment. Finally, Y2K
concerns also prompted some deposit customers to liquidate their certificates of
deposit at maturity during 1999. The decline in certificates of deposit was
partially offset by a $16,415,000 increase in interest-bearing demand deposits
and a $4,141,000 increase in noninterest-bearing demand deposits. These
increases can largely be attributed to customer preference for liquidity in
light of potential Y2K concerns.

                                       11

<PAGE>   12
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries


     The following table shows the breakdown of deposits at December 31, 2000,
1999, and 1998:
<TABLE>
<CAPTION>
                                                                   (dollars in thousands)
                                                  2000                      1999                       1998
                                          --------------------     ----------------------      ---------------------
                                                       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                      $ 77,196          14%        $ 74,577         14%     $ 70,436         13%
Interest-bearing demand deposits           155,516          27          158,826         31       142,411         27
Savings deposits                            58,810          10           62,322         12        65,351         13
Time deposits under $100,000               234,709          41          178,857         35       196,930         38
                                          --------    --------         --------   --------      --------   --------
         Total core deposits               526,231          92          474,582         92       475,128         91
Time deposits $100,000 and
     over                                   47,963           8           41,228          8        48,161          9
                                          --------    --------         --------   --------      --------   --------
         Total deposits                   $574,194         100%        $515,810        100%     $523,289        100%
                                          ========    ========         ========   ========      ========   ========
</TABLE>

     The following table shows the amount of time deposits $100,000 and over by
time remaining until maturity at December 31, 2000, 1999, and 1998:
<TABLE>
<CAPTION>
                                                                                (in thousands)
                                                                  2000              1999            1998
                                                                  ----              ----            ----

<S>                                                              <C>              <C>              <C>
                         Three months or less                    $ 8,474          $19,385          $29,546
                         Over three through six months            12,782            8,317            6,371
                         Over six through twelve months           19,442           10,942            8,096
                         Over twelve months                        7,265            2,584            4,148
                                                                 -------          -------          -------
                                                                 $47,963          $41,228          $48,161
                                                                 =======          =======          =======
</TABLE>

     The following table reflects the average daily balances, by category, at
December 31, 2000, 1999, and 1998, and their weighted average interest rates for
the respective years:
<TABLE>
<CAPTION>
                                                                     (dollars in thousands)
                                                  2000                      1999                       1998
                                            --------------------     ----------------------    --------------------
                                            AVERAGE      AVERAGE      Average     Average      Average      Average
                                            BALANCE       RATE        Balance      Rate        Balance       Rate
                                            -------       ----        -------      ----        -------       ----
<S>                                     <C>              <C>      <C>             <C>       <C>            <C>
Noninterest-bearing demand
     deposits                           $    73,231          - %  $    67,759         - %   $    62,235        - %
Interest-bearing demand deposits            164,134       3.58        154,909      3.10         146,149     3.32
Savings deposits                             61,382       2.44         65,113      2.43          61,632     2.49
Time deposits under $100,000                198,371       5.55        187,002      5.00         188,065     5.32
Time deposits $100,000 and over              41,251       5.69         44,817      4.83          52,026     5.23
                                           --------      =====       --------      ====        --------     ====
                                        $   538,369               $   519,600               $   510,107
                                           ========                  ========                  ========
</TABLE>

SHORT-TERM BORROWINGS

     Short-term borrowings are an alternative to other funding sources and
consist primarily of Federal funds purchased and securities sold under
agreements to repurchase.

     Securities sold under agreements to repurchase (REPO) represent an
alternative used by larger commercial deposit customers as a cash management
tool. Utilizing a daily REPO sweep account, commercial customers can earn
interest on their excess funds, while still ensuring these balances are
available to cover their operating needs. As with any transaction oriented cash
management account, the balances fluctuate based on the customer's cash
requirements on a given day. These accounts continue to gain favor with many of
our commercial customers, which is evidenced by the increased balance in 1999
and 2000.

                                       12

<PAGE>   13

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


     The following table is a summary of short-term borrowings at December 31,
2000, 1999, and 1998:

<TABLE>
<CAPTION>
                                                                                (in thousands)
                                                                     2000            1999             1998
                                                                     ----            ----             ----

<S>                                                             <C>              <C>               <C>
         Federal funds purchased                                $    5,750       $  1,000          $  -
         Securities sold under agreements
              to repurchase                                          7,952          7,603             2,949
                                                                    ------          -----             -----
                                                                $   13,702       $  8,603          $  2,949
                                                                    ======          =====             =====
</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)
                                                     2000                      1999                    1998
                                             --------------------      ---------------------   --------------------
                                              AVERAGE      AVERAGE      Average     Average     Average     Average
                                              BALANCE       RATE        Balance      Rate       Balance      Rate
                                              -------       ----        -------      ----       -------      ----
<S>                                         <C>            <C>         <C>          <C>        <C>          <C>
Federal funds purchased                     $   6,917       6.62%      $   448       4.24%     $    -          -  %
Securities sold under
     agreements to
     repurchase                                 6,691       4.47         3,041       4.14          3,289     4.44
                                               ------                    -----                     -----
                                            $  13,608                 $  3,489                 $   3,289
                                               ======                    =====                     =====
Total maximum short-term
     borrowings outstanding
     at any month end during
     the year                               $  28,602                 $  8,603                 $   6,802
                                               ======                    =====                     =====
Average short-term borrowings
     rate at end of year                                    5.38%                    4.20%                   4.44%
                                                            ====                     ====                    ====
</TABLE>


FHLB BORROWINGS

     The balance of FHLB borrowings decreased $12,974,000 during 2000, as the
Company replaced some of the borrowings used to fund loan growth with deposits.

     The balance of FHLB borrowings increased $69,634,000 during 1999. This
increase was due in part to the two leverage strategies totaling $40,000,000
implemented in 1999. The remainder of the increase was borrowings of the
Company's lead bank to fund short-term liquidity needs.


OTHER BORROWINGS

         In August 2000, the Company established a $5,000,000 line of credit
with UMB Bank, N.A. The purpose of this credit facility is to provide funding
for stock repurchases by the Company. During 2000, the Company funded the
repurchase of 200,100 shares of common stock with $1,900,000 in borrowings on
this line of credit. The note bears interest at the prime lending rate minus 50
basis points, is secured by all of the outstanding common stock of the Bank of
Ste. Genevieve and matures on August 28, 2001.


DEBT OF EMPLOYEE STOCK OWNERSHIP PLAN

     In September 1999, the Company's Employee Stock Ownership Plan borrowed
$1,186,000 from an unaffiliated financial institution. Previously, this debt was
financed through South Side National Bank in St. Louis, the proceeds of which
were used to purchase shares of the Company's common stock. The debt is
guaranteed by the Company and thus is reflected on the Company's consolidated
balance sheet. The decrease during 2000 was due to the $198,000 annual principal
payment due on the debt.


                                       13

<PAGE>   14

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


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.

     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 interest 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, 2000 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 historical analysis performed by the Company's
subsidiary banks, interest-bearing demand and savings


                                       14

<PAGE>   15
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries


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 using the analysis
performed by each of the four banks, which results in the following breakdown on
a consolidated basis: three months or less - 37%, three months through 12 months
- 38%, over one year through five years - 25%, and over five years - 0%.

     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 .91x is within an acceptable range.



                                       15

<PAGE>   16
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries


                REPRICING AND INTEREST RATE SENSITIVITY ANALYSIS

                             (dollars in thousands)

                                December 31, 2000

<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:
     Interest-bearing deposits with banks  $      896      $        -     $        -     $        -      $      896
     Federal funds sold                        16,383               -              -              -          16,383
     Investments available for sale            25,950          16,747         66,196         49,135         158,028
     Investments held to maturity               4,040           9,915         10,398         12,064          36,417
     Loans, net of unearned discount (1)      275,234          43,450        127,691         17,031         463,406
                                              -------        --------        -------       --------         -------
        Total interest-earning assets         322,503          70,112        204,285         78,230         675,130
                                              -------        --------        -------       --------         -------
Cumulative interest-earning assets            322,503         392,615        596,900        675,130         675,130
                                              -------         -------        -------        -------         -------

Interest-bearing liabilities:
     Interest-bearing demand deposits          63,497          56,221         35,798              -         155,516
     Savings deposits                          16,335          25,459         17,016              -          58,810
     Time deposits under $100,000              48,285         128,520         57,800            104         234,709
     Time deposits $100,000 and over            8,760          32,224          6,979              -          47,963
     Federal funds purchased                    5,750               -              -              -           5,750
     Securities sold under agreements
          to repurchase                         7,952               -              -              -           7,952
     Other borrowings                               -           1,900            600              -           2,500
     FHLB borrowings                           30,000           8,000         31,170          1,777          70,947
     Debt of Employee Stock
          Ownership Plan                            -               -            988              -             988
                                              -------         -------        -------        -------         -------
        Total interest-bearing liabilities    180,579         252,324        150,351          1,881         585,135
                                              -------         -------        -------         ------         -------

Cumulative interest-bearing
     liabilities                              180,579         432,903        583,254        585,135         585,135
                                              -------         -------        -------        -------         -------

Gap analysis:
     Interest sensitivity gap              $  141,924      $ (182,212)    $   53,934     $   76,349      $   89,995
                                              =======         ========       =======        =======         =======
     Cumulative interest
        sensitivity gap                    $  141,924      $  (40,288)    $   13,646     $   89,995      $   89,995
                                              =======         ========       =======        =======         =======

Cumulative gap ratio of interest-
     earning assets to interest-bearing
     liabilities                                1.79X           .91X           1.02X          1.15X           1.15X
                                              =======         ========       =======        =======         =======
</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.



                                       16

<PAGE>   17

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

     Capital is categorized into two types: Tier I and Tier II. Tier I capital
elements include total shareholders' equity less goodwill and excludes 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 loan losses. The maximum amount of the allowance for loan losses,
which can be included as Tier II capital, is 1.25% of risk-weighted assets.

     The capital guidelines require banking organizations to maintain a minimum
total capital ratio of 8% (of which at least 4% must be Tier I capital). The
Company's total capital ratios under the risk-weighted guidelines at December
31, 2000 and 1999 were 14.72% and 16.12%, respectively, which included Tier I
capital ratios of 13.66% and 14.87%, 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 9.15% and 9.81% at December 31, 2000 and 1999, respectively. These
ratios are well above the minimum risk-weighted capital requirements.



                                       17

<PAGE>   18

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

     All of the subsidiary banks of the Company also exceeded the various
regulatory capital requirements at December 31, 2000 and 1999. 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, 2000, 1999, and 1998:
<TABLE>
<CAPTION>
                                                                                  (dollars in thousands)
                                                                     ------------------------------------------------
                                                                     2000                  1999                  1998
                                                                     ----                  ----                  ----
<S>                                                            <C>                   <C>                   <C>
            RISK-BASED CAPITAL:
               Tier I capital                                  $    66,518           $    64,086           $    61,036
               Total capital                                        71,697                69,478                65,778
               Risk-weighted assets                                486,962               430,943               377,905
            RISK-BASED CAPITAL RATIOS:
               Tier I capital to risk-weighted assets                13.66%                14.87%                16.15%
               Minimum requirement                                    4.00                  4.00                  4.00
               Total capital to risk-weighted assets                 14.72                 16.12                 17.41
               Minimum requirement                                    8.00                  8.00                  8.00
                                                               ===========           ===========           ===========

            TIER I CAPITAL:
               Tier I capital                                  $    66,518           $    64,086           $    61,036
               Average fourth quarter total
                  consolidated assets less
                  intangibles                                      727,246               653,410               609,771
            LEVERAGE CAPITAL RATIOS:
               Tier I capital to average total
                  consolidated assets less
                  intangibles                                         9.15%                 9.81%                10.01%
               Minimum requirement                                    3.00                  3.00                  3.00
                                                               ===========           ===========           ===========
</TABLE>






                                       18


<PAGE>   19




RESULTS OF OPERATIONS
Southside Bancshares Corp. and Subsidiaries


                              RESULTS OF OPERATIONS

EARNINGS SUMMARY

     Net income was $6,487,000, $6,203,000, and $6,810,000 for the years ended
December 31, 2000, 1999, and 1998, respectively, which resulted in diluted
earnings per common share of $0.77, $0.72, and $0.80 in each of those years. The
$284,000 increase in net income during 2000 was attributable to increases in net
interest and noninterest income, which were partially offset by an increase in
the provision for loan losses and noninterest expense, as the growth achieved
over the past few years began to provide accretive effects to earnings. The
decrease in net income in 1999 versus 1998 was $607,000, and was largely due to
an increase in operating expenses associated with the Company's expansion
efforts in 1998 and 1999. In June 1998, the Company acquired two facilities as
part of the PSB acquisition, and in 1999, the Company opened its sixteenth and
seventeenth branches.

