SOUTHSIDE BANCSHARES INC [SBSI] Filings

10-Q 1 sbsi-20240331.htm 10-Q sbsi-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number: 000-12247

SOUTHSIDE BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Texas

75-1848732

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

1201 S. Beckham Avenue,

Tyler,

Texas

75701

(Address of Principal Executive Offices)

(Zip Code)

903-531-7111

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $1.25 par value

SBSI

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the issuer’s common stock, par value $1.25, outstanding as of April 24, 2024 was 30,284,712 shares.

TABLE OF CONTENTS


GLOSSARY OF ACRONYMS, ABBREVIATIONS AND TERMS			1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS			3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			37
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			57
ITEM 4. CONTROLS AND PROCEDURES			58
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			58
ITEM 1A. RISK FACTORS			58
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			59
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			59
ITEM 4. MINE SAFETY DISCLOSURES			59
ITEM 5. OTHER INFORMATION			59
ITEM 6. EXHIBITS			60
EXHIBIT INDEX			60
SIGNATURES			61

Table of Contents

SOUTHSIDE BANCSHARES, INC.

Glossary of Acronyms, Abbreviations and Terms

The acronyms, abbreviations and terms listed below are used in various sections of this Form 10-Q, including "Item 1. Financial Statements" and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."


Entities:
Southside Bancshares, Inc.						Bank holding company for Southside Bank
Southside Bank						Texas state bank and wholly owned subsidiary of Southside Bancshares, Inc.
Company						Combined entities of Southside Bancshares, Inc. and its subsidiaries, including Southside Bank
Bank						Southside Bank
Southside						Southside Bancshares, Inc.

Other Acronyms, Abbreviations and Terms:
2023 Form 10-K						Southside Bancshares, Inc. Annual Report on Form 10-K filed with the SEC on February 27, 2024
401(k) Plan						401(k) Defined Contribution Plan
Acquired Retirement Plan						OmniAmerican Bank defined benefit pension plan
AFS						Available for sale
ALCO						Asset/Liability Committee
AOCI						Accumulated other comprehensive income or loss
ASC						Accounting Standards Codification
ASU						Accounting Standards Update issued by the FASB
ATM						Automated teller machines
BTFP						The Federal Reserve’s Bank Term Funding Program
Basel Committee						Basel Committee on Banking Supervision
BOLI						Bank owned life insurance
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
CDs						Certificates of deposit
CECL						ASC 326, Financial Instruments- Credit Losses, also known as Current Expected Credit Losses
CET1						Common Equity Tier 1
CMOs						Collateralized mortgage obligations
CRE						Commercial real estate
Dodd-Frank Act						Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Economic Aid Act						Economic Aid to Hard-Hit Small Business, Nonprofits and Venues Act
ESOP						Employee Stock Ownership Plan
ETR						Effective tax rate
Exchange Act						Securities Exchange Act of 1934
FASB						Financial Accounting Standards Board
FDIC						Federal Deposit Insurance Corporation
Federal Reserve						The Board of Governors of the Federal Reserve System
FHLB						Federal Home Loan Bank
FRBNY						Federal Reserve Bank of New York
FRDW						Federal Reserve Discount Window
FTE						Fully-taxable equivalents measurements
GAAP						United States generally accepted accounting principles
GSEs						U.S. government-sponsored enterprises

Southside Bancshares, Inc. |1

Table of Contents


Guidelines						Interagency Guidelines Prescribing Standards for Safety and Soundness adopted by federal banking agencies
HTM						Held to maturity
ITM						Interactive teller machines
LIBOR						London Interbank Offered Rate
MBS						Mortgage-backed securities
MVPE						Market value of portfolio equity
OREO						Other real estate owned
Repurchase agreements						Securities sold under agreements to repurchase
Restoration Plan						Nonfunded supplemental retirement plan
Retirement Plan						Defined benefit pension plan
ROU						Right-of-use
SBA						Small Business Administration
SEC						Securities and Exchange Commission
SOFR						Secured Overnight Financing Rate provided by the Federal Reserve Bank of New York
U.S.						United States

Southside Bancshares, Inc. |2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(UNAUDITED)
(in thousands, except share amounts)


	March 31, 2024		December 31, 2023

ASSETS
Cash and due from banks	$	96,744	$	122,021
Interest earning deposits	307,257		391,719
Federal funds sold	65,372		46,770
Total cash and cash equivalents	469,373		560,510
Securities:
Securities AFS, at estimated fair value (amortized cost of $1,454,043 and $1,332,467, respectively)	1,405,221		1,296,294
Securities HTM (estimated fair value of $1,152,186 and $1,166,162, respectively)	1,306,898		1,307,053
FHLB stock, at cost	27,958		11,936
Equity investments	9,554		9,691
Loans held for sale	756		10,894
Loans:
Loans	4,577,368		4,524,510
Less: Allowance for loan losses	(43,557)		(42,674)
Net loans	4,533,811		4,481,836
Premises and equipment, net	139,491		138,950
Operating lease ROU assets	14,876		14,837
Goodwill	201,116		201,116
Other intangible assets, net	2,588		2,925
Interest receivable	39,716		50,489
Deferred tax asset, net	29,876		30,426
Unsettled trades to sell securities	6,406		—

BOLI	136,604		136,330
Other assets	29,619		31,627
Total assets	$	8,353,863	$	8,284,914

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing	$	1,358,827	$	1,390,407
Interest bearing	5,186,933		5,159,274
Total deposits	6,545,760		6,549,681
Other borrowings	457,685		509,820
FHLB borrowings	312,466		212,648
Subordinated notes, net of unamortized debt issuance costs	93,913		93,877
Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,271		60,270

Unsettled trades to purchase securities	7,160		—
Operating lease liabilities	16,744		16,704
Other liabilities	71,942		68,626
Total liabilities	7,565,941		7,511,626

Off-balance-sheet arrangements, commitments and contingencies (Note 12)

Shareholders’ equity:
Common stock: ($1.25 par value, 80,000,000 shares authorized, 38,050,389 shares issued at March 31, 2024 and 38,039,706 shares issued at December 31, 2023)	47,563		47,550
Paid-in capital	789,964		788,840
Retained earnings	292,879		282,355
Treasury stock: (shares at cost, 7,766,701 at March 31, 2024 and 7,790,276 at December 31, 2023)	(231,625)		(231,995)
AOCI	(110,859)		(113,462)
Total shareholders’ equity	787,922		773,288
Total liabilities and shareholders’ equity	$	8,353,863	$	8,284,914

The accompanying notes are an integral part of these consolidated financial statements.

Southside Bancshares, Inc. |3

Table of Contents

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except per share data)


	Three Months Ended
	March 31,
	2024		2023
Interest income:
Loans	$	68,211	$	54,776
Taxable investment securities	6,967		5,712
Tax-exempt investment securities	11,088		13,916
MBS	10,119		4,329
FHLB stock and equity investments	333		245
Other interest earning assets	6,040		1,870
Total interest income	102,758		80,848
Interest expense:
Deposits	38,198		19,906
FHLB borrowings	5,950		3,141
Subordinated notes	956		999
Trust preferred subordinated debentures	1,175		1,031
Other borrowings	3,131		2,418
Total interest expense	49,410		27,495
Net interest income	53,348		53,353
Provision for (reversal of) credit losses	58		(40)
Net interest income after provision for credit losses	53,290		53,393
Noninterest income:
Deposit services	5,985		6,422
Net gain (loss) on sale of securities AFS	(18)		(2,146)
Net gain on sale of equity securities	—		2,416
Gain (loss) on sale of loans	(436)		104
Trust fees	1,336		1,467
BOLI	784		1,675
Brokerage services	1,014		697
Other	1,059		1,398
Total noninterest income	9,724		12,033
Noninterest expense:
Salaries and employee benefits	23,113		21,856
Net occupancy	3,362		3,734

Advertising, travel & entertainment	950		1,050
ATM expense	325		355
Professional fees	1,154		1,372
Software and data processing	2,856		2,055
Communications	449		327
FDIC insurance	943		544
Amortization of intangibles	337		478

Other	3,392		3,078
Total noninterest expense	36,881		34,849
Income before income tax expense	26,133		30,577
Income tax expense	4,622		4,543
Net income	$	21,511	$	26,034

Earnings per common share – basic	$	0.71	$	0.83
Earnings per common share – diluted	$	0.71	$	0.83
Cash dividends paid per common share	$	0.36	$	0.35

The accompanying notes are an integral part of these consolidated financial statements.

Southside Bancshares, Inc. |4

Table of Contents

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)


	Three Months Ended
	March 31,
	2024		2023
Net income	$	21,511	$	26,034
Other comprehensive income (loss):
Securities AFS and transferred securities:
Change in unrealized holding gain (loss) on AFS securities during the period	(5,887)		13,019




Reclassification adjustment for amortization related to AFS and HTM debt securities	2,023		1,992

Reclassification adjustment for net (gain) loss on sale of AFS securities, included in net income	18		2,146

Derivatives:
Change in net unrealized gain (loss) on effective cash flow hedge interest rate swap derivatives	13,616		(6,976)

Reclassification adjustment of net (gain) loss related to derivatives designated as cash flow hedges	(6,642)		(5,108)

Pension plans:
Amortization of net actuarial loss, included in net periodic benefit cost	167		173


Other comprehensive income (loss), before tax	3,295		5,246
Income tax (expense) benefit related to items of other comprehensive income (loss)	(692)		(1,102)
Other comprehensive income (loss), net of tax	2,603		4,144
Comprehensive income (loss)	$	24,114	$	30,178

The accompanying notes are an integral part of these consolidated financial statements.

Southside Bancshares, Inc. |5

Table of Contents

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except share and per share data)


	Common Stock		Paid In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at December 31, 2023	$	47,550	$	788,840	$	282,355	$	(231,995)	$	(113,462)	$	773,288


Net income	—		—		21,511		—		—		21,511
Other comprehensive income (loss)	—		—		—		—		2,603		2,603
Issuance of common stock for dividend reinvestment plan (10,683 shares)	13		293		—		—		—		306

Stock compensation expense	—		756		—		—		—		756
Net issuance of common stock under employee stock plans (23,575 shares)	—		75		(95)		370		—		350
Cash dividends paid on common stock ($0.36 per share)	—		—		(10,892)		—		—		(10,892)



Balance at March 31, 2024	$	47,563	$	789,964	$	292,879	$	(231,625)	$	(110,859)	$	787,922


	Common Stock		Paid In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at December 31, 2022	$	47,501	$	784,545	$	239,610	$	(188,203)	$	(137,456)	$	745,997


Net income	—		—		26,034		—		—		26,034
Other comprehensive income (loss)	—		—		—		—		4,144		4,144
Issuance of common stock for dividend reinvestment plan (8,026 shares)	10		292		—		—		—		302
Purchase of common stock (457,394 shares)	—		—		—		(15,945)		—		(15,945)
Stock compensation expense	—		914		—		—		—		914
Net issuance of common stock under employee stock plans (23,919 shares)	—		368		(91)		295		—		572
Cash dividends paid on common stock ($0.35 per share)	—		—		(10,988)		—		—		(10,988)


Balance at March 31, 2023	$	47,511	$	786,119	$	254,565	$	(203,853)	$	(133,312)	$	751,030

The accompanying notes are an integral part of these consolidated financial statements.

Southside Bancshares, Inc. |6

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Three Months Ended
	March 31,
	2024		2023
OPERATING ACTIVITIES:
Net income	$	21,511	$	26,034
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and net amortization	2,468		2,636
Securities premium amortization (discount accretion), net	1,686		3,586
Loan (discount accretion) premium amortization, net	114		89
Provision for (reversal of) credit losses	58		(40)
Stock compensation expense	756		914
Deferred tax expense (benefit)	(142)		(194)

Net (gain) loss on sale of AFS securities	18		2,146
Net gain on sale of equity securities	—		(2,416)

Net loss on premises and equipment	6		4
Gross proceeds from sales of loans held for sale	4,824		4,309
Gross originations of loans held for sale	(2,778)		(4,049)
Net (gain) loss on consumer receivables	512		—
Net (gain) loss on OREO	—		(51)


Net change in:
Interest receivable	10,773		14,460
Other assets	17,911		(3,082)
Interest payable	(1,612)		3,253
Other liabilities	2,187		(23,968)
Net cash provided by (used in) operating activities	58,292		23,631

INVESTING ACTIVITIES:
Securities AFS:
Purchases	(386,212)		(361,685)
Sales	917		237,316
Maturities, calls and principal repayments	264,068		8,617
Securities HTM:

Maturities, calls and principal repayments	879		14,970
Proceeds from sales of equity securities	—		3,785
Proceeds from redemption of FHLB stock and equity investments	29,930		18,370
Purchases of FHLB stock and equity investments	(45,815)		(25,973)
Net loan paydowns (originations)	(53,390)		(5,342)
Proceeds from sales of customer receivables	7,600		—
Purchases of premises and equipment	(2,565)		(2,183)
Proceeds from (purchases of) BOLI	1,549		—
Proceeds from sales of premises and equipment	(2)		—
Net proceeds from sales of OREO	—		144
Proceeds from sales of repossessed assets	91		93
Net cash provided by (used in) investing activities	(182,950)		(111,888)

(continued)



SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

Southside Bancshares, Inc. | 7


CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED)
(in thousands)
	Three Months Ended
	March 31,
	2024		2023
FINANCING ACTIVITIES:
Net change in deposits	(3,926)		(359,846)
Net change in other borrowings	(52,135)		404,474
Proceeds from FHLB borrowings	1,580,000		1,078,000
Repayment of FHLB borrowings	(1,480,182)		(898,175)


Proceeds from stock option exercises	434		640
Cash paid to tax authority related to tax withholding on share-based awards	(84)		(68)
Purchase of common stock	—		(14,842)
Proceeds from the issuance of common stock for dividend reinvestment plan	306		302

Cash dividends paid	(10,892)		(10,988)
Net cash provided by (used in) financing activities	33,521		199,497

Net increase (decrease) in cash and cash equivalents	(91,137)		111,240
Cash and cash equivalents at beginning of period	560,510		199,252
Cash and cash equivalents at end of period	$	469,373	$	310,492

SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:

Interest paid	$	51,022	$	24,242
Income taxes paid	$	—	$	—

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Loans transferred to other repossessed assets and real estate through foreclosure	$	113	$	13





Unsettled trades to purchase securities	$	(7,160)	$	—
Unsettled trades to sell securities	$	6,406	$	4,044
Unsettled trades to repurchase common stock	$	—	$	(957)

The accompanying notes are an integral part of these consolidated financial statements.

Southside Bancshares, Inc. |8

Table of Contents

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Summary of Significant Accounting and Reporting Policies

Basis of Presentation

In this report, the words “the Company,” “we,” “us,” and “our” refer to the combined entities of Southside Bancshares, Inc. and its subsidiaries, including Southside Bank. The words “Southside” and “Southside Bancshares” refer to Southside Bancshares, Inc. The words “Southside Bank” and “the Bank” refer to Southside Bank.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, not all information required by GAAP for complete financial statements is included in these interim statements. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. The preparation of these consolidated financial statements in accordance with GAAP requires the use of management’s estimates. These estimates are subjective in nature and involve matters of judgment. Actual amounts could differ from these estimates.

Interim results are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2023.

Accounting Changes and Reclassifications

Certain prior period amounts may be reclassified to conform to current year presentation.

2. Earnings Per Share

Earnings per share on a basic and diluted basis are calculated as follows (in thousands, except per share amounts):


	Three Months Ended March 31,
	2024		2023
Basic and Diluted Earnings:
Net income	$	21,511	$	26,034
Basic weighted-average shares outstanding	30,262		31,372
Add: Stock awards	43		92
Diluted weighted-average shares outstanding	30,305		31,464
Basic earnings per share:
Net income	$	0.71	$	0.83
Diluted earnings per share:
Net income	$	0.71	$	0.83

For the three months ended March 31, 2024, there were approximately 630,000 anti-dilutive shares. For the three months ended March 31, 2023, there were 121,000 anti-dilutive shares.

Southside Bancshares, Inc. |9

Table of Contents

3. Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component are as follows (in thousands):


	Three Months Ended March 31, 2024

	Unrealized Gains (Losses) on Securities		Unrealized Gains (Losses) on Derivatives		Retirement Plans		Total
Beginning balance, net of tax	$	(107,499)	$	12,803	$	(18,766)	$	(113,462)
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassifications	(5,887)		13,616		—		7,729
Reclassification adjustments included in net income	2,041		(6,642)		167		(4,434)
Income tax (expense) benefit	807		(1,465)		(34)		(692)
Net current-period other comprehensive income (loss), net of tax	(3,039)		5,509		133		2,603
Ending balance, net of tax	$	(110,538)	$	18,312	$	(18,633)	$	(110,859)


	Three Months Ended March 31, 2023

	Unrealized Gains (Losses) on Securities		Unrealized Gains (Losses) on Derivatives		Retirement Plans		Total
Beginning balance, net of tax	$	(149,181)	$	31,227	$	(19,502)	$	(137,456)
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassifications	13,019		(6,976)		—		6,043
Reclassification adjustments included in net income	4,138		(5,108)		173		(797)
Income tax (expense) benefit	(3,603)		2,537		(36)		(1,102)
Net current-period other comprehensive income (loss), net of tax	13,554		(9,547)		137		4,144
Ending balance, net of tax	$	(135,627)	$	21,680	$	(19,365)	$	(133,312)

Southside Bancshares, Inc. |10

Table of Contents

The reclassification adjustments out of accumulated other comprehensive income (loss) included in net income are presented below (in thousands):


	Three Months Ended March 31,
	2024		2023






Unrealized gains and losses on securities transferred:
Amortization of unrealized gains and losses (1)	$	(2,023)	$	(1,992)
Tax benefit	425		418
Net of tax	(1,598)		(1,574)

Unrealized gains and losses on available for sale securities:
Realized net gain (loss) on sale of securities (2)	(18)		(2,146)


Tax (expense) benefit	4		451
Net of tax	(14)		(1,695)

Derivatives:
Realized net gain (loss) on interest rate swap derivatives (3)	6,642		5,108
Tax benefit	(1,395)		(1,072)
Net of tax	5,247		4,036





Amortization of pension plan:
Net actuarial loss (4)	(167)		(173)


Tax benefit	34		36
Net of tax	(133)		(137)
Total reclassifications for the period, net of tax	$	3,502	$	630

(1) Included in interest income on the consolidated statements of income.

(2) Listed as net gain (loss) on sale of securities AFS on the consolidated statements of income.

(3) Included in interest expense for FHLB borrowings, other borrowings and deposits on the consolidated statements of income.

(4) These AOCI components are included in the computation of net periodic pension cost (income) presented in “Note 8 – Employee Benefit Plans.”

Southside Bancshares, Inc. |11

Table of Contents

4. Securities

Debt securities

The amortized cost, gross unrealized gains and losses and estimated fair value of investment and mortgage-backed AFS and HTM securities as of March 31, 2024 and December 31, 2023 are reflected in the tables below (in thousands):


	March 31, 2024
	Amortized		Gross Unrealized		Gross Unrealized		Estimated
AVAILABLE FOR SALE	Cost		Gains		Losses		Fair Value
Investment securities:
U.S. Treasury	$	139,205	$	—	$	19	$	139,186

State and political subdivisions	594,449		126		46,030		548,545
Corporate bonds and other	14,587		37		915		13,709

MBS: (1)
Residential	700,572		2,613		4,108		699,077
Commercial	5,230		30		556		4,704
Total	$	1,454,043	$	2,806	$	51,628	$	1,405,221




HELD TO MATURITY
Investment securities:
State and political subdivisions	$	1,039,958	$	6,658	$	138,034	$	908,582
Corporate bonds and other	146,884		437		12,847		134,474
MBS: (1)
Residential	89,952		9		8,578		81,383
Commercial	30,104		—		2,357		27,747
Total	$	1,306,898	$	7,104	$	161,816	$	1,152,186


	December 31, 2023
	Amortized		Gross Unrealized		Gross Unrealized		Estimated
AVAILABLE FOR SALE	Cost		Gains		Losses		Fair Value
Investment securities:
U.S. Treasury	$	139,706	$	19	$	—	$	139,725

State and political subdivisions	603,913		362		35,530		568,745
Corporate bonds and other	14,569		31		507		14,093

MBS: (1)
Residential	569,039		3,202		3,258		568,983
Commercial	5,240		44		536		4,748
Total	$	1,332,467	$	3,658	$	39,831	$	1,296,294





HELD TO MATURITY
Investment securities:
State and political subdivisions	$	1,039,440	$	10,070	$	126,233	$	923,277
Corporate bonds and other	146,712		488		15,738		131,462
MBS: (1)
Residential	90,619		13		7,263		83,369
Commercial	30,282		—		2,228		28,054
Total	$	1,307,053	$	10,571	$	151,462	$	1,166,162

(1) All MBS are issued and/or guaranteed by U.S. government agencies or U.S. GSEs.