     Net income in 2000 results in a return on average assets (ROA) of 0.92%,
compared to 0.97% and 1.15% in 1999 and 1998, respectively. The decrease in the
Company's ROA was due to continued asset growth at the Company's subsidiary
banks; however, a competitive deposit environment forced the Company to fund the
asset growth with short-term borrowings and certificates of deposit. Both
represented an increase in the Company's cost of funds and further squeezed the
interest margin. This tightening of the net interest margin coupled with an
increase in operating expense caused earnings growth to lag behind asset growth.
The Company's ROE in 2000 was 9.76%, compared to 9.54% and 11.12% in 1999 and
1998, respectively. The increase in ROE in 2000 was due in part to the increase
in earnings. In addition, the Company continued its efforts to better utilize
excess capital including growth of the organization and the repurchase of common
stock.


NET INTEREST INCOME

     Net interest income on a tax-equivalent basis increased by $410,000,
$896,000, and $991,000 in 2000, 1999, and 1998, respectively. For the third
consecutive year, the increase in net interest income was the result of an
increase in average interest-earning assets, partially offset by a decrease in
the net interest margin on average interest-earning assets. Higher interest
rates during 2000 caused the average yield on interest-earning assets to
increase 36 basis points to 7.85%; this interest rate environment, combined with
a tightening of liquidity caused the Company's cost of funds to increase 62
basis points to 4.70%. Higher short-term interest rates caused an increase in
both interest-bearing demand deposits and short-term borrowing costs. Strong
asset growth caused the Company to utilize FHLB borrowings to fund loan growth
in the first half of 2000. During the second half of the year, the Company
replaced a portion of the borrowings and additional loan growth with an 11-month
certificate of deposit promotion. While this promotion was highly successful in
easing the Company's short-term liquidity needs, the interest rate paid to
attract these deposits contributed to the increase in the cost of funds.

     The increase in net interest income in 1999 was also the result of an
increase in average-earnings assets, which was partially offset by a decrease in
the net interest margin. Competition for lending relationships and an increase
in adjustable rate mortgage loans combined to drive the average yield on the
loan portfolio down by 33 basis points to 8.37% in 1999 from 8.70% in the prior
year. In addition, the $40,000,000 leverage strategies also added to the decline
in the net interest margin. The strategies were designed to match maturities of
investments and borrowings and earn a spread on the difference between the cost
of the borrowings and the interest earned on the assets purchased. The
strategies executed in 1999 were designed to provide a spread of 85 to 185 basis
points depending on fluctuations in the interest-rate environment during the
life of the underlying securities. While these strategies had a positive effect
on net interest income, they reduced net interest margin. The Company's deposit
and borrowing costs declined from 4.30% in 1998 to 4.08% in 1999. Because of
minimal loan growth in the first half of 1999, management was not aggressive in
deposit pricing throughout much of 1999.

         CONSOLIDATED AVERAGE BALANCE SHEETS AND AVERAGE INTEREST RATES


                                       19

<PAGE>   20

RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
<TABLE>
<CAPTION>
                                                                                   (dollars in thousands)
                                                                                   YEAR ENDED DECEMBER 31,
                                                                        -------------------------------------------
                                                                                            2000
                                                                        -------------------------------------------
                                                                                                           AVERAGE
                                                                                           INTEREST         RATES
                                                                           AVERAGE          INCOME/        EARNED/
                                                                           BALANCE          EXPENSE         PAID
                                                                           -------          -------         ----
<S>                                                                     <C>              <C>               <C>
ASSETS:
     Loans, net of unearned discount (1) (2) (3)                        $   430,819      $   36,565         8.49%
     Investments in debt securities:
        Taxable (4)                                                         177,796          11,428         6.43
        Exempt from Federal income taxes (3) (4)                             30,170           2,267         7.51
     Short-term investments                                                   7,964             515         6.47
                                                                          ---------        --------
              Total interest-earning assets/
                  interest income/overall yield (3)                         646,749          50,775         7.85
                                                                                           --------         ====
     Allowance for loan losses                                               (5,175)
     Cash and due from banks and interest-bearing
        deposits with banks                                                  17,380
     Other assets                                                            49,892
                                                                           --------
              TOTAL ASSETS                                              $   708,846
                                                                            =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
     Interest-bearing demand deposits                                   $   164,134           5,874         3.58%
     Savings deposits                                                        61,382           1,500         2.44
     Time deposits under $100,000                                           198,371          11,011         5.55
     Time deposits $100,000 and over                                         41,251           2,348         5.69
     Short-term borrowings                                                   13,608             757         5.56
     FHLB borrowings                                                         83,101           4,861         5.85
     Other borrowings                                                           578              52         9.00
     Debt of Employee Stock Ownership Plan                                    1,053              79         7.50
                                                                          ---------        --------
              Total interest-bearing liabilities/
                  interest expense/overall rate                             563,478          26,482         4.70%
                                                                                           --------         ----
     Noninterest-bearing demand deposits                                     73,231
     Other liabilities                                                        5,687
     Shareholders' equity                                                    66,450
                                                                            -------
              TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                $   708,846
                                                                            =======
NET INTEREST INCOME                                                                      $   24,293
                                                                                           ========
NET INTEREST MARGIN ON AVERAGE INTEREST-EARNING ASSETS                                                      3.76%
                                                                                                            ====
</TABLE>

(1) Interest income includes loan origination fees.
(2) Average balance includes nonaccrual loans.
(3) Interest yields are presented on a tax-equivalent basis. Nontaxable income
    has been adjusted upward by the amount of Federal income tax that would have
    been paid if the income had been taxable at a rate of 34%, adjusted downward
    by the disallowance of the interest cost to carry nontaxable loans and
    securities.
(4) Includes investments available for sale.




                                       20

<PAGE>   21

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


<TABLE>
<CAPTION>
                                              (dollars in thousands)
                                             Years Ended December 31,
------------------------------------------------------------------------------------------------------------------
                            1999                                                      1998
----------------------------------------------------------        ------------------------------------------------
                                                 Average                                                   Average
                            Interest              Rates                               Interest              Rates
        Average              Income/             Earned/            Average            Income/             Earned/
        Balance              Expense              Paid              Balance            Expense              Paid
------------------------------------------------------------------------------------------------------------------
<S>                       <C>                   <C>             <C>                 <C>                    <C>
      $  355,874          $   29,783              8.37%         $   345,902         $   30,085              8.70%

         179,546              10,823              6.03              153,345              9,172              5.98
          32,521               2,492              7.66               29,020              2,326              8.01
          21,720               1,048              4.83               24,975              1,261              5.05
         -------             -------                                -------            -------

         589,661              44,146              7.49              553,242             42,844              7.74
                             -------              ====                                  ------              ====
          (6,143)                                                    (6,160)

          18,665                                                     15,097
          34,193                                                     27,945
         -------                                                    -------
      $  636,376                                                $   590,124
         =======                                                    =======

      $  154,909               4,798              3.10%         $   146,149              4,848              3.32%
          65,113               1,579              2.43               61,632              1,535              2.49
         187,002               9,353              5.00              188,065              9,997              5.32
          44,817               2,164              4.83               52,026              2,721              5.23
           3,489                 145              4.16                3,289                146              4.44
          41,406               2,198              5.31               10,659                610              5.72
               -                   -                 -                    -                  -                 -
             347                  26              7.50                    -                  -                 -
         -------             -------                                -------            --------

         497,083              20,263              4.08              461,820             19,857              4.30
                             -------              ====                                 -------              ====
          67,759                                                     62,235
           6,504                                                      4,813
          65,030                                                     61,256
         -------                                                    -------
      $  636,376                                                $   590,124
         =======                                                    =======
                          $   23,883                                                $   22,987
                             =======                                                   =======
                                                  4.05%                                                     4.15%
                                                  ====                                                      ====
</TABLE>


                                       20
<PAGE>   22

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,
                                                     ------------------------------------------------------------------------------
                                                             2000 COMPARED TO 1999                    1999 Compared to 1998
                                                     -------------------------------------     ------------------------------------
                                                                     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                                            $ 6,782       $ 6,350       $   432       $  (302)      $   855       $(1,157)
     Investment securities:
        Taxable                                           605          (107)          712         1,651         1,574            77
        Exempt from Federal income
          taxes                                          (225)         (177)          (48)          166           271          (105)
     Short-term investments                              (533)         (811)          278          (213)         (160)          (53)
                                                      -------       -------       -------       -------       -------       -------
          TOTAL INTEREST INCOME                         6,629         5,255         1,374         1,302         2,540        (1,238)
                                                      -------       -------       -------       -------       -------       -------
Changes in interest expense on:
     Interest-bearing demand
        deposits                                        1,076           299           777           (50)          282          (332)
     Savings deposits                                     (79)          (86)            7            44            83           (39)
     Time deposits under $100,000                       1,658           590         1,068          (644)          (56)         (588)
     Time deposits $100,000
        and over                                          184          (181)          365          (557)         (359)         (198)
     Short-term borrowings                                612           548            64            (1)            9           (10)
     FHLB borrowings                                    2,663         2,419           244         1,588         1,635           (47)
     Other borrowings                                      52            52          --            --            --            --
     ESOP debt                                             53            53          --              26            26          --
                                                      -------       -------       -------       -------       -------       -------
          TOTAL INTEREST EXPENSE                        6,219         3,694         2,525           406         1,620        (1,214)
                                                      -------       -------       -------       -------       -------       -------
CHANGE IN NET INTEREST INCOME                         $   410       $ 1,561       $(1,151)      $   896       $   920       $   (24)
                                                      =======       =======       =======       =======       =======       =======
</TABLE>

PROVISION FOR LOAN LOSSES

     Management records provisions for loan losses in amounts sufficient to
result in an allowance for loan losses that covers probable losses 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, loan review staff, and bank regulatory agencies. The provision for
loan losses increased $316,000 to $361,000 in 2000, compared to $45,000 in the
prior year. The increase in the provision was largely the result of loan growth
achieved over the past several quarters resulting in increased risk. The
provision for loan losses was relatively low in 1999, largely due to the fact
that the Company experienced a relatively low level of net charge-offs during
1999. The provision for loan losses was $361,000 in 2000, $45,000 in 1999, and
$62,000 in 1998.

NONINTEREST INCOME

     Noninterest income increased $846,000 to $4,404,000 in 2000 compared to
$3,558,000 the prior year. The increase was due to a $152,000 increase in
service charge income resulting from management's commitment to improving
results in this area and a $911,000 increase in other income. The increase in
other income was largely




                                       22
<PAGE>   23

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

the result of earnings on the cash surrender value of company-owned life
insurance polices, which were purchased to offset the cost of deferred director
fee and salary continuation programs at the Company and at its subsidiary banks.
These two increases were partially offset by a $209,000 decline in gains on
sales of loans. During most of 2000, borrowers continued to choose adjustable
rate loan products, which are not sold into the secondary market; however, as
interest rates on long-term fixed rate mortgage products and adjustable rate
mortgage products have begun to converge, borrowers appear to be moving back
into fixed rate loan products.

     Noninterest income increased $227,000 in 1999 to $3,558,000. The increase
was due to increases in trust fees, service charges, and other income, as well
as a decrease in losses on the other real estate owned (OREO), all of which were
partially offset by a decrease in gains on sales of loans. The increase in trust
fee income was largely due to another strong year in the stock market, as well
as continued growth in the Company's personal trust business, which is the most
profitable area within the trust department. The increase in service charge
revenue resulted from pricing changes implemented in the current year to bring
the Company's service charge in line with its competitors. The decrease in
losses on the sales of OREO was due to the fact that there were no net gains or
losses on the sales of properties in 1999. The decrease in gains on sales of
loans was due, in large part, to the increasing interest rate environment during
1999. By the second half of the year, virtually all of the loans being generated
were adjustable rate mortgages. These loans, which the Company keeps for its own
portfolio, do not generate secondary market fee income. The increase in other
income was due to earnings on company-owned life insurance purchased to offset
the cost of deferred board fee and salary continuation programs which were
established for directors and officers of the Company and the subsidiary banks.

NONINTEREST EXPENSE

     Noninterest expense increased $1,034,000 during 2000. This increase was the
result of increases in each of the expense categories. Salaries and employees
benefits increased $468,000 or 5% due in large part to normal pay increases. The
$81,000 increase in occupancy expense was mainly due to having an entire year of
costs associated with the branches opened in 1999. The $53,000 increase in data
processing expense was the result of the Company's continuing investment in
technology, which allows the Company to offer a wide range of products and
services to its customers. The increase in advertising expense was planned as
part of the Company's strategic business plan to grow the organization. The
$194,000 increase in attorney's fees can be attributed to the costs associated
with working certain problem credits through the collection process and legal
fees associated with the Company's Tender Offer to purchase shares through a
modified "Dutch Auction". Other noninterest expense remained relatively
unchanged from the prior year.

     Noninterest expense increased $1,735,000 during 1999. The increase in
noninterest expense can largely be attributed to the Company's recent expansion
efforts. Salaries and benefits increased $687,000 from 1998 to 1999.
Approximately one half of the increase was due to normal wage increases, the
remainder was due to a full year of personnel costs for the two PSB branches
versus only a half year in 1998, and the personnel costs associated with the two
branches opened in 1999. The $485,000 increase in occupancy expense was also the
result of these new branches. The increase in data processing expense of
$177,000 included the additional costs of operating the new facilities, as well
as costs for finalizing the Company's Y2K preparedness. The increase in other
expenses was also due to costs associated with the additional facilities
including supplies, telephone, and other bank services.

INCOME TAXES

     Income tax expense was $2,358,000 in 2000 compared to $2,706,000 and
$3,055,000 in 1999 and 1998, respectively. The Company's effective tax rate
decreased to 26.7% in 2000, compared to 30.3% in 1999 and 31.1% in 1998. The
decrease in the effective tax rate in 2000 was due to an increase in low-income
housing tax credits and the purchase of company-owned life insurance, the
earnings on which are exempt from Federal and state income tax.

ACCOUNTING PRONOUNCEMENTS



                                       23
<PAGE>   24

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

      Statement of Financial Accounting Standards (SFAS) 133, Accounting for
Derivative Instruments and Hedging Activities, which was issued in June 1998,
establishes accounting and reporting standards for derivative instruments and
hedging activities. Under SFAS 133, derivatives are recognized on the balance
sheet at fair value as an asset or liability. Changes in the fair value of
derivatives are reported as a component of other comprehensive income or
recognized as earnings through the income statement depending on the nature of
the instrument. In June 1999, the FASB issued SFAS 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133, an Amendment of FASB Statement No. 133, which defers
the effective date of SFAS 133 from fiscal years beginning after June 15, 1999
to fiscal years beginning after June 15, 2000. Initial application should be as
of the beginning of an entity's fiscal quarter; on that date, hedging
relationships must be designated and documented pursuant to the provisions of
SFAS 133, as amended. Earlier application of all of the provisions is encouraged
but is permitted only as of the beginning of any fiscal quarter that begins
after the issuance date of SFAS 133, as amended. Additionally, SFAS 133, as
amended, should not be applied retroactively to financial statements of prior
periods. In June 2000, the FASB issued SFAS No. 138 - Accounting for Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement No. 133,
which addresses a limited number of issues causing implementation difficulties
for numerous entities that apply SFAS 133, as amended. SFAS 138 amends the
accounting and reporting standards of SFAS 133, as amended, for certain
derivative instruments, certain hedging activities and for decisions made by the
FASB relating to the Derivatives Implementation Group (DIG) process. The Company
adopted SFAS 133 as of January 1, 2001, and it did not have a material impact on
the consolidated financial statements.

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 coincide 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 $233,000 and $3,517,000 as of December 31, 2000 and
1999, respectively, while the fair value of financial instrument liabilities was
less than the balance sheet amounts of those instruments by $1,983,000 and
$79,000 as of December 31, 2000 and 1999, respectively.



                                       24
<PAGE>   25

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

     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, 2000 and do not reflect amounts which would be ultimately
realized in the normal course of business.


                    COMMON STOCK - MARKET PRICE AND DIVIDENDS

     The Company's common stock is traded on The NASDAQ Stock Market 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>
                                           2000                                            1999
                           ------------------------------------          --------------------------------------
 QUARTER                   1ST         2ND         3RD       4TH         1st         2nd         3rd         4th
                           ---         ---         ---       ---         ---         ---         ---         ---

<S>                   <C>         <C>        <C>        <C>          <C>        <C>          <C>         <C>
Low bid               $    7.50   $   6.50   $    7.375 $    6.875   $  10.75   $   10.00    $   9.00    $   8.31
High bid                  10.00       9.25       10.00       8.50       13.00       11.63       11.31        9.75
Dividends paid
     per common
     share                  .08        .08         .08        .08         .08         .08         .08         .08
                            ===        ===         ===        ===         ===         ===         ===         ===
</TABLE>

     The market price of the Company's common stock on February 16, 2001 was
$10.875 bid, $11.438 asked. The approximate number of shareholders of the common
stock of the Company as of February 16, 2000 was 1,000.

FINANCIAL REPORT

     A copy of the Company's 2000 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 July 26, 2001 at South Side National Bank's Telegraph
facility, which is located at 4111 Telegraph Road, St. Louis, Missouri.

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

TRANSFER AGENT

     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.



                                       25
<PAGE>   26



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

                    STATEMENT OF MANAGEMENT'S RESPONSIBILITY
                            FOR FINANCIAL STATEMENTS


                                February 16, 2001




The management of Southside Bancshares Corp. (the Company) 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 accounting principles generally accepted in the
United States of America 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 accounting principles generally accepted in the United States of
America 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 LLP,
independent certified public accountants. Their Independent Auditors' Report,
which is based on an audit made in accordance with auditing standards generally
accepted in the United States of America, expresses an opinion as to the fair
presentation of the consolidated financial statements. In performing their
audit, KPMG LLP considers the Company's internal control to the extent they deem
necessary in order to issue their opinion on the consolidated financial
statements.

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




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



                                       26
<PAGE>   27

                          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, 2000 and 1999, and the
related consolidated statements of income, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2000. 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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.




St. Louis, Missouri
February 16, 2001



                                       27
<PAGE>   28


                   SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 2000 AND 1999

                    (dollars in thousands, except share data)


<TABLE>
<CAPTION>
                                            ASSETS                                                    2000                  1999
                                                                                                      ----                  ----
<S>                                                                                                 <C>                   <C>
Cash and due from banks ................................................................            $  17,102             $  19,311
Interest-bearing deposits in banks .....................................................                  896                   159
                                                                                                    ---------             ---------
              Cash and cash equivalents ................................................               17,998                19,470
                                                                                                    ---------             ---------
Federal funds sold .....................................................................               16,383                 2,600
Investments in debt and equity securities:
     Available for sale, at fair value .................................................              158,028               158,630
     Held to maturity, at amortized cost (fair value
        of $36,660 in 2000 and $61,316 in 1999) ........................................               36,417                61,595
                                                                                                    ---------             ---------
              Total investments in debt and equity securities ..........................              194,445               220,225
                                                                                                    ---------             ---------
Loans, net of unearned discount ........................................................              463,406               392,437
     Less allowance for loan losses ....................................................                5,179                 5,830
                                                                                                    ---------             ---------
              Loans, net ...............................................................              458,227               386,607
                                                                                                    ---------             ---------
Premises and equipment .................................................................               17,206                17,563
Other assets ...........................................................................               33,168                31,687
                                                                                                    ---------             ---------
              TOTAL ASSETS .............................................................            $ 737,427             $ 678,152
                                                                                                    =========             =========

                          LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
     Noninterest-bearing ...............................................................            $  77,196             $  74,577
     Interest-bearing ..................................................................              496,998               441,233
                                                                                                    ---------             ---------
              Total deposits ...........................................................              574,194               515,810
Federal funds purchased ................................................................                5,750                 1,000
Securities sold under agreements to repurchase .........................................                7,952                 7,603
FHLB borrowings ........................................................................               70,947                83,921
Other borrowings .......................................................................                2,500                   600
Debt of Employee Stock Ownership Plan ..................................................                  988                 1,186
Other liabilities ......................................................................                5,695                 3,624
                                                                                                    ---------             ---------
              Total liabilities ........................................................              668,026               613,744
                                                                                                    ---------             ---------
Commitments and contingent liabilities
Shareholders' equity:
     Cumulative preferred stock, no par value, 1,000,000 shares
        authorized and unissued ........................................................                 --                    --
     Common stock, $1 par value, 15,000,000 shares authorized,
        8,985,378 shares issued in 2000 and 1999 .......................................                8,985                 8,985
     Surplus ...........................................................................                5,516                 5,431
     Retained earnings .................................................................               62,592                58,765
     Unearned Employee Stock Ownership Plan shares .....................................                 (791)                 (988)
     Treasury stock, at cost, 591,850 and 391,750 shares in
        2000 and 1999, respectively ....................................................               (6,394)               (4,335)
     Accumulated other comprehensive income (loss) .....................................                 (507)               (3,450)
                                                                                                    ---------             ---------
              Total shareholders' equity ...............................................               69,401                64,408
                                                                                                    ---------             ---------
              TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...............................            $ 737,427             $ 678,152
                                                                                                    =========             =========
</TABLE>


See accompanying notes to consolidated financial statements.



                                       28
<PAGE>   29



                   SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                  YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
                    (dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                             2000           1999             1998
                                                                                             ----           ----             ----
<S>                                                                                       <C>            <C>            <C>
Interest income:
     Interest and fees on loans .....................................................     $   36,388     $   29,652     $    30,259
     Interest on investments in debt and equity securities available for sale:
        Taxable .....................................................................          9,769          8,085           4,614
        Exempt from Federal income taxes ............................................            422            368             162
     Interest on investments in debt securities held to maturity:
        Taxable .....................................................................          1,659          2,738           4,558
        Exempt from Federal income taxes ............................................          1,074          1,277           1,373
     Interest on short-term investments .............................................            515          1,048           1,261
                                                                                          ----------     ----------     -----------
               TOTAL INTEREST INCOME ................................................         49,827         43,168          42,227
                                                                                          ----------     ----------     -----------
Interest expense:
     Interest on deposits ...........................................................         20,733         17,894          19,101
     Interest on short-term borrowings ..............................................            757            145             146
     Interest on FHLB borrowings ....................................................          4,861          2,198             610
     Other borrowings ...............................................................             52           --              --
     Interest on debt of Employee Stock Ownership Plan ..............................             79             26            --
                                                                                          ----------     ----------     -----------
               TOTAL INTEREST EXPENSE ...............................................         26,482         20,263          19,857
                                                                                          ----------     ----------     -----------
               NET INTEREST INCOME ..................................................         23,345         22,905          22,370
Provision for loan losses ...........................................................            361             45              62
                                                                                          ----------     ----------     -----------
               NET INTEREST INCOME AFTER PROVISION
                   FOR LOAN LOSSES ..................................................         22,984         22,860          22,308
                                                                                          ----------     ----------     -----------
Noninterest income:
     Trust fees .....................................................................          1,217          1,225           1,142
     Service charges on deposit accounts ............................................          1,602          1,450           1,330
     Gains on the sales of loans ....................................................             66            275             430
     Net losses on sales of other real estate owned and other
        foreclosed property .........................................................           --             --              (104)
     Other ..........................................................................          1,519            608             533
                                                                                          ----------     ----------     -----------
               TOTAL NONINTEREST INCOME .............................................          4,404          3,558           3,331
                                                                                          ----------     ----------     -----------
Noninterest expense:
     Salaries and employee benefits .................................................          9,402          8,934           8,247
     Net occupancy and equipment expense ............................................          2,817          2,736           2,251
     Data processing ................................................................            803            750             573
     Advertising ....................................................................            614            440             420
     Attorney fees ..................................................................            420            226             327
     Other ..........................................................................          4,487          4,423           3,956
                                                                                          ----------     ----------     -----------
               TOTAL NONINTEREST EXPENSE ............................................         18,543         17,509          15,774
                                                                                          ----------     ----------     -----------
               INCOME BEFORE INCOME
                   TAX EXPENSE ......................................................          8,845          8,909           9,865
Income tax expense ..................................................................          2,358          2,706           3,055
                                                                                          ----------     ----------     -----------
               NET INCOME ...........................................................     $    6,487     $    6,203     $     6,810
                                                                                          ==========     ==========     ===========
SHARE DATA:
     Earnings per common share - basic ..............................................     $     0.78     $     0.74     $      0.82
                                                                                          ==========     ==========     ===========
     Earnings per common share - diluted ............................................     $     0.77     $     0.72     $      0.80
                                                                                          ==========     ==========     ===========
     Dividends paid per common share ................................................     $     0.32     $     0.32     $      0.29
                                                                                          ==========     ==========     ===========
             Average common shares outstanding ......................................      8,363,828      8,414,752       8,297,250
                                                                                          ==========     ==========     ===========
     Average common shares outstanding, including
        potentially dilutive shares .................................................      8,437,139      8,598,161       8,554,635
                                                                                          ==========     ==========     ===========
</TABLE>

See accompanying notes to consolidated financial statements.