From time to time, we transfer securities from AFS to HTM due to overall balance sheet strategies. We did not transfer any securities from AFS to HTM during the three months ended March 31, 2024 or the year ended December 31, 2023. The remaining net unamortized, unrealized loss on the transferred securities included in AOCI in the accompanying balance sheets totaled $111.5 million ($88.1 million, net of tax) at March 31, 2024 and $113.5 million ($89.7 million, net of tax) at December 31, 2023. Any net unrealized gain or loss on the transferred securities included in AOCI at the time of transfer will be amortized over the remaining life of the underlying security as an adjustment to the yield on those securities. Securities

Southside Bancshares, Inc. |12

Table of Contents

transferred with losses included in AOCI continue to be included in management’s assessment for impairment for each individual security. We transferred these securities due to overall balance sheet strategies, and our management has the current intent and ability to hold these securities until maturity.

Investment securities and MBS with carrying values of $2.31 billion and $2.28 billion were pledged as of March 31, 2024 and December 31, 2023, respectively, to collateralize FHLB borrowings, borrowings from the FRDW, including from the BTFP, repurchase agreements and public fund deposits, for potential liquidity needs or other purposes as required by law. At March 31, 2024 and December 31, 2023, the amount of excess collateral at the FRDW was $251.9 million and $213.1 million, respectively.

The following tables present the fair value and unrealized losses on AFS and HTM investment securities and MBS, if applicable, for which an allowance for credit losses has not been recorded as of March 31, 2024 and December 31, 2023, segregated by major security type and length of time in a continuous loss position (in thousands):


	March 31, 2024
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AVAILABLE FOR SALE
Investment securities:
U.S. Treasury	$	139,186	$	19	$	—	$	—	$	139,186	$	19

State and political subdivisions	7,464		73		524,101		45,957		531,565		46,030
Corporate bonds and other	3,450		108		9,332		807		12,782		915

MBS:
Residential	249,034		980		35,223		3,128		284,257		4,108
Commercial	—		—		2,455		556		2,455		556
Total	$	399,134	$	1,180	$	571,111	$	50,448	$	970,245	$	51,628

HELD TO MATURITY
Investment securities:
State and political subdivisions	$	35,016	$	563	$	711,680	$	137,471	$	746,696	$	138,034
Corporate bonds and other	2,714		125		126,059		12,722		128,773		12,847
MBS:
Residential	—		—		80,792		8,578		80,792		8,578
Commercial	—		—		27,747		2,357		27,747		2,357
Total	$	37,730	$	688	$	946,278	$	161,128	$	984,008	$	161,816

	December 31, 2023
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AVAILABLE FOR SALE
Investment securities:


State and political subdivisions	$	26,371	$	297	$	516,520	$	35,233	$	542,891	$	35,530
Corporate bonds and other	8,103		319		5,071		188		13,174		507

MBS:
Residential	150,865		549		36,864		2,709		187,729		3,258
Commercial	—		—		2,484		536		2,484		536
Total	$	185,339	$	1,165	$	560,939	$	38,666	$	746,278	$	39,831

HELD TO MATURITY
Investment securities:
State and political subdivisions	$	16,549	$	123	$	713,499	$	126,110	$	730,048	$	126,233
Corporate bonds and other	9,956		1,135		114,787		14,603		124,743		15,738
MBS:
Residential	—		—		82,747		7,263		82,747		7,263
Commercial	—		—		28,054		2,228		28,054		2,228
Total	$	26,505	$	1,258	$	939,087	$	150,204	$	965,592	$	151,462

Southside Bancshares, Inc. |13

Table of Contents

For those AFS debt securities in an unrealized loss position (i) where management has the intent to sell or (ii) where it will more-likely-than-not be required to sell the security before the recovery of its amortized cost basis, we recognize the loss in earnings. For those AFS debt securities in an unrealized loss position that do not meet either of these criteria, management assesses whether the decline in fair value has resulted from credit-related factors, using both qualitative and quantitative criteria. Determining the allowance under the credit loss method requires the use of a discounted cash flow method to assess the credit losses. Any credit-related impairment will be recognized in allowance for credit losses on the balance sheet with a corresponding adjustment to earnings. Noncredit-related temporary impairment, the portion of the impairment relating to factors other than credit (such as changes in market interest rates), is recognized in other comprehensive income, net of tax.

As of March 31, 2024 and December 31, 2023, we did not have an allowance for credit losses on our AFS securities, based on our consideration of the qualitative factors associated with each security type in our AFS portfolio. The unrealized losses on our investment and MBS are due to changes in interest rates and spreads and other market conditions. We had 396 AFS debt securities in an unrealized loss position at March 31, 2024. Our state and political subdivisions are highly rated municipal securities with a long history of no credit losses. Our AFS MBS are highly rated securities which are either explicitly or implicitly backed by the U.S. Government through its agencies which are highly rated by major ratings agencies and also have a long history of no credit losses. Our corporate bonds and other investment securities consist of investment grade bonds and private placement bonds.

We assess the likelihood of default and the potential amount of default when assessing our HTM securities for credit losses. We utilize term structures and, due to no prior loss exposure on our state and political subdivision securities or our corporate securities, we currently apply a third-party average loss given default rate to model these securities. We elected to use the specific identification method to model our HTM securities which aligns with our third-party fair value measurement process. As of March 31, 2024, three bonds were rated below investment grade. The model determined any expected credit loss over the life of these securities to be insignificant. Management further evaluated the remote expectation of loss, along with the qualitative factors associated with these securities and concluded that, due to the securities being highly rated municipals and primarily investment grade corporates, private placement bonds with a long history of no credit losses, no credit loss should be recognized for these securities for the three months ended March 31, 2024 or 2023.

The accrued interest receivable on our debt securities is excluded from the credit loss estimate and is included in interest receivable on our consolidated balance sheets. As of March 31, 2024, accrued interest receivable on AFS and HTM debt securities totaled $9.8 million and $8.4 million, respectively. As of December 31, 2023, accrued interest receivable on AFS and HTM debt securities totaled $15.4 million and $13.7 million, respectively. No HTM debt securities were past-due or on nonaccrual status as of March 31, 2024 or December 31, 2023.

The following table reflects interest income recognized on securities for the periods presented (in thousands):



	Three Months Ended March 31,
	2024		2023
U.S. Treasury	$	2,023	$	697

State and political subdivisions	14,269		17,099

Corporate bonds and other	1,763		1,832
MBS	10,119		4,329
Total interest income on securities	$	28,174	$	23,957

There was a $18,000 net realized loss as a result of sales from the AFS securities portfolio for the three months ended March 31, 2024, which consisted of $79,000 in realized losses and $61,000 in realized gains. There was a $2.1 million net realized loss as a result of sales from the AFS securities portfolio for the three months ended March 31, 2023, which consisted of $3.3 million in realized losses and $1.1 million in realized gains. There were no sales from the HTM portfolio during the three months ended March 31, 2024 or 2023. We calculate realized gains and losses on sales of securities under the specific identification method.

Expected maturities on our securities may differ from contractual maturities because issuers may have the right to call or prepay obligations. MBS are presented in total by category since MBS are typically issued with stated principal amounts and are backed by pools of mortgages that have loans with varying maturities. The characteristics of the underlying pool of mortgages, such as fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the security holder. The term of a mortgage-backed pass-through security thus approximates the term of the underlying mortgages and can vary significantly due to prepayments.

Southside Bancshares, Inc. |14

Table of Contents

The amortized cost and estimated fair value of AFS and HTM securities at March 31, 2024, are presented below by contractual maturity (in thousands):


	March 31, 2024
	Amortized Cost		Fair Value
AVAILABLE FOR SALE
Investment securities:
Due in one year or less	$	141,441	$	141,396
Due after one year through five years	1,913		1,916
Due after five years through ten years	22,220		21,278
Due after ten years	582,667		536,850
	748,241		701,440
MBS:	705,802		703,781
Total	$	1,454,043	$	1,405,221


	March 31, 2024
	Amortized Cost		Fair Value
HELD TO MATURITY
Investment securities:
Due in one year or less	$	15,973	$	15,772
Due after one year through five years	5,281		5,198
Due after five years through ten years	142,191		129,856
Due after ten years	1,023,397		892,230
	1,186,842		1,043,056
MBS:	120,056		109,130
Total	$	1,306,898	$	1,152,186

Equity Investments

Equity investments on our consolidated balance sheets include Community Reinvestment Act funds with a readily determinable fair value as well as equity investments without readily determinable fair values. At March 31, 2024 and December 31, 2023, we had equity investments recorded in our consolidated balance sheets of $9.6 million and $9.7 million, respectively.

Any realized and unrealized gains and losses on equity investments are reported in income. Equity investments without readily determinable fair values are recorded at cost less impairment, if any. For the three months ended March 31, 2024, there was no gain or loss on the sale of equity securities.

The following is a summary of unrealized and realized gains and losses on equity investments recognized in other noninterest income in the consolidated statements of income during the periods presented (in thousands):


	Three Months Ended March 31,
	2024		2023
Net gains (losses) recognized during the period on equity investments	$	(56)	$	2,500
Less: Net gains recognized during the period on equity investments sold during the period	—		2,416
Unrealized gains (losses) recognized during the reporting period on equity investments held at the reporting date	$	(56)	$	84

Equity investments are assessed quarterly for other-than-temporary impairment. Based upon that evaluation, management does not consider any of our equity investments to be other-than-temporarily impaired at March 31, 2024.

FHLB Stock

Our FHLB stock, which has limited marketability, is carried at cost and is assessed quarterly for other-than-temporary impairment. Based upon evaluation by management at March 31, 2024, our FHLB stock was not impaired and thus was not considered to be other-than-temporarily impaired.