                                       29
<PAGE>   30



                   SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME

                  YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998

                    (dollars in thousands, except share data)





<TABLE>
<CAPTION>
                                                                                                            ACCUMULATED
                                                                                       UNEARNED              OTHER COM-
                                                    COMMON                RETAINED       ESOP      TREASURY  PREHENSIVE
                                                    STOCK     SURPLUS     EARNINGS      SHARES      STOCK   INCOME (LOSS)   TOTAL
                                                    -----     -------     --------      ------      -----   -------------   -----
<S>                                                 <C>       <C>         <C>          <C>         <C>      <C>             <C>
BALANCE AT DECEMBER 31, 1997 ...................    $8,577    $   305     $ 50,841     $(1,384)    $(1,820)    $   134     $ 56,653
Comprehensive income:
     Net income ................................      --         --          6,810        --          --          --          6,810
     Change in net unrealized gain
       (loss) on available for sale
       securities, net of tax effect ...........      --         --           --          --          --           124          124
                                                    ------    -------     --------     -------     -------     -------     --------
           Total comprehensive income ..........      --         --          6,810        --          --           124        6,934
Cash dividends paid ($.29 per share) ...........      --         --         (2,402)       --          --          --         (2,402)
Allocation of 37,062 shares to
     ESOP participants .........................      --          263         --           198        --          --            461
Stock options exercised ........................      --          (90)        --          --            90        --           --
Issuance of 408,348 common shares
     in acquisition ............................       408      4,770         --          --          --          --          5,178
Purchase of 140,000 common shares
     for treasury ..............................      --         --           --          --        (1,860)       --         (1,860)
                                                    ------    -------     --------     -------     -------     -------     --------
BALANCE AT DECEMBER 31, 1998 ...................     8,985      5,248       55,249      (1,186)     (3,590)        258       64,964
Comprehensive income:
     Net income ................................      --         --          6,203        --          --          --          6,203
     Change in net unrealized gain
       (loss) on available for sale
       securities, net of tax effect ...........      --         --           --          --          --        (3,708)      (3,708)
                                                    ------    -------     --------     -------     -------     -------     --------
            Total comprehensive income .........      --         --          6,203        --          --        (3,708)
                                                                                                                              2,495
Cash dividends paid ($.32 per share) ...........      --         --         (2,687)       --          --          --         (2,687)
Allocation of 37,062 shares to
     ESOP participants .........................      --          183         --           198        --          --            381
Purchase of 67,730 common shares
     for treasury ..............................      --         --           --          --          (745)       --           (745)
                                                    ------    -------     --------     -------     -------     -------     --------
BALANCE AT DECEMBER 31, 1999 ...................     8,985      5,431       58,765        (988)     (4,335)     (3,450)      64,408
Comprehensive income:
     Net income ................................      --         --          6,487        --          --          --          6,487
     Change in net unrealized gain
       (loss) on available for sale
       securities, net of tax effect ...........      --         --           --          --          --         2,943        2,943
                                                    ------    -------     --------     -------     -------     -------     --------
            Total comprehensive income .........      --         --          6,487        --          --         2,943        9,430

Cash dividends paid ($.32 per share) ...........      --         --         (2,660)       --          --          --         (2,660)
Allocation of 37,062 shares to
     ESOP participants .........................      --           85         --           197        --          --
                                                                                                                                282
Purchase of 200,100 common shares
     for treasury ..............................      --         --           --          --        (2,059)       --         (2,059)
                                                    ------    -------     --------     -------     -------     -------     --------
BALANCE AT DECEMBER 31, 2000 ...................    $8,985    $ 5,516     $ 62,592     $  (791)    $(6,394)    $  (507)    $ 69,401
                                                    ======    =======     ========     =======     =======     =======     ========
</TABLE>


See accompanying notes to consolidated financial statements.


                                       30
<PAGE>   31


                   SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                                               2000           1999           1998
                                                                                               ----           ----           ----
<S>                                                                                          <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income .......................................................................      $  6,487       $  6,203       $  6,810
     Adjustments to reconcile net income to net cash provided by
        operating activities:
           Depreciation and amortization ..............................................         2,126          2,399          1,686
           Provision for loan losses ..................................................           361             45             62
           Provision for deferred income taxes ........................................            (9)           (63)            (7)
           Net losses on sales of other real estate owned and
                 other foreclosed property ............................................          --             --              104
           Increase (decrease) in income taxes payable ................................           714            133           (370)
           Increase in accrued interest receivable ....................................          (404)          (317)          (234)
           Increase (decrease) in accrued interest payable ............................           765           (382)           280
           Employee Stock Ownership Plan compensation expense .........................           282            381            461
           Origination of loans for sale ..............................................        (4,256)       (15,992)       (31,798)
           Proceeds from sales of loans ...............................................         3,886         16,267         32,228
           Other operating activities, net ............................................          (833)          (735)        (1,059)
                                                                                             --------       --------       --------
                NET CASH PROVIDED BY OPERATING ACTIVITIES .............................         9,119          7,939          8,163
                                                                                             --------       --------       --------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Net (increase) decrease in Federal funds sold ....................................       (13,783)        27,300        (12,700)
     Proceeds from maturities of and principal payments on debt securities:
        Available for sale ............................................................        25,808         26,154         31,703
        Held to maturity ..............................................................        25,154         23,603         35,288
     Purchases of debt securities:
        Available for sale ............................................................       (20,987)       (93,008)       (45,927)
        Held to maturity ..............................................................          (100)        (1,410)       (19,811)
     Net (increase) decrease in loans .................................................       (72,989)       (36,532)        14,627
     Recoveries of loans previously charged off .......................................           475            263            289
     Purchases of premises and equipment ..............................................          (976)        (2,617)        (4,423)
     Proceeds from sales of other real estate owned ...................................           216            173            241
     Purchase of company-owned life insurance .........................................          (901)       (15,882)          --
     Cash and cash equivalents acquired, net of cash paid .............................          --             --            8,238
                                                                                             --------       --------       --------
                NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES ...................       (58,083)       (71,956)         7,525
                                                                                             --------       --------       --------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net (decrease) increase in demand and savings deposits ...........................        (4,203)        17,527          5,423
     Net increase (decrease) in time deposits .........................................        62,587        (25,006)       (20,760)
     Net increase in Federal funds purchased ..........................................         4,750          1,000           --
     Net increase (decrease) in securities sold under agreements to repurchase ........           349          4,654         (2,384)
     Proceeds from FHLB borrowings ....................................................        28,000         69,800         12,000
     Repayments of FHLB borrowings ....................................................       (40,974)          (166)        (6,083)
     Proceeds from  other borrowings ..................................................         1,900           --             --
     Proceeds from debt of Employee Stock Ownership Plan ..............................          --            1,186           --
     Repayment of ESOP debt ...........................................................          (198)          --             --
     Purchase of treasury stock .......................................................        (2,059)          (745)        (1,860)
     Cash dividends paid ..............................................................        (2,660)        (2,687)        (2,402)
                                                                                             --------       --------       --------
                NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ...................        47,492         65,563        (16,066)
                                                                                             --------       --------       --------
                NET (DECREASE) INCREASE IN CASH AND CASH
                       EQUIVALENTS ....................................................        (1,472)         1,546           (378)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ..........................................        19,470         17,924         18,302
                                                                                             --------       --------       --------
CASH AND CASH EQUIVALENTS, END OF YEAR ................................................      $ 17,998       $ 19,470       $ 17,924
                                                                                             ========       ========       ========
Supplemental disclosures of cash flow information:
     Cash paid during the year for:
        Interest on deposits and borrowings ...........................................      $ 25,717       $ 20,645       $ 20,137
        Income taxes ..................................................................         2,165          2,822          3,165
                                                                                             ========       ========       ========
     Noncash transactions:
        Transfers to other real estate owned in settlement of loans ...................      $    969       $    138       $    174
        Issuance of common shares in acquisition ......................................          --             --            5,178
        Issuance of stock under stock option plan .....................................          --             --               90
                                                                                             ========       ========       ========
</TABLE>


See accompanying notes to consolidated financial statements.



                                       31
<PAGE>   32


SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998


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.

     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 accounting principles generally accepted in the United
States of America and within the banking industry. The preparation of the
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions, including the determination of the allowance for 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.

INVESTMENTS IN DEBT SECURITIES

     At the time of purchase, debt securities are classified into one of two
categories: available for sale or held to maturity. Held to maturity securities
are those securities for which the Company has the ability and positive 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 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 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 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 certain direct origination costs, to the extent
deemed significant, are deferred and amortized over the life of the underlying
loan.




                                       32
<PAGE>   33

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

ALLOWANCE FOR LOAN LOSSES

     The allowance for loan losses is increased by provisions charged to expense
and reduced by loans charged off, net of recoveries. The allowance for loan
losses is maintained at a level considered adequate to provide for probable 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 loan losses is adequate to absorb
probable 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 loan losses. Such agencies may require the
subsidiary banks to increase their allowances for 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.

LOANS HELD FOR SALE

     In its lending activities, the Company originates residential mortgage
loans intended for sale in the secondary market. Loans held for sale are carried
at the lower of cost or fair value, which is determined on an aggregate basis.
Gains or losses on the sale of loans held for sale are determined on a specific
identification method.

 PREMISES AND EQUIPMENT

     Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is 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 net occupancy and equipment expense in the noninterest expense
category.

INTANGIBLE ASSETS

     Intangible assets, consisting primarily of goodwill and a core deposit base
premium, are included in other assets in the consolidated balance sheets.
Goodwill, the excess of cost over the fair value of net assets acquired in
business combinations accounted for as purchases, is amortized using the
straight-line method over 15 years. The core deposit base premium is being
amortized over 10 years, the estimated life of the deposit base acquired. Gross
intangible assets totaled $7,178,000 at December 31, 2000 and 1999 with
accumulated amortization of $3,789,000 and $3,406,000, respectively.

INCOME TAXES

     The Company and its subsidiary banks file consolidated income tax returns.

      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.

TREASURY STOCK

     The purchase of the Company's common shares is recorded at cost. Upon
subsequent reissuance, the treasury stock account is reduced by the average cost
basis of such common shares purchased.

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


                                       33
<PAGE>   34

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


Company or its subsidiary banks. Trust department operating expenses are
included in noninterest expense on the consolidated statements of income.

EARNINGS PER COMMON SHARE

     Basic earnings per share (EPS) is computed by dividing net income 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
Company.

CASH EQUIVALENTS

     For purposes of the consolidated statements of cash flows, the Company
considers cash and due from banks and interest-bearing deposits in 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 exceeds 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.