Southside Bancshares, Inc. |15

Table of Contents

5. Loans and Allowance for Loan Losses

Loans in the accompanying consolidated balance sheets are classified as follows (in thousands):


	March 31, 2024		December 31, 2023
Real estate loans:
Construction	$	599,464	$	789,744
1-4 family residential	720,508		696,738
Commercial	2,413,345		2,168,451
Commercial loans	358,053		366,893
Municipal loans	427,225		441,168
Loans to individuals	58,773		61,516
Total loans	4,577,368		4,524,510
Less: Allowance for loan losses	43,557		42,674
Net loans	$	4,533,811	$	4,481,836

Construction Real Estate Loans

Our construction loans are collateralized by property located primarily in or near the market areas we serve. A number of our construction loans will be owner occupied upon completion. Construction loans for non-owner occupied projects are financed, but these typically have cash flows from leases with tenants, secondary sources of repayment, and in some cases, additional collateral. Our construction loans have both adjustable and fixed interest rates during the construction period. Construction loans to individuals are typically priced and made with the intention of granting the permanent loan on the completed property. Commercial construction loans are subject to underwriting standards similar to that of the commercial real estate loan portfolio. Owner occupied 1-4 family residential construction loans are subject to the underwriting standards of the permanent loan.

1-4 Family Residential Real Estate Loans

Residential loan originations are generated by our mortgage loan officers, in-house origination staff, marketing efforts, present customers, walk-in customers and referrals from real estate agents and builders. We focus our lending efforts primarily on the origination of loans secured by first mortgages on owner occupied 1-4 family residences. Substantially all of our 1-4 family residential originations are secured by properties located in or near our market areas.

Our 1-4 family residential loans generally have maturities ranging from 15 to 30 years. These loans are typically fully amortizing with monthly payments sufficient to repay the total amount of the loan. Our 1-4 family residential loans are made at both fixed and adjustable interest rates.

Underwriting for 1-4 family residential loans includes debt-to-income analysis, credit history analysis, appraised value and down payment considerations. Changes in the market value of real estate can affect the potential losses in the residential portfolio.

Commercial Real Estate Loans

Commercial real estate loans as of March 31, 2024 consisted of $1.83 billion of owner and non-owner occupied real estate, $551.8 million of loans secured by multi-family properties and $28.0 million of loans secured by farmland. Commercial real estate loans primarily include loans collateralized by retail, commercial office buildings, multi-family residential buildings, medical facilities and offices, senior living, assisted living and skilled nursing facilities, warehouse facilities, hotels and churches. In determining whether to originate commercial real estate loans, we generally consider such factors as the financial condition of the borrower and the debt service coverage of the property. Commercial real estate loans are made at both fixed and adjustable interest rates for terms generally up to 20 years.

Commercial Loans

Our commercial loans are diversified loan types including short-term working capital loans for inventory and accounts receivable and short- and medium-term loans for equipment or other business capital expansion. In our commercial loan underwriting, we assess the creditworthiness, ability to repay and the value and liquidity of the collateral being offered. Terms of commercial loans are generally commensurate with the useful life of the collateral offered.

Municipal Loans

Southside Bancshares, Inc. |16

Table of Contents

We have made loans to municipalities and school districts primarily throughout the state of Texas, with a small percentage originating outside of the state. The majority of the loans to municipalities and school districts have tax or revenue pledges and in some cases are additionally supported by collateral. Municipal loans made without a direct pledge of taxes or revenues are usually made based on some type of collateral that represents an essential service. These loans allow us to earn a higher yield than we could if we purchased municipal securities for similar durations.

Loans to Individuals

Substantially all originations of our loans to individuals are made to consumers in our market areas. The majority of loans to individuals are collateralized by titled equipment, which are primarily automobiles. Loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. The underwriting standards we employ for consumer loans include an application, a determination of the applicant’s payment history on other debts, with the greatest weight being given to payment history with us and an assessment of the borrower’s ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, in relation to the proposed loan amount. Most of our loans to individuals are collateralized, which management believes assists in limiting our exposure.

Credit Quality Indicators

We categorize loans into risk categories on an ongoing basis based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. We use the following definitions for risk ratings:

•Pass (Rating 1 – 4) – This rating is assigned to all satisfactory loans. This category, by definition, consists of acceptable credit. Credit and collateral exceptions should not be present, although their presence would not necessarily prohibit a loan from being rated Pass, if deficiencies are in the process of correction. These loans are not included in the Watch List.

•Pass Watch (Rating 5) – These loans require some degree of special treatment, but not due to credit quality. This category does not include loans specially mentioned or adversely classified; however, particular attention is warranted to characteristics such as:

▪A lack of, or abnormally extended payment program;

▪A heavy degree of concentration of collateral without sufficient margin;

▪A vulnerability to competition through lesser or extensive financial leverage; and

▪A dependence on a single or few customers or sources of supply and materials without suitable substitutes or alternatives.

•Special Mention (Rating 6) – A Special Mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in our credit position at some future date. Special Mention loans are not adversely classified and do not expose us to sufficient risk to warrant adverse classification.

•Substandard (Rating 7) – Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

•Doubtful (Rating 8) – Loans classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation, in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

Watch List loans reported as 2024 originations as of March 31, 2024 and Watch List loans reported as 2023 originations as of December 31, 2023 were, for the majority, first originated in various years prior to 2024 and 2023, respectively, but were renewed in the respective year.

Southside Bancshares, Inc. |17

Table of Contents

The following tables set forth the amortized cost basis by class of financing receivable and credit quality indicator for the periods presented (in thousands):


March 31, 2024	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Total
	2024		2023		2022		2021		2020		Prior
Construction real estate:
Pass	$	8,331	$	138,169	$	184,407	$	64,103	$	4,649	$	9,006	$	160,337	$	569,002
Pass watch	—		—		13,912		—		266		—		—		14,178
Special mention	—		—		—		180		—		7		—		187
Substandard	—		—		16,019		65		—		—		—		16,084
Doubtful	—		—		—		—		—		13		—		13
Total construction real estate	$	8,331	$	138,169	$	214,338	$	64,348	$	4,915	$	9,026	$	160,337	$	599,464
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

1-4 family residential real estate:
Pass	$	7,326	$	44,497	$	148,117	$	148,890	$	112,986	$	251,106	$	1,545	$	714,467
Pass watch	—		—		—		—		30		—		—		30
Special mention	—		—		—		512		74		—		—		586
Substandard	—		169		—		71		1,282		3,282		73		4,877
Doubtful	—		—		—		—		162		386		—		548
Total 1-4 family residential real estate	$	7,326	$	44,666	$	148,117	$	149,473	$	114,534	$	254,774	$	1,618	$	720,508
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	22	$	—	$	22

Commercial real estate:
Pass	$	57,374	$	472,778	$	690,253	$	606,292	$	173,900	$	273,284	$	16,515	$	2,290,396
Pass watch	—		—		34,418		—		1,022		472		—		35,912
Special mention	24,541		17,353		1,470		—		—		34,443		—		77,807
Substandard	—		—		853		95		261		6,358		—		7,567
Doubtful	—		—		—		—		—		1,663		—		1,663
Total commercial real estate	$	81,915	$	490,131	$	726,994	$	606,387	$	175,183	$	316,220	$	16,515	$	2,413,345
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial loans:
Pass	$	18,574	$	83,955	$	56,619	$	37,923	$	9,421	$	6,297	$	139,370	$	352,159
Pass watch	—		—		99		101		—		204		—		404
Special mention	—		183		169		—		13		147		—		512
Substandard	53		—		3,434		312		—		43		579		4,421
Doubtful	—		41		206		253		—		57		—		557
Total commercial loans	$	18,627	$	84,179	$	60,527	$	38,589	$	9,434	$	6,748	$	139,949	$	358,053
Current period gross charge-offs	$	—	$	65	$	49	$	37	$	—	$	—	$	—	$	151

Municipal loans:
Pass	$	2,032	$	38,519	$	59,855	$	67,922	$	48,107	$	210,790	$	—	$	427,225
Pass watch	—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Total municipal loans	$	2,032	$	38,519	$	59,855	$	67,922	$	48,107	$	210,790	$	—	$	427,225
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Loans to individuals:
Pass	$	7,489	$	18,441	$	13,054	$	9,886	$	5,212	$	2,557	$	2,096	$	58,735
Pass watch	—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		10		—		10
Doubtful	—		15		2		—		1		10		—		28
Total loans to individuals	$	7,489	$	18,456	$	13,056	$	9,886	$	5,213	$	2,577	$	2,096	$	58,773
Current period gross charge-offs (1)	$	427	$	1	$	18	$	2	$	13	$	—	$	—	$	461

Total loans	$	125,720	$	814,120	$	1,222,887	$	936,605	$	357,386	$	800,135	$	320,515	$	4,577,368
Total current period gross charge-offs (1)	$	427	$	66	$	67	$	39	$	13	$	22	$	—	$	634

(1) Includes $306,000 in charged off demand deposit overdrafts reported as 2024 originations.

Southside Bancshares, Inc. |18

Table of Contents


December 31, 2023	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Total
	2023		2022		2021		2020		2019		Prior
Construction real estate:
Pass	$	132,838	$	236,573	$	196,311	$	37,997	$	3,938	$	6,457	$	144,358	$	758,472
Pass watch	—		7,798		—		—		—		—		—		7,798
Special mention	13,166		9,456		698		—		7		—		—		23,327
Substandard	36		—		68		—		—		43		—		147
Doubtful	—		—		—		—		—		—		—		—
Total construction real estate	$	146,040	$	253,827	$	197,077	$	37,997	$	3,945	$	6,500	$	144,358	$	789,744
Current period gross charge-offs	$	—	$	92	$	—	$	—	$	—	$	—	$	—	$	92

1-4 family residential real estate:
Pass	$	41,520	$	126,981	$	145,671	$	114,631	$	63,710	$	196,651	$	1,803	$	690,967
Pass watch	—		—		—		32		—		—		—		32
Special mention	—		—		—		75		—		—		—		75
Substandard	325		—		73		1,379		—		3,259		74		5,110
Doubtful	—		—		—		163		—		391		—		554
Total 1-4 family residential real estate	$	41,845	$	126,981	$	145,744	$	116,280	$	63,710	$	200,301	$	1,877	$	696,738
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	1	$	118	$	—	$	119

Commercial real estate:
Pass	$	469,844	$	641,577	$	495,363	$	143,150	$	91,085	$	189,021	$	16,493	$	2,046,533
Pass watch	24,300		34,424		255		1,037		333		146		—		60,495
Special mention	17,403		—		—		—		9,746		25,072		—		52,221
Substandard	—		862		95		269		1,565		6,346		—		9,137
Doubtful	—		—		—		—		65		—		—		65
Total commercial real estate	$	511,547	$	676,863	$	495,713	$	144,456	$	102,794	$	220,585	$	16,493	$	2,168,451
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	788	$	—	$	—	$	788

Commercial loans:
Pass	$	78,090	$	62,192	$	42,114	$	10,708	$	4,356	$	3,310	$	161,153	$	361,923
Pass watch	—		128		117		—		—		18		—		263
Special mention	191		174		—		16		—		162		—		543
Substandard	14		2,357		73		—		65		12		821		3,342
Doubtful	238		267		133		—		64		120		—		822
Total commercial loans	$	78,533	$	65,118	$	42,437	$	10,724	$	4,485	$	3,622	$	161,974	$	366,893
Current period gross charge-offs	$	745	$	440	$	44	$	26	$	23	$	5	$	—	$	1,283

Municipal loans:
Pass	$	39,028	$	61,429	$	68,979	$	49,746	$	39,949	$	182,037	$	—	$	441,168
Pass watch	—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Total municipal loans	$	39,028	$	61,429	$	68,979	$	49,746	$	39,949	$	182,037	$	—	$	441,168
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Loans to individuals:
Pass	$	22,788	$	15,503	$	11,588	$	6,256	$	2,180	$	941	$	2,216	$	61,472
Pass watch	—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		13		—		—		13
Doubtful	4		17		—		10		—		—		—		31
Total loans to individuals	$	22,792	$	15,520	$	11,588	$	6,266	$	2,193	$	941	$	2,216	$	61,516
Current period gross charge-offs	$	1,682	$	54	$	61	$	20	$	6	$	99	$	—	$	1,922

Total loans	$	839,785	$	1,199,738	$	961,538	$	365,469	$	217,076	$	613,986	$	326,918	$	4,524,510
Total current period gross charge-offs (1)	$	2,427	$	586	$	105	$	46	$	818	$	222	$	—	$	4,204

(1) Includes $1.7 million in charged off demand deposit overdrafts reported as 2023 originations.

Southside Bancshares, Inc. |19

Table of Contents

The following tables present the aging of the amortized cost basis in past due loans by class of loans (in thousands):


	March 31, 2024
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total
Real estate loans:
Construction	$	20	$	—	$	—	$	20	$	599,444	$	599,464
1-4 family residential	4,908		26		2,230		7,164		713,344		720,508
Commercial	1,250		1,781		346		3,377		2,409,968		2,413,345
Commercial loans	1,261		78		165		1,504		356,549		358,053
Municipal loans	—		—		—		—		427,225		427,225
Loans to individuals	55		24		—		79		58,694		58,773
Total	$	7,494	$	1,909	$	2,741	$	12,144	$	4,565,224	$	4,577,368


	December 31, 2023
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total
Real estate loans:
Construction	$	474	$	—	$	29	$	503	$	789,241	$	789,744
1-4 family residential	4,638		774		1,700		7,112		689,626		696,738
Commercial	621		34		40		695		2,167,756		2,168,451
Commercial loans	1,693		347		127		2,167		364,726		366,893
Municipal loans	27		—		—		27		441,141		441,168
Loans to individuals	107		1		10		118		61,398		61,516
Total	$	7,560	$	1,156	$	1,906	$	10,622	$	4,513,888	$	4,524,510

Southside Bancshares, Inc. |20

Table of Contents

The following table sets forth the amortized cost basis of nonperforming assets for the periods presented (in thousands):


	March 31, 2024		December 31, 2023
Nonaccrual loans:
Real estate loans:
Construction	$	40	$	29
1-4 family residential	2,767		2,093
Commercial	2,423		528
Commercial loans	2,451		1,208

Loans to individuals	28		31
Total nonaccrual loans (1)	7,709		3,889

Accruing loans past due more than 90 days	—		—
Restructured loans	151		13
OREO	119		99
Repossessed assets	—		—
Total nonperforming assets	$	7,979	$	4,001

(1) Includes $535,000 and $506,000 of restructured loans as of March 31, 2024 and December 31, 2023, respectively.

The increase in nonaccrual loans was primarily due to one commercial real estate loan and one commercial loan relationship that were put on nonaccrual during the three months ended March 31, 2024. We reversed $34,000 of interest income on nonaccrual loans during the three months ended March 31, 2024, and $26,000 for the three months ended March 31, 2023. We had $939,000 and $1.0 million of loans on nonaccrual for which there was no related allowance for credit losses as of March 31, 2024 and December 31, 2023, respectively.

Collateral-dependent loans are loans that we expect the repayment to be provided substantially through the operation or sale of the collateral of the loan and we have determined that the borrower is experiencing financial difficulty. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for selling costs. As of March 31, 2024 and December 31, 2023, we had $10.6 million and $7.5 million, respectively, of collateral-dependent loans, secured mainly by real estate and equipment. There have been no significant changes to the collateral that secures the collateral-dependent assets. Foreclosed assets include OREO and repossessed assets. For 1-4 family residential real estate properties, a loan is recognized as a foreclosed property once legal title to the real estate property has been received upon completion of foreclosure or the borrower has conveyed all interest in the residential property through a deed in lieu of foreclosure. There were $1.2 million and $1.0 million loans secured by 1-4 family residential properties for which formal foreclosure proceedings were in process as of March 31, 2024 and December 31, 2023, respectively.

Restructured Loans

A loan is considered restructured if the borrower is experiencing financial difficulties and the loan has been modified. Modifications may include interest rate reductions or below market interest rates, restructuring amortization schedules and other actions intended to minimize potential losses. We may provide a combination of modifications which may include an extension of the amortization period, interest rate reduction and/or converting the loan to interest-only for a limited period of time. In most instances, interest will continue to be charged on principal balances outstanding during the extended term. Therefore, the financial effects of the recorded investment of loans restructured during the three months ended March 31, 2024 were not significant.

There were no loans restructured during the three months ended March 31, 2024. There were 3 loans totaling $535,000 included in nonperforming assets as of March 31, 2024. There was one commercial loan for $179,000 that was restructured with an extension of amortization period as of March 31, 2023 and is included in our nonaccrual loans in nonperforming assets.

On an ongoing basis, the performance of the restructured loans is monitored for subsequent payment default. Payment default is recognized when the borrower is 90 days or more past due. For the three months ended March 31, 2024 and 2023, there were no restructured loans in default. Payment defaults for restructured loans did not significantly impact the determination of the allowance for loan losses in the periods presented. At March 31, 2024, there were no commitments to lend additional funds to borrowers whose loans had been restructured.

Southside Bancshares, Inc. |21

Table of Contents

Allowance for Loan Losses

The following tables detail activity in the allowance for loan losses by portfolio segment for the periods presented (in thousands):



	Three Months Ended March 31, 2024
	Real Estate
	Construction		1-4 Family Residential		Commercial		Commercial Loans		Municipal Loans		Loans to Individuals		Total
Balance at beginning of period	$	5,287	$	2,840	$	32,266	$	2,086	$	19	$	176	$	42,674
Loans charged-off	—		(22)		—		(151)		—		(461)		(634)
Recoveries of loans charged-off	—		11		3		56		—		277		347
Net loans (charged-off) recovered	—		(11)		3		(95)		—		(184)		(287)
Provision for (reversal of) loan losses	(367)		(61)		624		783		—		191		1,170
Balance at end of period	$	4,920	$	2,768	$	32,893	$	2,774	$	19	$	183	$	43,557



	Three Months Ended March 31, 2023
	Real Estate
	Construction		1-4 Family Residential		Commercial		Commercial Loans		Municipal Loans		Loans to Individuals		Total
Balance at beginning of period	$	3,164	$	2,173	$	28,701	$	2,235	$	45	$	197	$	36,515


Loans charged-off	—		(49)		—		(109)		—		(475)		(633)
Recoveries of loans charged-off	1		5		—		60		—		296		362
Net loans (charged-off) recovered	1		(44)		—		(49)		—		(179)		(271)
Provision for (reversal of) loan losses	(13)		185		20		(285)		(1)		182		88
Balance at end of period	$	3,152	$	2,314	$	28,721	$	1,901	$	44	$	200	$	36,332

The accrued interest receivable on our loan receivables is excluded from the allowance for credit loss estimate and is included in interest receivable on our consolidated balance sheets. As of March 31, 2024 and December 31, 2023, the accrued interest on our loan portfolio was $21.5 million and $21.3 million, respectively.

Southside Bancshares, Inc. |22

Table of Contents

6. Borrowing Arrangements

Information related to borrowings is provided in the table below (dollars in thousands):


	March 31, 2024			December 31, 2023
Other borrowings:
Balance at end of period	$	457,685		$	509,820
Average amount outstanding during the period (1)	229,464			436,676
Maximum amount outstanding during the period (2)	457,685			1,030,421
Weighted average interest rate during the period (3)	5.5		%	4.9		%
Interest rate at end of period (4)	5.3		%	5.0		%

FHLB borrowings:
Balance at end of period	$	312,466		$	212,648
Average amount outstanding during the period (1)	607,033			276,584
Maximum amount outstanding during the period (2)	702,527			533,242
Weighted average interest rate during the period (3)	3.9		%	2.5		%
Interest rate at end of period (5)	3.0		%	1.2		%

(1)The average amount outstanding during the period was computed by dividing the total daily outstanding principal balances by the number of days in the period.

(2)The maximum amount outstanding at any month-end during the period.

(3)The weighted average interest rate during the period was computed by dividing the actual interest expense (annualized for interim periods) by the average amount outstanding during the period. The weighted average interest rate on other borrowings and FHLB borrowings includes the effect of interest rate swaps.

(4)Stated rate.

(5)The interest rate on FHLB borrowings includes the effect of interest rate swaps.