RECLASSIFICATIONS

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


NOTE 2 -- INVESTMENTS IN DEBT AND EQUITY SECURITIES

     The amortized cost and fair values of debt and equity securities classified
as available for sale at December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                (in thousands)
                                                     2000
                               -------------------------------------------------
                                                    GROSS
                                AMOR-             UNREALIZED
                                TIZED             ----------             FAIR
                                 COST        GAINS         LOSSES        VALUE
                                 ----        --------------------        -----
<S>                            <C>          <C>          <C>            <C>
U.S. Treasury
    securities and
    obligations of
    U.S. Govern-
    ment agencies
    and corpora-
    tions                      $ 63,095     $   273      $    (228)     $ 63,140
Obligations of
    states and
    political
    subdivisions                  9,425          30            (45)        9,410
Mortgage-backed
    securities                   81,016         361         (1,157)       80,220
Other securities                  5,258        --             --           5,258
                               --------     -------      ---------      --------
                               $158,794     $   664      $  (1,430)     $158,028
                               ========     =======      =========      ========
</TABLE>

<TABLE>
<CAPTION>
                                                 (in thousands)
                                                      1999
                               -------------------------------------------------
                                                    Gross
                                Amor-             Unrealized
                                Tized             ----------             Fair
                                 Cost        Gains         Losses        Value
                                 ----        --------------------        -----
<S>                            <C>          <C>          <C>            <C>
U.S. Treasury
    securities and
    obligations of
    U.S. Govern-
    ment agencies
    and corpora-
    tions                      $ 58,168     $     1      $  (1,199)     $ 56,970
Obligations of
    states and
    political
    subdivisions                  8,970        --             (518)        8,452
Mortgage-backed
    securities                   91,801           5         (3,512)       88,294
Other securities                  4,915        --               (1)        4,914
                               --------     -------      ---------      --------
                               $163,854     $     6      $  (5,230)     $158,630
                               ========     =======      =========      ========
</TABLE>


                                       34
<PAGE>   35

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

     The amortized cost and fair value of debt and equity securities classified
as available for sale at December 31, 2000, 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-
                                                          TIZED           FAIR
                                                           COST           VALUE
                                                         --------       --------
<S>                                                      <C>            <C>
Due in one year or less                                  $ 11,806       $ 11,801
Due after one year through
   five years                                              44,163         44,338
Due after five years through
   ten years                                               10,323         10,277
Due after ten years                                         6,328          6,234
Mortgage-backed securities                                 81,016         80,220
Federal Home Loan Bank stock -
   no stated maturity                                       4,707          4,707
Federal National Mortgage Association
   stock - no stated maturity                                   5              5
Federal Reserve Bank stock -
   no stated maturity                                         446            446
                                                         --------       --------
                                                         $158,794       $158,028
</TABLE>

     The amortized cost and fair values of debt securities classified as held to
maturity at December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                (in thousands)
                                                     2000
                               -------------------------------------------------
                                                    GROSS
                                AMOR-             UNREALIZED
                                TIZED             ----------             FAIR
                                 COST        GAINS         LOSSES        VALUE
                                 ----        --------------------        -----
<S>                            <C>          <C>          <C>            <C>
U.S. Treasury
    securities and
    obligations of
    U.S. Govern-
    ment agencies
    and corpora-
    tions                      $ 14,899     $    5       $     (30)     $ 14,874
Obligations of
    states and
    political
    subdivisions                 20,039         283            (22)       20,300
Mortgage-backed
    securities                    1,479          13             (6)        1,486
                               --------     ------       ---------      --------
                               $ 36,417     $  301       $     (58)     $ 36,660
                               ========     ======       =========      ========
</TABLE>

<TABLE>
<CAPTION>
                                                 (in thousands)
                                                      1999
                               -------------------------------------------------
                                                    Gross
                                Amor-             Unrealized
                                Tized             ----------             Fair
                                 Cost        Gains         Losses        Value
                                 ----        --------------------        -----
<S>                            <C>          <C>          <C>            <C>
U.S. Treasury
    securities and
    obligations of
    U.S. Govern-
    ment agencies
    and corpora-
    tions                      $ 36,784     $    27      $    (235)      $36,576
Obligations of
    states and
    political
    subdivisions                 23,165         226           (297)       23,094
Mortgage-backed
    securities                    1,646          10            (10)        1,646
                               --------     -------      ---------      --------
                               $ 61,595     $   263      $    (542)     $ 61,316
                               ========     =======      =========      ========
</TABLE>

     The amortized cost and fair value of debt securities classified as held to
maturity at December 31, 2000, 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-
                                                          TIZED           FAIR
                                                           COST           VALUE
                                                         --------       --------
<S>                                                      <C>            <C>
Due in one year or less                                  $ 12,475       $ 12,472
Due after one year through
    five years                                             10,399         10,485
Due after five years through
    ten years                                               9,214          9,367
Due after ten years                                         2,850          2,850
Mortgage-backed securities                                  1,479          1,486
                                                         --------       --------
                                                         $ 36,417       $ 36,660
                                                         ========       ========
</TABLE>

     There were no sales of debt or equity securities during 2000, 1999, and
1998.

     The carrying value of securities pledged to secure deposits and
collateralize borrowings amounted to $135,475,000 and $112,852,000 at December
31, 2000 and 1999, respectively.


                                       35
<PAGE>   36

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

NOTE  3 -- LOANS

     Loans, by category, at December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                            (in thousands)
                                                         2000             1999
                                                         ----             ----
<S>                                                    <C>              <C>
Commercial, financial,
    and agricultural                                   $ 78,586         $ 73,943
Real estate - commercial                                157,771          136,697
Real estate - construction                               28,808           19,078
Real estate - residential                               161,252          131,074
Consumer                                                 27,189           23,130
Industrial revenue bonds                                  5,339            3,879
Other                                                     4,461            4,636
                                                       --------         --------
          Total loans                                   463,406          392,437
Less allowance for loan
    losses                                                5,179            5,830
                                                       --------         --------
          Loans, net                                   $458,227         $386,607
                                                       ========         ========
</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,
Ste. Genevieve, St. Louis, and Washington. The Company has a diversified loan
portfolio, with no particular concentration of credit in any one economic sector
in this service area; however, a substantial portion of the portfolio is
concentrated in and secured by real estate. The ability of the Company's
borrowers to honor their contractual obligations is dependent upon the local
economies and their effect on the real estate market.

     The Company's investment in industrial revenue bonds is classified as held
to maturity. The estimated fair value of these instruments was $5,553,000 and
$4,034,000 at December 31, 2000 and 1999, respectively.

     Activity in the allowance for loan losses for the years ended December 31,
2000, 1999, and 1998 was as follows:

<TABLE>
<CAPTION>
                                                     (in thousands)
                                             2000          1999          1998
                                             ----          ----          ----
<S>                                         <C>           <C>           <C>
Balance at beginning of
    year                                    $ 5,830       $ 6,192       $ 6,120
Provision charged
    to expense                                  361            45            62
Allowance of PSB at acquisition                --            --             257
Loans charged off                            (1,487)         (670)         (536)
Recoveries                                      475           263           289
                                            -------       -------       -------
Balance at end of year                      $ 5,179       $ 5,830         6,192
                                            =======       =======       =======
</TABLE>


     A summary of impaired loans, including nonaccrual loans, at December 31,
2000 and 1999 follows:

<TABLE>
<CAPTION>
                                                              (in thousands)
                                                            2000           1999
                                                            ----           ----
<S>                                                        <C>            <C>
Nonaccrual loans                                           $4,200         $6,695
Impaired loans continuing
    to accrue interest                                        339            221
                                                           ------         ------
           Total impaired loans                            $4,539         $6,916
                                                           ======         ======

Allowance for losses on impaired
    loans                                                  $1,529         $2,753
                                                           ======         ======
Impaired loans with no related
    allowance for loan losses                              $  474         $  669
                                                           ======         ======
</TABLE>

     The average balance of impaired loans was $5,080,000, $5,839,000, and
$5,944,000 for the years ended December 31, 2000, 1999, and 1998, 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 $478,000, $623,000, and $252,000 for the years ended December 31, 2000,
1999, and 1998, respectively. The amount recognized as interest income on
nonaccrual loans was $48,000, $62,000, and $194,000 for the years ended December
31, 2000, 1999, and 1998, respectively.

     The amount recognized as interest income on other impaired loans continuing
to accrue interest was $31,000, $20,000, and $343,000 for the years ended
December 31, 2000, 1999, and 1998, respectively.

     There were no restructured loans at December 31, 2000 and 1999.

     Aggregate loan transactions involving executive officers and directors of
the Company and its subsidiaries for the year ended December 31, 2000 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 2000.


<TABLE>
<S>                                                             <C>
Aggregate balance, December 31, 1999                            $ 35,378
New loans and advances                                            24,970
Repayments                                                       (25,776)
                                                                --------
Aggregate balance, December 31, 2000                            $ 34.582
                                                                ========
</TABLE>

                                       36
<PAGE>   37
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)


     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, 2000.

NOTE  4 -- PREMISES AND EQUIPMENT
  Premises and equipment at December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>

                                      (in thousands)
                                     2000        1999
                                     ----        ----

<S>                               <C>         <C>
Land                              $   3,867   $  3,867
Buildings                            16,307     16,158
Furniture and equipment               7,540      6,911
                                  ---------   --------
                                     27,714     26,936
Less accumulated depreciation        10,508      9,373
                                  ---------   --------
                                  $  17,206   $ 17,563
                                  =========   ========
</TABLE>

     Depreciation of premises and equipment charged to net occupancy and
equipment expense amounted to $1,333,000, $1,228,000, and $1,015,000 for 2000,
1999, and 1998, respectively.

     Rents collected and credited to net occupancy and equipment expense
amounted to $281,000, $261,000, and $221,000 for 2000, 1999, and 1998,
respectively.

NOTE  5 -- DEPOSITS
  Deposits, by category, at December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                     (in thousands)
                                    2000         1999
                                    ----         ----
<S>                              <C>         <C>
     Noninterest-bearing
       demand deposits           $   77,196  $   74,577
     Interest-bearing
       demand deposits              155,516     158,826
     Savings deposits                58,810      62,322
     Time deposits:
       Under $100,000               234,709     178,857
       $100,000 and over             47,963      41,228
                                 ----------   ---------
                                 $  574,194   $ 515,810
                                 ==========   =========
</TABLE>

     A summary of time deposits as of December 31, 2000 by time remaining until
maturity is as follows:

<TABLE>
<CAPTION>
                                          (in thousands)
<S>                                        <C>
Due in one year or less                    $  212,821
Due after one year through two years           44,352
Due after two years through three years        14,595
Due after three years through four years        7,202
Due after four years through five years         3,589
Thereafter                                        113
                                           ----------
                                           $  282,672
                                           ==========
</TABLE>

     Interest paid on deposits consists of the following for the years ended
December 31, 2000, 1999, and 1998:

<TABLE>
<CAPTION>
                                 (in thousands)
                            2000       1999      1998
                            ----       ----      ----
<S>                      <C>        <C>        <C>
Interest-bearing
    demand deposits      $  5,874   $ 4,798    $ 4,848
Savings deposits            1,500     1,579      1,535
Time deposits:
    Under $100,000         11,011     9,353      9,997
    $100,000 and over       2,348     2,164      2,721
                         --------   -------    -------
                         $ 20,733   $17,894    $19,101
                         ========   =======    =======
</TABLE>

NOTE 6 -- SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

  A summary of securities sold under agreements to repurchase at December 31,
2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                      (in thousands)
                                      2000      1999
                                      ----      ----
<S>                                 <C>        <C>
Securities sold under agreements
     to repurchase                  $ 7,952    $7,603
                                      =====     =====
</TABLE>

     The average balance of securities sold under agreements to repurchase for
2000, 1999, and 1998 was $6,691,000, $3,041,000, and $3,289,000, respectively.
The maximum month-end balance of such borrowings for 2000, 1999, and 1998 was
$7,952,000, $7,603,000, and $6,802,000, respectively. The average interest rate
paid on securities sold under agreements to repurchase for 2000, 1999, and 1998
was 4.47%, 4.14%, and 4.44%, respectively.









                                       37

<PAGE>   38



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


NOTE 7 -- FEDERAL HOME LOAN BANK BORROWINGS
  Federal Home Loan Bank (FHLB) borrowings at December 31, 2000 and 1999 are
as follows:

<TABLE>
<CAPTION>
                                    (in thousands)
                                    2000       1999
                                    ----       ----

<S>                            <C>         <C>
Due January 3, 2000, 5.97%     $      -    $  18,800
Due October 24, 2000, 5.90%           -       11,000
Due December 15, 2000, 5.80%          -        1,000
Due February 26, 2003, 5.65%         170         251
Due July 30, 2003, 5.98%           1,000       1,000
Due May 8, 2008, 5.63%            10,000      10,000
Due March 30, 2009, 4.54% -           -       10,000
    repaid in 2000
Due March 30, 2009, 4.95%         10,000      10,000
Due March 30, 2009, 5.24%         10,000      10,000
Due October 27, 2009, 5.64%       10,000      10,000
Due March 30, 2010, 6.24%          8,000          -
Due December 16, 2010, 4.75%      10,000          -
Due December 29, 2010, 5.23%      10,000          -
Due May 6, 2013, 6.17%               443         466
Due May 15, 2013, 6.17%              443         466
Due June 12, 2013, 5.98%             444         468
Due July 5, 2013, 6.04%              447         470
                               ---------   ---------
                               $  70,947   $  83,921
                               =========   =========
</TABLE>

     The FHLB borrowings at December 31, 2000 are collateralized by 1-4 family
residential real estate loans with a carrying value of $80,299,000, investment
securities with a fair value of $46,640,000 as of December 31, 2000, and all
stock held in the FHLB of Des Moines. All of the FHLB borrowings have fixed
interest rates, and the majority of these borrowings are callable at the option
of the FHLB of Des Moines under certain conditions.

     The FHLB borrowings at December 31, 1999 are collateralized by 1-4 family
residential real estate loans with a carrying value of $76,093,000, investment
securities that have been pledged with a fair value of $49,074,000 as of
December 31, 1999, and all stock held in the FHLB of Des Moines.