Maturities of the obligations associated with our borrowing arrangements based on scheduled repayments at March 31, 2024 are as follows (in thousands):


	Payments Due by Period
	Less than 1 Year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		Thereafter		Total
Other borrowings	$	453,635	$	4,050	$	—	$	—	$	—	$	—	$	457,685
FHLB borrowings	310,748		775		391		411		141		—		312,466
Total obligations	$	764,383	$	4,825	$	391	$	411	$	141	$	—	$	770,151

Other borrowings may include federal funds purchased, repurchase agreements and borrowings from the Federal Reserve through the FRDW and BTFP. Southside Bank has three unsecured lines of credit for the purchase of overnight federal funds at prevailing rates with Frost Bank, Amegy Bank and TIB – The Independent Bankers Bank for $40.0 million, $25.0 million and $15.0 million, respectively. There were no federal funds purchased at March 31, 2024 or December 31, 2023. To provide more liquidity in response to economic conditions in recent years, the Federal Reserve has encouraged broader use of the discount window. At March 31, 2024, the amount of additional funding the Bank could obtain from the FRDW, collateralized by securities, was approximately $251.9 million. There were $250.0 million in borrowings from the FRDW at March 31, 2024, and $300.0 million at December 31, 2023. To provide more stability and to assure banks have the ability to meet the needs of all of their depositors, the Federal Reserve created the BTFP in the first quarter of 2023. On March 11, 2024, the Federal Reserve stopped extending new BTFP advances. There were $116.1 million in borrowings from the BTFP at March 31, 2024, with a remaining maturity under one year. Southside Bank has a $5.0 million line of credit with Frost Bank to be used to issue letters of credit, and at March 31, 2024, the line had one outstanding letter of credit for $155,000. Southside Bank currently has no outstanding letters of credit from FHLB held as collateral for its public fund deposits.

Southside Bank enters into sales of securities under repurchase agreements. These repurchase agreements totaled $91.6 million at March 31, 2024 and $92.1 million at December 31, 2023, and had maturities of less than 1.4 years. Repurchase agreements are secured by investment and MBS securities and are stated at the amount of cash received in connection with the transaction.

Southside Bancshares, Inc. |23

Table of Contents

FHLB borrowings represent borrowings with fixed interest rates ranging from 0.61% to 4.80% and with remaining maturities of one day to 4.3 years at March 31, 2024. FHLB borrowings may be collateralized by FHLB stock, nonspecified loans and/or securities. At March 31, 2024, the amount of additional funding Southside Bank could obtain from FHLB, collateralized by securities, FHLB stock and nonspecified loans and securities, was approximately $2.01 billion, net of FHLB stock purchases required.

7. Long-term Debt

Information related to our long-term debt is summarized as follows for the periods presented (in thousands):


	March 31, 2024		December 31, 2023

Subordinated notes: (1)
3.875% Subordinated notes, net of unamortized debt issuance costs (2)	$	93,913	$	93,877

Total Subordinated notes	93,913		93,877
Trust preferred subordinated debentures: (3)
Southside Statutory Trust III, net of unamortized debt issuance costs (4)	20,579		20,578
Southside Statutory Trust IV	23,196		23,196
Southside Statutory Trust V	12,887		12,887
Magnolia Trust Company I	3,609		3,609
Total Trust preferred subordinated debentures	60,271		60,270




Total Long-term debt	$	154,184	$	154,147

(1)This debt consists of subordinated notes with a remaining maturity greater than one year that qualify under the risk-based capital guidelines as Tier 2 capital, subject to certain limitations.

(2)The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $1.1 million at March 31, 2024 and December 31, 2023.

(3)This debt consists of trust preferred securities that qualify under the risk-based capital guidelines as Tier 1 capital, subject to certain limitations.

(4)The unamortized debt issuance costs reflected in the carrying amount of the Southside Statutory Trust III junior subordinated debentures totaled $40,000 at March 31, 2024 and $41,000 at December 31, 2023.

As of March 31, 2024, the details of the subordinated notes and the trust preferred subordinated debentures are summarized below (dollars in thousands):

Date Issued

Amount Issued

Fixed or Floating Rate

Interest Rate

Maturity Date

3.875% Subordinated Notes (1)

November 6, 2020

100,000

Fixed-to-Floating

3.875%

November 15, 2030

Southside Statutory Trust III

September 4, 2003

20,619

Floating

3 month SOFR + 3.20%

September 4, 2033

Southside Statutory Trust IV

August 8, 2007

23,196

Floating

3 month SOFR + 1.56%

October 30, 2037

Southside Statutory Trust V

August 10, 2007

12,887

Floating

3 month SOFR + 2.51%

September 15, 2037

Magnolia Trust Company I (2)

May 20, 2005

3,609

Floating

3 month SOFR + 2.06%

November 23, 2035

(1)On June 14, 2023, the Company repurchased $5.0 million of the $100 million fixed-to-floating rate subordinated notes that mature on November 15, 2030.

Southside Bancshares, Inc. |24

Table of Contents

(2)On October 10, 2007, as part of an acquisition we assumed $3.6 million of floating rate junior subordinated debentures issued in 2005 to Magnolia Trust Company I.

On November 6, 2020, the Company issued $100.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that mature on November 15, 2030. This debt initially bears interest at a fixed rate of 3.875% per year through November 14, 2025 and thereafter, adjusts quarterly at a floating rate equal to the then current three-month term SOFR, as published by the FRBNY, plus 366 basis points. The proceeds from the sale of the subordinated notes were used for general corporate purposes.

8. Employee Benefit Plans

The components of net periodic benefit cost (income) related to our employee benefit plans are as follows (in thousands):



	Three Months Ended March 31,
	Retirement Plan				Acquired Retirement Plan				Restoration Plan
	2024		2023		2024		2023		2024		2023

Interest cost	$	910	$	925	$	28	$	32	$	203	$	206
Expected return on assets	(1,215)		(1,143)		(46)		(47)		—		—
Net loss amortization	149		166		—		—		18		7


Net periodic benefit cost (income)	$	(156)	$	(52)	$	(18)	$	(15)	$	221	$	213

All cost components disclosed above are recorded in other noninterest expense. The noncash adjustment to the employee benefit plan liabilities, consisting of changes in net loss, was $167,000 and $173,000 for the three months ended March 31, 2024 and 2023, respectively.

Southside Bancshares, Inc. |25

Table of Contents

9. Derivative Financial Instruments and Hedging Activities

Our hedging policy allows the use of interest rate derivative instruments to manage our exposure to interest rate risk or hedge specified assets and liabilities. These instruments may include interest rate swaps and interest rate caps and floors. All derivative instruments are carried on the balance sheet at their estimated fair value and are recorded in other assets or other liabilities, as appropriate.

Derivative instruments may be designated as cash flow hedges of variable rate assets or liabilities, cash flow hedges of forecasted transactions, fair value hedges of a recognized asset or liability or as non-hedging instruments.

Cash Flow Hedges

Gains and losses on derivative instruments designated as cash flow hedges are recorded in AOCI to the extent they are effective. If the hedge is effective, the amount recorded in other comprehensive income is reclassified to interest expense in the same periods that the hedged cash flows impact earnings. We have entered into certain interest rate swap contracts on specific variable rate agreements and fixed rate short-term pay agreements with third-parties. These interest rate swap contracts were designated as hedging instruments in cash flow hedges under ASC Topic 815. The objective of the interest rate swap contracts is to manage the expected future cash flows on $940 billion of Bank liabilities. The cash flows from the swap contracts are expected to be highly effective in hedging the variability in future cash flows attributable to fluctuations in the underlying SOFR rate.

In accordance with ASC Topic 815, if a hedging item is terminated prior to maturity for a cash settlement, the existing gain or loss within AOCI will continue to be reclassified into earnings during the period or periods in which the hedged forecasted transaction affects earnings unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period. These transactions are reevaluated on a monthly basis to determine if the hedged forecasted transactions are still probable of occurring. If at a subsequent evaluation, it is determined that the transactions are probable of not occurring, any related gains or losses recorded in AOCI are immediately recognized in earnings. During the second quarter of 2023, we terminated one interest rate swap contract designated as a cash flow hedge. At the time of termination, we determined the underlying hedged forecasted transactions were still probable of occurring. The existing loss in AOCI will be reclassified into earnings in the same periods the hedged forecasted transaction affects earnings.

Fair Value Hedges

Gains and losses on derivative instruments designated as fair value hedges, as well as the change in fair value on the hedged item, are recorded in interest income in the consolidated statements of income. Gains and losses due to changes in fair value of the interest rate swap agreements completely offset changes in the fair value of the hedged portion of the hedged item. During 2022, we entered into partial term fair value hedges, as allowed under ASU 2017-12, for certain of our fixed rate callable AFS municipal securities. The instruments are designated as fair value hedges as the changes in the fair value of the interest rate swap are expected to offset changes in the fair value of the hedged item attributable to changes in the SOFR swap rate, the designated benchmark interest rate. As of March 31, 2024, hedged securities with a carrying amount of $449.4 million are included in our AFS securities portfolio in our consolidated balance sheets. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for us making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value. During 2023, we terminated some of our fair value hedging relationships and sold the hedged items. As a result of the sale, the cumulative adjustments to the carrying amount was a fair value net gain of $6.5 million recognized in earnings and recorded in noninterest income during the year ended December 31, 2023.

The following table presents the amounts recorded in the consolidated balance sheets related to the cumulative adjustments for fair value hedges (in thousands):


	March 31, 2024		December 31, 2023
Amortized cost of hedged assets - Securities AFS	$	485,979	$	487,486
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	20,422		13,642

Derivatives Designated as Non-Hedging Instruments

From time to time, we may enter into certain interest rate swaps, cap and floor contracts that are not designated as hedging instruments. These interest rate derivative contracts relate to transactions in which we enter into an interest rate swap, cap or floor with a customer while concurrently entering into an offsetting interest rate swap, cap or floor with a third-party financial institution. We agree to pay interest to the customer on a notional amount at a variable rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, we agree to pay a third-party financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These interest rate derivative contracts allow our customers to effectively convert a variable rate loan to a

Southside Bancshares, Inc. |26

Table of Contents

fixed rate loan. The changes in the fair value of the underlying derivative contracts primarily offset each other and do not significantly impact our results of operations. We recognized swap fee income associated with these derivative contracts immediately based upon the difference in the bid/ask spread of the underlying transactions with the customer and the third-party financial institution. The swap fee income is included in other noninterest income in our consolidated statements of income.

At March 31, 2024 and December 31, 2023, net derivative assets included $65.4 million and $46.8 million, respectively, of cash collateral received from counterparties under master netting agreements.

The notional amounts of the derivative instruments represent the contractual cash flows pertaining to the underlying agreements. These amounts are not exchanged and are not reflected in the consolidated balance sheets. The fair value of the interest rate swaps are presented at net in other assets and other liabilities and in the net change in each of these financial statement line items in the accompanying consolidated statements of cash flows when a right of offset exists, based on transactions with a single counterparty that are subject to a legally enforceable master netting agreement.

The following tables present the notional and estimated fair value amount of derivative positions outstanding (in thousands):


	March 31, 2024						December 31, 2023
			Estimated Fair Value						Estimated Fair Value
	Notional Amount (1)		Asset Derivative		Liability Derivative		Notional Amount (1)		Asset Derivative		Liability Derivative
Derivatives designated as hedging instruments
Interest rate contracts:
Swaps-Cash Flow Hedge-Financial institution counterparties	$	940,000	$	26,043	$	1,824	$	1,010,000	$	24,223	$	6,910
Swaps-Fair Value Hedge-Financial institution counterparties	453,440		20,422		—		453,440		13,658		16
Derivatives designated as non-hedging instruments
Interest rate contracts:
Swaps-Financial institution counterparties	245,874		21,786		27		248,073		18,249		509
Swaps-Customer counterparties	245,874		27		21,786		248,073		509		18,249
Gross derivatives			68,278		23,637				56,639		25,684
Offsetting derivative assets/liabilities			(1,851)		(1,851)				(7,435)		(7,435)
Cash collateral received/posted			(65,360)		—				(46,760)		—
Net derivatives included in the consolidated balance sheets (2)			$	1,067	$	21,786			$	2,444	$	18,249

(1) Notional amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the consolidated balance sheets.

(2) Net derivative assets are included in other assets and net derivative liabilities are included in other liabilities on the consolidated balance sheets. Included in the fair value of net derivative assets and net derivative liabilities are credit valuation adjustments reflecting counterparty credit risk and our credit risk. At March 31, 2024, we had $1.0 million credit exposure related to interest rate swaps with financial institutions and $27,000 related to interest rate swaps with customers. At December 31, 2023, we had $1.9 million credit exposure related to interest rate swaps with financial institutions and $509,000 related to interest rate swaps with customers. The credit risk associated with customer transactions is partially mitigated as these are generally secured by the non-cash collateral securing the underlying transaction being hedged.

The summarized expected weighted average remaining maturity of the notional amount of interest rate swaps and the weighted average interest rates associated with the amounts expected to be received or paid on interest rate swap agreements are

Southside Bancshares, Inc. |27

Table of Contents

presented below (dollars in thousands). Variable rates received on fixed pay swaps are based on overnight SOFR rates in effect at March 31, 2024 and December 31, 2023:


	March 31, 2024							December 31, 2023
			Weighted Average							Weighted Average
	Notional Amount		Remaining Maturity (in years)	Receive Rate		Pay Rate		Notional Amount		Remaining Maturity (in years)	Receive Rate		Pay Rate
Swaps-Cash Flow hedge
Financial institution counterparties	$	940,000	2.3	5.40	%	2.94	%	$	1,010,000	2.3	5.44	%	2.65	%
Swaps-Fair Value hedge
Financial institution counterparties	453,440		5.1	5.34	%	3.13	%	453,440		5.4	5.37	%	3.13	%
Swaps-Non-hedging
Financial institution counterparties	245,874		7.2	5.81	%	2.87	%	248,073		7.4	5.84	%	2.88	%
Customer counterparties	245,874		7.2	2.87	%	5.81	%	248,073		7.4	2.88	%	5.84	%

The following table presents amounts included in the consolidated statements of income related to interest rate swap agreements (in thousands):


	Three Months Ended March 31,
	2024		2023
Derivatives designated as hedging instruments
Swaps-Cash Flow hedge
Gain (loss) included in interest expense on deposits	$	4,111	$	3,071
Gain (loss) included in interest expense on FHLB borrowings	2,531		1,901
Gain (loss) included in interest expense on other borrowings	—		136
	6,642		5,108
Swaps-Fair Value hedge
Gain (loss) included in interest income on tax-exempt investment securities	2,622		2,450
Derivatives designated as non-hedging instruments
Swaps-Non-hedging
Other noninterest income	—		160

Southside Bancshares, Inc. |28

Table of Contents

10. Fair Value Measurement

Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants. A fair value measurement assumes the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

Valuation techniques including the market approach, the income approach and/or the cost approach are utilized to determine fair value. Inputs to valuation techniques refer to the assumptions market participants would use in pricing the asset or liability. Valuation policies and procedures are determined by our investment department and reported to our ALCO for review. An entity must consider all aspects of nonperforming risk, including the entity’s own credit standing, when measuring fair value of a liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. A fair value hierarchy for valuation inputs gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Certain financial assets are measured at fair value in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of fair value accounting or write-downs of individual assets. A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Securities AFS and Equity Investments with readily determinable fair values – U.S. Treasury securities and equity investments with readily determinable fair values are reported at fair value utilizing Level 1 inputs. Other securities classified as AFS are reported at fair value utilizing Level 2 inputs. For most of these securities, we obtain fair value measurements from independent pricing services and obtain an understanding of the pricing methodologies used by these independent pricing services. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things, as stated in the pricing methodologies of the independent pricing services.

We review and validate the prices supplied by the independent pricing services for reasonableness by comparison to prices obtained from, in some cases, two additional third-party sources. For securities where prices are outside a reasonable range, we further review those securities, based on internal ALCO approved procedures, to determine what a reasonable fair value measurement is for those securities, given available data.

Derivatives – Derivatives are reported at fair value utilizing Level 2 inputs. We obtain fair value measurements from two sources including an independent pricing service and the counterparty to the derivatives designated as hedges. The fair value measurements consider observable data that may include dealer quotes, market spreads, the U.S. Treasury yield curve, live trading levels, trade execution data, credit information and the derivatives’ terms and conditions, among other things. We review the prices supplied by the sources for reasonableness. In addition, we obtain a basic understanding of their underlying pricing methodology. We validate prices supplied by the sources by comparison to one another.

Certain nonfinancial assets and nonfinancial liabilities measured at fair value on a recurring basis include reporting units measured at fair value and tested for goodwill impairment.

Southside Bancshares, Inc. |29

Table of Contents

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis, which means that the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a nonrecurring basis included foreclosed assets and collateral-dependent loans at March 31, 2024 and December 31, 2023.

Foreclosed Assets – Foreclosed assets are initially recorded at fair value less costs to sell. The fair value measurements of foreclosed assets can include Level 2 measurement inputs such as real estate appraisals and comparable real estate sales information, in conjunction with Level 3 measurement inputs such as cash flow projections, qualitative adjustments and sales cost estimates. As a result, the categorization of foreclosed assets is Level 3 of the fair value hierarchy. In connection with the measurement and initial recognition of certain foreclosed assets, we may recognize charge-offs through the allowance for credit losses.

Collateral-Dependent Loans – Certain loans may be reported at the fair value of the underlying collateral if repayment is expected substantially from the operation or sale of the collateral. Collateral values are estimated using Level 3 inputs based on customized discounting criteria or appraisals. At March 31, 2024 and December 31, 2023, the impact of the fair value of collateral-dependent loans was reflected in our allowance for loan losses.

The fair value estimate of financial instruments for which quoted market prices are unavailable is dependent upon the assumptions used. Consequently, those estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented in the fair value tables do not necessarily represent their underlying value.

Southside Bancshares, Inc. |30

Table of Contents

The following tables summarize assets measured at fair value on a recurring and nonrecurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):



			Fair Value Measurements at the End of the Reporting Period Using
March 31, 2024	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring fair value measurements
Investment securities:
U.S. Treasury	$	139,186	$	139,186	$	—	$	—

State and political subdivisions	548,545		—		548,545		—
Corporate bonds and other	13,709		—		13,709		—
MBS: (1)
Residential	699,077		—		699,077		—
Commercial	4,704		—		4,704		—
Equity investments:
Equity investments	5,252		5,252		—		—
Derivative assets:
Interest rate swaps	68,278		—		68,278		—
Total asset recurring fair value measurements	$	1,478,751	$	144,438	$	1,334,313	$	—

Derivative liabilities:
Interest rate swaps	$	23,637	$	—	$	23,637	$	—
Total liability recurring fair value measurements	$	23,637	$	—	$	23,637	$	—

Nonrecurring fair value measurements
Foreclosed assets	$	119	$	—	$	—	$	119
Collateral-dependent loans (2)	9,660		—		—		9,660
Total asset nonrecurring fair value measurements	$	9,779	$	—	$	—	$	9,779

Southside Bancshares, Inc. |31

Table of Contents



			Fair Value Measurements at the End of the Reporting Period Using
December 31, 2023	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring fair value measurements
Investment securities:
U.S. Treasury	$	139,725	$	139,725	$	—	$	—

State and political subdivisions	568,745		—		568,745		—
Corporate bonds and other	14,093		—		14,093		—
MBS: (1)
Residential	568,983		—		568,983		—
Commercial	4,748		—		4,748		—
Equity investments:
Equity investments	5,308		5,308		—		—
Derivative assets:
Interest rate swaps	56,639		—		56,639		—
Total asset recurring fair value measurements	$	1,358,241	$	145,033	$	1,213,208	$	—

Derivative liabilities:
Interest rate swaps	$	25,684	$	—	$	25,684	$	—
Total liability recurring fair value measurements	$	25,684	$	—	$	25,684	$	—

Nonrecurring fair value measurements
Foreclosed assets	$	99	$	—	$	—	$	99
Collateral-dependent loans (2)	7,000		—		—		7,000

Total asset nonrecurring fair value measurements	$	7,099	$	—	$	—	$	7,099

(1)All MBS are issued and/or guaranteed by U.S. government agencies or U.S. GSEs.

(2)Consists of individually evaluated loans. Loans for which the fair value of the collateral and commercial real estate fair value of the properties is less than cost basis are presented net of allowance. Losses on these loans represent charge-offs which are netted against the allowance for loan losses.

Southside Bancshares, Inc. |32

Table of Contents

Disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, is required when it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other estimation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Such techniques and assumptions, as they apply to individual categories of our financial instruments, are as follows:

Cash and cash equivalents – The carrying amount for cash and cash equivalents is a reasonable estimate of those assets’ fair value.

Investment and MBS HTM – Fair values for these securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices for similar securities or estimates from independent pricing services.