     The Company's banking subsidiaries, which have an investment in the capital
stock of the FHLB, maintain a total line of credit of approximately $126,939,000
with the FHLB of Des Moines and had availability under that line of
approximately $55,992,000 at December 31, 2000.

NOTE 8 -- OTHER BORROWINGS
     In August 2000, the Company established a $5,000,000 line of credit with
UMB Bank, N.A. The purpose of this credit facility is to provide funding for
treasury stock purchases by the Company. During 2000, the Company funded the
treasury stock purchases of 200,100 shares with $1,900,000 in borrowings on this
line of credit. The note bears interest at the prime lending rate minus 50 basis
points, is secured by all of the outstanding common stock of the Bank of Ste.
Genevieve and matures on August 28,2001.

     In December 2000, the Company established a $20,000,000 line of credit with
Union Planters Bank, N.A. The purpose of this credit facility is to provide
funding for the Company's Tender Offer to purchase shares through a modified
"Dutch Auction". As of December 31, 2000, the Company had not drawn on this line
of credit.

NOTE 9 -- INCOME TAXES

  The current and deferred portions of income tax expense (benefit) for 2000,
1999, and 1998 are as follows:

<TABLE>
<CAPTION>

                                   (in thousands)
                               2000     1999     1998
                               ----     ----     ----

<S>                         <C>       <C>      <C>
Current                     $  2,059  $ 2,354  $ 2,625
State                            308      415      437
Deferred tax expense              (9)     (63)      (7)
                            --------  -------  -------
      Income tax expense    $  2,358  $ 2,706  $ 3,055
                            ========  =======  =======
</TABLE>

     A reconciliation of expected income tax expense computed by applying the
Federal statutory rate of 34% in 2000, 1999, and 1998 to income before income
tax expense is as follows:

<TABLE>
<CAPTION>
                                    (in thousands)
                                 2000    1999     1998
                                 ----    ----     ----

<S>                           <C>      <C>      <C>
Computed income tax expense   $ 3,007  $3,029   $3,354
State taxes, net of Federal
     benefit                      203     274      289
Tax-exempt income                (797)   (601)    (563)
Goodwill amortization             133     129       81
Other, net                       (188)   (125)    (106)
                              -------  ------   ------
    Income tax expense        $ 2,358  $2,706   $3,055
                              =======   =====   ======

</TABLE>




                                       38

<PAGE>   39


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


     The components of deferred tax assets and liabilities at December 31, 2000
 and 1999 are as follows:

<TABLE>
<CAPTION>
                                         (in thousands)
                                         2000     1999
                                         ----     ----

<S>                                    <C>     <C>
Deferred tax assets:
    Allowance for loan losses          $1,743   $1,958
    Available for sale securities         259    1,774
    Deferred expense                      452      359
    Other                                  31        -
                                       ------   ------
        Total deferred tax assets       2,485    4,091
                                       ------   ------
Deferred tax liabilities:
    Premises and equipment               (759)    (752)
    Discount on debt securities, net      (72)     (67)
    Deferred loan fees                     (1)    (110)
    Other                                   -       (3)
                                       ------   ------
        Total deferred tax liabilities   (832)    (932)
                                       ------   ------
        Net deferred tax asset         $1,653   $3,159
                                       ======   ======
</TABLE>

     The Company has not established a valuation allowance for deferred tax
assets as of December 31, 2000 or 1999 due to management's belief that all
criteria for recognition of the assets have been met.

NOTE 10 -- EMPLOYEE BENEFIT PLANS

PENSION
     During 1997, the Board of Directors of the Company voted to terminate the
Company's noncontributory 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 elected to provide
benefits with plan assets. Upon approval by regulatory authorities and
subsequent termination in 1998, all benefits became 100% vested, and all persons
entitled to benefits were eligible to request an immediate lump-sum settlement
of the benefit entitlement. The Company recorded a pension curtailment gain of
approximately $375,000 in 1998 in conjunction with the termination of the plan.

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.

     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 560,010 shares of the Company's common stock. In September
1997, the Company repaid the unaffiliated financial institution through
borrowings from South Side National Bank in St. Louis. In September 1999, the
Company repaid South Side National Bank in St. Louis with a borrowing from an
unaffiliated financial institution. The note bears interest at 7.5% at December
31, 2000, requires quarterly interest payments, and requires annual principal
redirections through April 2005. The Company 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. The debt of the ESOP is recorded as debt and the shares pledged as
collateral are reported as unearned ESOP shares in the consolidated balance
sheet. As shares are released from collateral, the Company reports compensation
expense equal to the current market price of the shares, and the shares become
outstanding for earnings-per-share computations. Dividends on allocated ESOP
shares are recorded as a reduction of retained earnings; dividends on
unallocated ESOP shares are recorded as a reduction of accrued interest. ESOP
compensation expense was $282,000, $381,000, and $461,000 for the years ended
December 31, 2000, 1999, and 1998, respectively. The ESOP shares as of December
31, 2000 were as follows:

<TABLE>
<CAPTION>

<S>                                      <C>
   Allocated shares                          844,229
   Shares released for allocation             37,062
   Unreleased shares                         148,248
                                         -----------
   Total ESOP shares                       1,029,539
                                         ===========
   Fair value of unreleased shares at
      December 31, 2000                  $ 1,093,329
                                         ===========
</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 contributions charged to expense for the
years 2000, 1999, and 1998 were $126,000, $123,000, and $116,000, respectively.

STOCK OPTIONS
     The Company maintains two stock option plans: a nonqualified stock option
plan under which options to purchase up to 600,000 shares of common stock have
been granted to certain executive officers of the Company and its subsidiary
banks, and an incentive stock option plan under which options to purchase up to
750,000 shares of common stock could be granted to certain executive officers of
the Company and its subsidiary banks. Options granted under the nonqualified
stock option 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, 75,000 options were
granted at $3.67 per share. Of the options granted, 7,200 have been exercised,
16,800 have been forfeited, and 51,000 are still outstanding. There were no
options granted during 1994 or 1995. In 1996,








                                       39

<PAGE>   40


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


225,000 options were granted at $6.33 per share. Of the options granted, 18,000
have been exercised, 27,000 have been forfeited, and 180,000 are still
outstanding. In 1997, 300,000 options were granted at $8.00 per share, all of
which remain outstanding as of December 31, 2000. All of the available options
under the nonqualified stock option plan were granted prior to 1998. No options
were granted under the incentive stock option plan during 1998, 1999, and 2000.

     The following table summarizes stock options outstanding as of December 31,
2000:

<TABLE>
<CAPTION>
                                 WEIGHTED AVERAGE
                                 ----------------
                                REMAINING
                               CONTRACTUAL
    EXERCISE                    LIFE (IN   EXERCISE
     PRICE      OUTSTANDING      YEARS)      PRICE
     -----      -----------      ------      -----

<S>             <C>            <C>        <C>
    $ 3.67         51,000         3.0
      6.33        180,000         5.3
      8.00        300,000         6.3
    ======        -------
                  531,000         5.6      $  7.02
                  =======         ====     =======
</TABLE>

     The number of shares exercisable under stock options as of December 31,
2000 were 382,200 with a weighted average exercise price of $6.76.

     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 expense for the Company's stock option plan been
determined based on the fair value at the grant date for awards in 2000, 1999,
and 1998 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>
                                  2000           1999           1998
                                  ----           ----           ----

<S>                           <C>          <C>            <C>
Net income - as reported      $6,487,000   $  6,203,000   $   6,810,000
Net income - pro forma         6,355,000      6,071,000       6,678,000
Earnings per common
    share - diluted,
    as reported                     0.77           0.72            0.80
Earnings per common
    share - pro forma
    diluted                         0.75           0.71            0.78
                              ==========   ============   =============
</TABLE>

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

     The fair value of option grants 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>

<S>                                 <C>
         Volatility                    30.0%
         Risk-free interest rate        6.0%
         Expected life                  7 years
         Expected dividend yield        3.6%
                                       =====

</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.

SALARY CONTINUATION PLAN
     In November 1999, the Company adopted a Salary Continuation Plan for
several senior management executives to encourage these executives to continue
their employment with the Company. The plan provides for the payment of
supplemental retirement income to the executives upon reaching retirement age.
Each of these executives will receive, on an annual basis, for a period of 15
years following retirement, a predetermined annual benefit amount as set forth
in their respective agreements. The benefits of the plan are funded by the
Company through the purchase of life insurance policies. The cash surrender
value of the life insurance policies, totaling $5,347,000 and $4,507,000 as of
December 31, 2000 and 1999, respectively, is included in other assets on the
consolidated balance sheet. Expenses related to the plan were $62,000 and
$12,000 for the years ended December 31, 2000 and 1999, respectively.

DEFERRED DIRECTOR FEE PLAN
     In November 1999, the Company adopted a Deferred Director Fee Plan for its
Board of Directors and the Boards of Directors of its subsidiary banks. The plan
allows each director to defer his monthly director fees. The deferred fees are
credited with an interest factor equal to the percentage increase in the market
value of the Company's common stock from the previous year, subject to a ceiling
of 15% and a floor of 6%. The amount of benefits for each director is stipulated
in the respective director's agreement. The benefits of the plan are funded by
the Company through the purchase of life insurance policies. The cash surrender
value of the life insurance policies, totaling $12,171,000 and $11,433,000, and
as of December 31, 2000, and 1999, respectively, is included in other assets on
the consolidated balance sheet. Expenses related to the plan were $93,000, and
$20,000 for the years ended December 31, 2000 and 1999, respectively.








                                       40

<PAGE>   41


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



NOTE 11 -- EARNINGS PER SHARE
  The computation of EPS for 2000, 1999, and 1998 follows:

<TABLE>
<CAPTION>


                                    (in thousands, except per share amounts)
                                           2000        1999        1998
                                           ----        ----        ----

<S>                                     <C>         <C>         <C>
Basic EPS:
    Net income                         $   6,487    $  6,203    $  6,810
                                       =========    ========    ========
    Average common shares
      outstanding                      8,363,828   8,414,752   8,297,250
                                       =========   =========   =========
    Basic EPS                          $    0.78   $    0.74   $    0.82
                                       =========   =========   =========
Diluted EPS:
    Net income                         $   6,487   $   6,203   $   6,810
                                       =========   =========   =========
    Average common shares
      outstanding                      8,363,828   8,414,752   8,297,250
    Dilutive potential due to
      stock options                       73,311     183,409     257,385
                                       ---------   ---------   ---------
    Average number of
      common shares and
      dilutive potential
      common shares
      outstanding                      8,437,139   8,598,161   8,554,635
                                       =========   =========   =========
    Diluted EPS                        $    0.77   $    0.72   $    0.80
                                       =========   =========   =========
</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 $856,000 and
$517,000 at December 31, 2000 and 1999, 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.

     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.

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

     Quantitative measures established by regulations to ensure capital adequacy
require the Company and its subsidiary banks to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital to
risk-weighted assets and of Tier I capital to average assets. Management
believes, as of December 31, 2000, 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, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                               2000
------------------------------------------------------------------------------------------------
                                                                                 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                      $71,697  14.72%     $38,956  8.00%      $     -       -%
        SSNB                          44,410  13.61       26,105  8.00        32,631   10.00
        SBJC                           6,983  13.62        4,103  8.00         5,129   10.00

</TABLE>








                                       41

<PAGE>   42


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


<TABLE>


<S>                                 <C>      <C>        <C>      <C>        <C>       <C>
         BSG                          11,278  18.90        4,775  8.00         5,969   10.00
         BSCC                          6,207  13.31        3,731  8.00         4,664   10.00
 TIER I CAPITAL (TO RISK-
     WEIGHTED ASSETS)
        COMPANY                      $66,518  13.66%     $19,478  4.00%      $     -       -%
        SSNB                          41,119  12.60       13,052  4.00        19,579    6.00
        SBJC                           6,431  12.54        2,052  4.00         3,077    6.00
        BSG                           10,531  17.64        2,387  4.00         3,581    6.00
        BSCC                           5,667  12.15        1,866  4.00         2,798    6.00
  TIER I CAPITAL (TO ADJUSTED
      AVERAGE ASSETS)
        COMPANY                      $66,518   9.15%     $21,817  3.00%      $     -       -%
        SSNB                          41,119   8.37       14,731  3.00        24,551    5.00
        SBJC                           6,431   8.75        2,204  3.00         3,674    5.00
        BSG                           10,531  11.28        2,802  3.00         4,670    5.00
        BSCC                           5,667   9.09        1,871  3.00         3,118    5.00
</TABLE>

<TABLE>
<CAPTION>

                                            1999
------------------------------------------------------------------------------------------------
                                                                                   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                    $  69,478  16.12%     $34,475     8%     $      -       -%
        SSNB                          42,469  15.48       21,946     8        27,433      10
        SBJC                           6,676  14.86        3,593     8         4,492      10
        BSG                           10,640  18.21        4,673     8         5,842      10
        BSCC                           5,855  13.17        3,556     8         4,446      10
 Tier I capital (to risk-
     weighted assets)
        Company                      $64,086  14.87%     $17,238     4%     $      -       -%
        SSNB                          39,034  14.23       10,973     4        16,460       6
        SBJC                           6,114  13.61        1,797     4         2,695       6
        BSG                            9,909  16.96        2,337     4         3,505       6
        BSCC                           5,299  11.92        1,778     4         2,667       6
 Tier I capital (to adjusted
     average assets)
        Company                      $64,086   9.81%     $19,602     3%     $      -       -%
        SSNB                          39,034   9.02       12,983     3        21,639       5
        SBJC                           6,114   9.36        1,960     3         3,266       5
        BSG                            9,909  10.86        2,736     3         4,560       5
        BSCC                           5,299   8.86        1,796     3         2,993       5
</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, 2000 AND 1999
                                 (in thousands)

<TABLE>
<CAPTION>

               ASSETS                 2000        1999
                                      ----        ----

<S>                                 <C>        <C>
Cash                                $    216   $     155
Investment in subsidiary banks        66,618      60,738
Other assets                           6,771       5,679
                                    --------   ---------
        TOTAL ASSETS                $ 73,605   $  66,572
                                    ========   =========

           LIABILITIES AND
        SHAREHOLDERS' EQUITY

ESOP debt                           $    988   $  1,186
Other liabilities                      3,216        978
Shareholders' equity                  69,401     64,408
                                    --------   --------
        TOTAL LIABILITIES AND
           SHAREHOLDERS' EQUITY     $ 73,605   $ 66,572
                                    ========   ========
</TABLE>


                         CONDENSED STATEMENTS OF INCOME
                  YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
                                 (in thousands)

<TABLE>
<CAPTION>


                                    2000    1999     1998
                                    ----    ----     ----
<S>                               <C>       <C>     <C>
REVENUE:
    Dividends received from
      subsidiary banks            $ 4,550  $ 7,200  $8,300
    Other                             589      359     343
                                  -------  -------  ------
      Total revenue                 5,139    7,559   8,643
                                  -------  -------  ------
EXPENSES:
    Interest expense                  131       96     121
    Other                           2,192    1,689   2,012
                                  -------  -------  ------
      Total expenses                2,323    1,785   2,133
                                  -------  -------  ------
      Income before income
        tax benefit and
        undistributed earnings
        of subsidiary banks        2,816     5,774   6,510
Income tax benefit                   584       404     489
                                  ------   -------  ------
      Income before
        undistributed earnings
        of subsidiary banks        3,400     6,178   6,999
Undistributed earnings (loss) of
    subsidiary banks               3,087        25    (189)
                                  ------   -------  ------
      NET INCOME                  $6,487   $ 6,203  $6,810
                                  ======   =======  ======
</TABLE>









                                       42

<PAGE>   43


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



                       CONDENSED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
                                 (in thousands)

<TABLE>
<CAPTION>


                                             2000       1999       1998
                                             ----       ----       ----

<S>                                       <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                            $ 6,487    $ 6,203    $ 6,810
    Adjustments to reconcile net income
     to net cash provided by
     operating activities:
       Undistributed (earnings) losses
         of subsidiary banks               (3,087)       (25)       189
       Other operating activities, net        579        596        781
                                          -------    -------    -------
             Net cash provided
               by operating
               activities                   3,979      6,774      7,780
                                          -------    -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of company owned
     life insurance                          (901)    (4,052)         -
    Cash paid to acquire PSB                    -          -     (3,456)
                                          -------    -------    -------
             Net cash used in
               investing activities          (901)    (4,052)    (3,456)
                                          -------    -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments for ESOP debt                   (198)    (1,384)      (197)
    Proceeds from ESOP debt                     -      1,186          -
    Proceeds from other borrowings          1,900          -          -
    Purchase of treasury stock             (2,059)      (745)    (1,860)
    Cash dividends paid                    (2,660)    (2,687)    (2,402)
                                          -------    -------    -------
             Net cash used in
               financing activities        (3,017)    (3,630)    (4,459)
                                          -------    -------    -------
             Net (decrease)
               increase in cash                61       (908)      (135)
Cash, beginning of year                       155      1,063      1,198
                                          -------    -------    -------
Cash, end of year                         $   216    $   155    $ 1,063
                                          =======    =======    =======
Supplemental disclosures of cash
    flow information - cash paid
    during the year for:
     Interest on debt                     $   139    $    88    $   121
     Income taxes                           2,165      2,822      3,165
                                          =======    =======    =======
</TABLE>

NOTE 14 -- CONTINGENCIES
     In the normal course of business, the Company had certain litigation
pending at December 31, 2000. In the opinion of management, after consultation
with legal counsel, none of this litigation is expected to 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, 2000 and 1999:

<TABLE>
<CAPTION>
                                      (in thousands)
                                    Contractual Amount
                                    ------------------
                                      2000       1999
                                      ----       ----

<S>                                 <C>      <C>
Financial instruments whose
contractual amounts represent:
      Commitments to extend
        credit                      $62,454  $ 63,597
      Standby letters of credit       2,364     1,254
                                    =======   =======

</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, 2000 and 1999,
$5,996,000 and $9,126,000, respectively, represent fixed rate loan commitments.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis.

     The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
counterpart. 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.








                                       43

<PAGE>   44


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


     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, 2000 and 1999:

<TABLE>
<CAPTION>
                                      (in thousands)
                                 2000                 1999
                         ------------------   -------------------
                         CARRYING    FAIR        Carrying   Fair
                          AMOUNT     VALUE        Amount    Value
                         --------  --------   ----------    -----
<S>                     <C>        <C>        <C>        <C>
Balance sheet assets:
   Cash and due
     from banks         $ 17,102   $ 17,102   $ 19,311   $ 19,311
   Interest-bearing
     deposits in
     banks                   896        896        159        159
   Federal funds
     sold                 16,383     16,383      2,600      2,600
   Investments in
     debt securities:
      Available
       for sale          158,028    158,028    158,630    158,630
      Held to
       maturity           36,417     36,660     61,595     61,316
   Loans, net            458,227    458,217    386,607    383,369
   Accrued interest
      receivable        $  4,818   $ 4,818    $  4,414   $  4,414
                        ========   ========   ========   ========
Balance sheet
   liabilities:
Deposits                $574,194   $574,194   $515,810   $515,810
Federal funds
 purchased                 5,750      5,750      1,000      1,000
Securities sold
 under agreements
 to repurchase             7,952      7,952      7,603      7,603
FHLB borrowings           70,947     68,964     83,921     84,000
Other borrowings           2,500      2,500        600        600
ESOP debt                    988        988      1,186      1,186
Accrued interest
 payable                $  2,561   $  2,561   $  1,796   $  1,796
                        ========   ========   ========   ========

</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, interest-bearing deposits with banks, Federal
funds sold and purchased, accrued interest receivable, accrued interest payable,
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 is 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 deposits is the amount payable on demand, as such
carrying value approximates fair value on such items.

FHLB BORROWINGS
     The fair value of FHLB borrowings is estimated by discounting the future
cash flows using currently quoted interest rates for FHLB borrowings for the
same maturity date.

DEBT OF EMPLOYEE STOCK OWNERSHIP PLAN
     The estimate of the fair value of ESOP debt is the carrying value of the
debt. Due to interest rates and risk characteristics, carrying value is a
reasonable approximation of fair value.

OTHER BORROWINGS
     The estimate of the fair value of other borrowing is the carrying value of
the debt. Due to 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 counter parties drawing on such financial instruments, and the
present creditworthiness of such counter parties. The Company believes such
commitments have been made on terms which are competitive in the markets in
which it operates; however, no premium or discount is offered thereon and,
accordingly, the Company has not assigned a value to such instruments for
purposes of this disclosure.

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







                                       44

<PAGE>   45


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


     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 the estimates of fair value.

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 -- SEGMENT INFORMATION
     The responsibility for management of the subsidiary banks remains with the
officers and directors of the respective banks. The financial performance of the
Company is measured internally by subsidiary bank results and key performance
measures. The following table shows the financial information of the Company's
subsidiary banks for 2000, 1999, and 1998. The "Other" column includes the
Parent Company and all intercompany elimination entries.

<TABLE>
<CAPTION>

                                                (IN THOUSANDS)
                                         YEAR ENDED DECEMBER 31, 2000
                      ------------------------------------------------------------------------
                        SSNB         SBJC         BSG      BSCC          OTHER   CONSOLIDATED
<S>                   <C>        <C>         <C>        <C>           <C>       <C>
RESULTS OF OPERATIONS
Net interest income   $ 14,841    $  2,689    $  3,683    $  2,263     $   (131)   $ 23,345
Provision for
   loan losses             300          18           -          43            -         361
Noninterest
   income                2,794         378         515         400          317       4,404
Noninterest
   expense              11,367       1,928       1,829       1,499        1,920      18,543
Income tax
   expense
   (benefit)             1,488         354         747         353         (584)      2,358
Net income               4,480         767       1,622         768       (1,150)      6,487

AVERAGE BALANCES
Loans                 $278,301    $ 52,412    $ 57,263    $ 42,843     $      -    $430,819
Assets                 475,240      72,115      92,842      62,273        6,376     708,846
Deposits               339,170      62,178      80,563      56,458            -     538,369

FINANCIAL RATIOS
Return on assets          0.94%       1.06%       1.75%       1.23%           -        0.92%
Return on equity         10.88       12.36       16.45       14.27            -        9.76
Net interest margin       3.59        4.22        4.34        3.99            -        3.76

</TABLE>








                                       45

<PAGE>   46


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

<TABLE>
<CAPTION>



                                                (IN THOUSANDS)
                                          YEAR ENDED DECEMBER 31, 1999
                       ----------------------------------------------------------------------
                         SSNB         SBJC       BSG        BSCC        OTHER    CONSOLIDATED
                         ----         ----       ---        ----        -----    ------------

<S>                   <C>         <C>         <C>         <C>         <C>         <C>
RESULTS OF OPERATIONS
NET INTEREST
   INCOME             $ 14,844    $  2,360    $  3,567    $  2,230    $    (96)   $ 22,905
PROVISION FOR
   LOAN LOSSES               -          45           -           -           -          45
NONINTEREST
   INCOME                2,553         261         364         289          91       3,558
NONINTEREST
   EXPENSE              11,268       1,631       1,758       1,431       1,421      17,509
INCOME TAX
   EXPENSE
   (BENEFIT)             1,707         318         707         378        (404)      2,706
NET INCOME               4,422         627       1,466         710      (1,022)      6,203

AVERAGE BALANCES
LOANS                 $222,511    $ 42,617    $ 52,618    $ 38,128       $   -    $355,874
ASSETS                 421,761      62,700      90,230      58,255       3,430     636,376
DEPOSITS               332,615      56,198      78,368      52,759        (340)    519,600

FINANCIAL RATIOS
RETURN ON ASSETS          1.05%       1.00%       1.62%       1.22%          -        0.97%
RETURN ON EQUITY         10.07       10.39       15.56       13.93           -        9.54
NET INTEREST MARGIN       4.11        4.19        4.34        4.04           -        4.05

<CAPTION>
                                    (IN THOUSANDS)
                              YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------------------------
                         SSNB        SBJC        BSG         BSCC        OTHER     CONSOLIDATED
                         ----        ----        ---         ----        -----     ------------

<S>                   <C>         <C>         <C>         <C>         <C>         <C>
RESULTS OF OPERATIONS
NET INTEREST
   INCOME             $ 14,422    $  2,359    $  3,546    $  2,164    $   (121)   $ 22,370
PROVISION FOR
   LOAN LOSSES               2          60           -           -           -          62
NONINTEREST
   INCOME                2,434         218         340         266          73       3,331
NONINTEREST
   EXPENSE               9,710       1,305       1,647       1,370       1,742      15,774
INCOME TAX
   EXPENSE
   (BENEFIT)             2,024         423         721         376        (489)      3,055
NET INCOME               5,120         789       1,518         684      (1,301)      6,810

AVERAGE BALANCES
LOANS                 $216,473    $ 40,651    $ 53,086    $ 37,076    $ (1,384)   $345,902
ASSETS                 386,987      58,838      89,524      55,477        (702)    590,124
DEPOSITS               329,975      52,481      78,039      50,412        (800)    510,107

FINANCIAL RATIOS
RETURN ON ASSETS          1.32%       1.34%       1.70%       1.23%          -        1.15%
RETURN ON EQUITY         13.41       13.20       15.58       14.71           -       11.12
NET INTEREST MARGIN       4.57        4.39        4.35        4.22           -        4.15

</TABLE>






                                       46


<PAGE>   47
                   SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
                             DIRECTORS AND OFFICERS

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

                               BOARD OF DIRECTORS

JOSEPH W. BEETZ
     President
     Joseph H. Beetz Plumbing Company, Inc.
     Director
     Southside Bancshares Corp.
HOWARD F. ETLING
     Publisher Emeritus
     Journal Newspaper
     Director
     Southside Bancshares Corp.
DOUGLAS P. HELEIN
     Insurance Broker
     Welsch, Flatness & Lutz, Inc.
     Director
     Southside Bancshares Corp.
EARLE J. KENNEDY, JR.
     Former President
     Westway Services, Inc.
     Director
     Southside Bancshares Corp.
NORVILLE K. MCCLAIN
     President
     Essex Contracting, Inc.
     Chairman of the Board
     Southside Bancshares Corp.
JOSEPH W. POPE
     Senior Vice President
     and Chief Financial Officer
     Southside Bancshares Corp.
     Senior Vice President
     South Side National Bank in St. Louis
DANIEL J. QUEEN
     President
     Highland Diversified
     Director
     Southside Bancshares Corp.
     Director
     State Bank of Jefferson County

STEVEN C. ROBERTS
     Director
     Southside Bancshares Corp.
     Director
     South Side National Bank in St. Louis
     Roberts Brothers Properties, LLC
     Roberts Brothers Development, LLC
     Talley Properties, LLC
     Roberts Hospitality Services, LLC
     Roberts-Roberts Associates, LLC
     Roberts Media, LLC
     Roberts Wireless Communications, LLC
     Roberts Broadcasting Company
     Roberts Plaza, LLC
RICHARD G. SCHROEDER, SR.
     President
     St. Louis Fabrication Services, Inc.
     Director
     Southside Bancshares Corp.
     Director
     South Side National Bank in St. Louis
THOMAS M. TESCHNER
     President and Chief Executive Officer
     Southside Bancshares Corp.
     Chairman of the Board,
     President and Chief Executive Officer
     South Side National Bank in St. Louis
     Chairman of the Board
     Bank of Ste. Genevieve
     Chairman of the Board
     State Bank of Jefferson County
     Chairman of the Board
     The Bank of St. Charles County




                                    OFFICERS

<TABLE>


<S>                                     <C>                                    <C>
THOMAS M. TESCHNER                        DAVID J. ABELN                         LAURA L. THOMAS
     President   and  Chief   Executive        Vice President/Investments             Secretary to the Board
     Officer                              CAROLE A. MATT                         BARBARA J. LINVILLE
JOSEPH W. POPE                                 Vice President/Compliance              Assistant   Secretary  to  the
     Senior Vice President and                                                        Board
     Chief Financial Officer                                                     NANETTE M. BELLER
                                                                                      Assistant Vice President

</TABLE>














                                       47





<PAGE>   48




     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; 10385 West
Florissant, Ferguson, Missouri 63136; 11330 Gravois, St. Louis, Missouri 63126;
6025 Chippewa, St. Louis, Missouri 63109; 840 Meramec Station Road, St. Louis,
Missouri 63088; and 4111 Telegraph Road, St. Louis, Missouri 63129. 24-hour
automated teller machines are maintained at St. Anthony's Medical Center, 10010
Kennerly Road, St. Louis County, Missouri 63128 and 1408 North Kingshighway, St.
Louis, Missouri 63113. The Bank has 25 drive-in windows and ten 24-hour
automated teller machines. The Bank is a member of the Star Systems, Inc. and
CIRRUS automated teller networks. The Bank serves St. Louis City and St. Louis
County.

     The total assets of the Bank at December 31, 2000 were $498,300,000. Total
deposits at December 31, 2000 were $370,353,000. Total loans at December 31,
2000 were $307,350,000.


                               BOARD OF DIRECTORS
<TABLE>

<S>                                    <C>                                    <C>
THOMAS M. TESCHNER                       TIMOTHY DRURY                         RICHARD G. SCHROEDER, SR.
     Chairman of the Board               NORVILLE K. MCCLAIN                   FRANCIS G. SLACK
MITCHELL P. BADEN                        STEVEN C. ROBERTS                     JOSEPH S. WEINMANN
                                                                               FLOYD E. WRIGHT
</TABLE>


                                    OFFICERS


THOMAS M. TESCHNER
     Chairman of the Board, President and Chief Executive Officer
LAURA L. THOMAS
     Secretary to the Board
MITCHELL P. BADEN
     Executive Vice President and Senior Loan Officer
JOSEPH W. POPE
     Senior Vice President
LAURIE A. PENNYCOOK
     Senior Vice President, Operations Officer & Cashier
MATTHEW W. FINN
     Senior Vice President and Senior Trust Officer
GUS E. ENGELLAND
     Senior Vice President
KENNETH E. MARSCHUETZ
     Senior Vice President
CAROLE A. MATT
     Vice President and Compliance Officer, CRA Officer & Bank Secrecy Officer
DAVID J. ABELN
     Vice President
JANET C. COPE
     Vice President
GAIL R. DICKSON
     Vice President
JOHN M. DOHR
     Vice President
LISA M. FRICK
     Vice President
WENDY C. HAMILTON
     Vice President
CONNIE E. HORNAK
     Vice President & Security Officer
BRENDA L. HUDDLESTON
     Vice President & Controller
COLETTE A. LETENDRE
     Vice President
W. GREG MARTIN
     Vice President
D. MICHAEL MINOR
     Vice President
DEBRA J. O'SHEA
     Vice President
ROBERT S. PAULEY
     Vice President
LORI S. REIMUND
     Vice President
JOHN R. SHIVERS
     Vice President
TERRY J. STARK
     Vice President
PAUL A. STEUBE
     Vice President
CATHY M. THOMPSON
     Vice President
BRIAN L. WALSTON
     Vice President
DEBRA M. BADER
     Assistant Vice President
WILLIAM J. BUOL
     Assistant Vice President
ANNA SMITH-CRAFT
     Assistant Vice President
TERRI L. CHANDLER
     Assistant Vice President
BETTY J. DEFORD
     Assistant Vice President
CAROL L. DOMIAN
     Assistant Vice President
SHARON S. DONAHUE
     Assistant Vice President
DIANE M. KERTZ
     Assistant Vice President
LARRY G. LOVE
     Assistant Vice President
NICHOLE E. MCKINLEY
     Assistant Vice President
ANTOINETTE M. NAHM
     Assistant Vice President
RUTH E. PAYNE
     Assistant Vice President
WILLIAM G. PITTMAN
     Assistant Vice President
GLENDA L. POPPLETON
     Assistant Vice President
STACEY N. REINHARDT
     Assistant Vice President
GINA M. ROUSH
     Assistant Vice President
JAMES R. SHAVER
     Assistant Vice President
MICHAEL S. STEVENSON
     Assistant Vice President
SUSAN L. SUN
     Assistant Vice President
CINDY M. THURMAN
     Assistant Vice President
JOYCE L. WEBB
     Assistant Vice President
JESSICA M. WEBER
     Assistant Vice President
CHARLES D. WOMBLE
     Assistant Vice President










                                       48


<PAGE>   49

STATE BANK OF JEFFERSON COUNTY
     The main office of State Bank of Jefferson County is located at 224 S. Main
Street, DeSoto, Missouri 63020, a facility is located at 100 Scenic Plaza Drive,
Herculaneum, Missouri 63048, and a facility is located at 2000 Rock Road,
DeSoto, Missouri 63020. The Bank has drive-in windows at all three locations.
The Bank is a member of the STAR and CIRRUS automated teller networks and has a
24-hour automated teller machine at each of its facilities. The Bank serves
Jefferson County, part of Franklin County, Washington County, and St. Francois
County.

     The total assets of the Bank at December 31, 2000 were $73,806,000. Total
deposits at December 31, 2000 were $64,372,000. Total loans at December 31, 2000
were $55,048,000.


                               BOARD OF DIRECTORS

<TABLE>

<S>                                                             <C>

                   THOMAS M. TESCHNER                             CLARENCE M. JONES
                       Chairman of the Board                      ROBERT G. PURCELL
                   CLAUDE J. COOK                                 DANIEL J. QUEEN
                   PAUL F. DICKINSON                              STEVAN H. ROWE
                   RICHARD B. FRANCIS                             HOWARD L. WAGNER
</TABLE>

                                    OFFICERS

<TABLE>

<S>                                     <C>                                    <C>
RICHARD B. FRANCIS                        RONALD D. HOWLETT                      ELIZABETH CAROL JOHNSTON
     President and Chief Executive            Vice President                         Assistant Cashier
    Officer                               KEVIN L. BOREN                         SHARON MISSEY
BARBARA A. DONTRICH                           Vice President                         Assistant Cashier
    Sr. Vice President, Cashier, and      PHYLLIS POOLE                          PAULINE WILLIAMSON
    Security Officer                          Assistant Vice President and           Assistant Cashier
MARGARET A. ARMBRUSTER                        Secretary to the Board             KATHLEEN WHITEHEAD
    Vice President                        BRENDA SONA                                Assistant Cashier
ANN GAMBER                                    Assistant Vice President
    Assistant Vice President and
    Compliance 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, 2000 were $95,528,000. Total
deposits at December 31, 2000 were $82,742,000. Total loans at December 31, 2000
were $58,153,000.


                               BOARD OF DIRECTORS

<TABLE>


<S>                                                               <C>
                  THOMAS M. TESCHNER                                ROY J. PANCHOT
                      Chairman of the Board                         KENNETH J. REHM
                  MICHAEL E. HORRELL                                GERALD J. TRAUTMAN
                  WILLIAM E. MILES                                  HAROLD J. UDING
</TABLE>

                                    OFFICERS

<TABLE>

<S>                                     <C>                                    <C>
WILLIAM E. MILES                          JERRY V. BERGTHOLDT                    GARY D. FISCHER
     President & Chief Executive                    Vice President                    Vice President
     Officer                              MONICA J. KREITLER                     MARY ANN BAUMAN
     CRA Officer, and Security                 Assistant Vice President and           Assistant Cashier
     Officer                                   Compliance Officer                MARY ELLEN CABRAL
STEPHEN J. ABTS                                                                       Secretary to the Board
     Vice President and Cashier

</TABLE>









                                       49




<PAGE>   50


THE BANK OF ST. CHARLES COUNTY
     The main office of The Bank of St. Charles County is located at 6004
Highway 94 South, Weldon Spring, 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 STAR and CIRRUS automated teller networks. The Bank services St. Charles
County.

     The total assets of the Bank at December 31, 2000 were $63,060,000. Total
deposits at December 31, 2000 were $56,943,000. Total loans at December 31, 2000
were $42,855,000.

                               BOARD OF DIRECTORS
<TABLE>
<S>                                                             <C>
                  THOMAS M. TESCHNER                              FREDERICK W. DRAKESMITH
                      Chairman of the Board                       WILLIAM O. MULLINS
                  TERRY E. ALEXANDER                              ALAN D. POHLMAN
                  MAX E. MCGOWAN                                  LARRY RICHARDSON
                  TED E. GLOSIER
</TABLE>

                                    OFFICERS

<TABLE>

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



















                                       50






<PAGE>   51

























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<PAGE>   52


                           SOUTHSIDE BANCSHARES CORP.
                               3606 GRAVOIS AVENUE
                            ST. LOUIS, MISSOURI 63116


                                 March 30, 2001


Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

         RE:      SOUTHSIDE BANCSHARES CORP.
                  ANNUAL REPORT ON FORM 10-K
                  COMMISSION FILE NO. 0-10849

Ladies and Gentlemen:

         On behalf of Southside Bancshares Corp. (the "Company"), a Missouri
corporation, and pursuant to Item 101(a)(1)(iii) of Regulation S-T promulgated
under the Securities Exchange Act of 1934, as amended, enclosed herewith for
filing is the Company's Annual Report on Form 10-K, with exhibits, for its
fiscal year ended December 31, 2000.

         If you have any questions with respect to these materials, please call
the undersigned at (314) 845-5618.

                                   Sincerely,

                                   /s/Joseph Pope

                                   Joseph Pope

Attachment