FHLB stock – The carrying amount of FHLB stock is a reasonable estimate of the fair value of those assets.

Equity investments – The carrying value of equity investments without readily determinable fair values are measured at cost less impairment, if any, adjusted for observable price changes for an identical or similar investment of the same issuer. This carrying value is a reasonable estimate of the fair value of those assets.

Loans receivable – We estimate the fair value of our loan portfolio to an exit price notion with adjustments for liquidity, credit and prepayment factors. Nonperforming loans continue to be estimated using discounted cash flow analyses or the underlying value of the collateral where applicable.

Loans held for sale – The fair value of loans held for sale is determined based on expected proceeds, which are based on sales contracts and commitments.

Deposit liabilities – The fair value of demand deposits, savings accounts and certain money market deposits is the amount on demand at the reporting date, which is the carrying value. Fair values for fixed rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities.

Other borrowings – Federal funds purchased generally have original terms to maturity of one day and repurchase agreements generally have terms of less than one year, and therefore both are considered short-term borrowings. Consequently, their carrying value is a reasonable estimate of fair value. Borrowings from the Federal Reserve through the FRDW and BTFP have original maturities of one year or less, and the fair value is estimated by discounting the future cash flows using rates at which borrowings would be made to borrowers with similar credit ratings and for the same remaining maturities.

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

Subordinated notes – The fair value of the subordinated notes is estimated by discounting future cash flows using estimated rates at which long-term debt would be made to borrowers with similar credit ratings and for the remaining maturities.

Trust preferred subordinated debentures – The fair value of the long-term debt is estimated by discounting future cash flows using estimated rates at which long-term debt would be made to borrowers with similar credit ratings and for the remaining maturities.

Southside Bancshares, Inc. |33

Table of Contents

The following tables present our financial assets and financial liabilities measured on a nonrecurring basis at both their respective carrying amounts and estimated fair value (in thousands):


			Estimated Fair Value
March 31, 2024	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	469,373	$	469,373	$	469,373	$	—	$	—
Investment securities:
HTM, at carrying value	1,186,842		1,043,056		—		1,043,056		—
MBS:
HTM, at carrying value	120,056		109,130		—		109,130		—
FHLB stock, at cost	27,958		27,958		—		27,958		—
Equity investments	4,302		4,302		—		4,302		—
Loans, net of allowance for loan losses	4,533,811		4,228,531		—		—		4,228,531
Loans held for sale	756		756		—		756		—
Financial liabilities:
Deposits	$	6,545,760	$	6,523,686	$	—	$	6,523,686	$	—
Other borrowings	457,685		458,750		—		458,750		—
FHLB borrowings	312,466		303,076		—		303,076		—
Subordinated notes, net of unamortized debt issuance costs	93,913		87,292		—		87,292		—
Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,271		57,168		—		57,168		—


			Estimated Fair Value
December 31, 2023	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	560,510	$	560,510	$	560,510	$	—	$	—
Investment securities:
HTM, at carrying value	1,186,152		1,054,739		—		1,054,739		—
Mortgage-backed securities:
HTM, at carrying value	120,901		111,423		—		111,423		—
FHLB stock, at cost	11,936		11,936		—		11,936		—
Equity investments	4,383		4,383		—		4,383		—
Loans, net of allowance for loan losses	4,481,836		4,198,879		—		—		4,198,879
Loans held for sale	10,894		10,894		—		10,894		—
Financial liabilities:
Deposits	$	6,549,681	$	6,534,929	$	—	$	6,534,929	$	—
Other borrowings	509,820		510,242		—		510,242		—
FHLB borrowings	212,648		202,750		—		202,750		—
Subordinated notes, net of unamortized debt issuance costs	93,877		86,285		—		86,285		—
Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,270		57,480		—		57,480		—

Southside Bancshares, Inc. |34

Table of Contents

11. Income Taxes

The income tax expense included in the accompanying consolidated statements of income consists of the following (in thousands):


	Three Months Ended March 31,
	2024		2023
Current income tax expense	$	4,764	$	4,737
Deferred income tax expense (benefit)	(142)		(194)
Income tax expense	$	4,622	$	4,543

The net deferred tax asset totaled $29.9 million at March 31, 2024 as compared to $30.4 million at December 31, 2023. The slight decrease in the net deferred tax asset is primarily the result of an increase in the estimated fair value of the effective hedging derivatives. No valuation allowance was recorded at March 31, 2024 or December 31, 2023, as management believes it is more likely than not that all of the deferred tax asset items will be realized in future years. Unrecognized tax benefits were not material at March 31, 2024 or December 31, 2023.

We recognized income tax expense of $4.6 million for an ETR of 17.7% for the three months ended March 31, 2024, compared to income tax expense of $4.5 million for an ETR of 14.9% for the three months ended March 31, 2023. The higher ETR for the three months ended March 31, 2024 was primarily due to a decrease in net tax-exempt income as a percentage of pre-tax income as compared to the same period in 2023. The ETR differs from the statutory rate of 21% for the three months ended March 31, 2024 and 2023 primarily due to the effect of tax-exempt income from municipal loans and securities, as well as BOLI. We file income tax returns in the U.S. federal jurisdictions and in certain states. We are no longer subject to U.S. federal income tax examinations by tax authorities for years before 2020 or Texas state tax examinations by tax authorities for years before 2019.

Southside Bancshares, Inc. |35

Table of Contents

12. Off-Balance-Sheet Arrangements, Commitments and Contingencies

Financial Instruments with Off-Balance-Sheet Risk. In the normal course of business, we are a party to certain financial instruments with off-balance-sheet risk to meet the financing needs of our customers. These off-balance-sheet instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount reflected in the financial statements. The contract or notional amounts of these instruments reflect the extent of involvement and exposure to credit loss that we have in these particular classes of financial instruments. The allowance for credit losses on these off-balance-sheet credit exposures is calculated using the same methodology as loans including a conversion or usage factor to anticipate ultimate exposure and expected losses and is included in other liabilities on our consolidated balance sheets.

Allowance for off-balance-sheet credit exposures were as follows (in thousands):


	Three Months Ended March 31,
	2024		2023

Balance at beginning of period	$	3,932	$	3,687

Provision for (reversal of) off-balance-sheet credit exposures	(1,112)		(128)
Balance at end of period	$	2,820	$	3,559

Contractual commitments to extend credit are agreements to lend to a customer provided the terms established in the contract are met. Commitments to extend credit generally have fixed expiration dates and may require the payment of fees. Since some commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in commitments to extend credit and similarly do not necessarily represent future cash obligations.

Financial instruments with off-balance-sheet risk were as follows (in thousands):


	March 31, 2024		December 31, 2023

Commitments to extend credit	$	999,493	$	1,082,327
Standby letters of credit	12,385		10,823
Total	$	1,011,878	$	1,093,150

We apply the same credit policies in making commitments to extend credit and standby letters of credit as we do for on-balance-sheet instruments. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include cash or cash equivalents, negotiable instruments, real estate, accounts receivable, inventory, oil, gas and mineral interests, property, plant and equipment.

Leases. There were $372,000 and $192,000 operating lease ROU assets obtained in exchange for new operating lease liabilities during the three months ended March 31, 2024 and 2023, respectively.

Securities. In the normal course of business we buy and sell securities. At March 31, 2024, there were $7.2 million unsettled trades to purchase securities and $6.4 million unsettled trades to sell securities. At December 31, 2023, there were no unsettled trades to purchase securities and no unsettled trades to sell securities.

Deposits. There were no unsettled issuances of brokered CDs at March 31, 2024 or December 31, 2023.

Litigation. We are involved with various litigation in the normal course of business. Management, after consulting with our legal counsel, believes that any liability resulting from litigation will not have a material effect on our financial position, results of operations or liquidity.

Southside Bancshares, Inc. |36

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of our consolidated financial condition, changes in our financial condition and results of our operations, and should be read and reviewed in conjunction with the financial statements, and the notes thereto, in this Quarterly Report on Form 10-Q, and in our 2023 Form 10-K. Certain risks, uncertainties and other factors, including those set forth under “Risk Factors” in Part I, Item 1A. of the 2023 Form 10-K and elsewhere in this Quarterly Report on Form 10-Q, may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this discussion and analysis.

Forward-Looking Statements

Certain statements of other than historical fact that are contained in this report may be considered to be “forward-looking statements” within the meaning of and subject to the safe harbor protections of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. These statements may include words such as “expect,” “estimate,” “project,” “anticipate,” “appear,” “believe,” “could,” “should,” “may,” “might,” “will,” “would,” “seek,” “intend,” “probability,” “risk,” “goal,” “target,” “objective,” “plans,” “potential,” and similar expressions. Forward-looking statements are statements with respect to our beliefs, plans, expectations, objectives, goals, anticipations, assumptions, estimates, intentions and future performance and are subject to significant known and unknown risks and uncertainties, which could cause our actual results to differ materially from the results discussed in the forward-looking statements. For example, discussions of the effect of our expansion, benefits of the Share Repurchase Plan, trends in asset quality, capital, liquidity, our ability to sell nonperforming assets, expense reductions, planned operational efficiencies and earnings from growth and certain market risk disclosures, including the impact of interest rates, tax reform, inflation, the impacts related to or resulting from other economic factors are based upon information presently available to management and are dependent on choices about key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future. Accordingly, our results could materially differ from those that have been estimated. The most significant factor that could cause future results to differ materially from those anticipated by our forward-looking statements include the ongoing impact of higher inflation levels, higher interest rates and general economic and recessionary concerns, all of which could impact economic growth and could cause a reduction in financial transactions and business activities, including decreased deposits and reduced loan originations, our ability to manage liquidity in a rapidly changing and unpredictable market, supply chain disruptions, labor shortages and changes in interest rates by the Federal Reserve. Other factors that could cause actual results to differ materially from those indicated by forward-looking statements include, but are not limited to, the following:

•general (i) political conditions, including, without limitation, governmental action and uncertainty resulting from U.S. and global political trends and (ii) economic conditions, either globally, nationally, in the State of Texas, or in the specific markets in which we operate, including, without limitation, the deterioration of the commercial real estate, residential real estate, construction and development, energy, oil and gas, credit or liquidity markets, which could cause an adverse change in our net interest margin, or a decline in the value of our assets, which could result in realized losses, as well as the risk of an economic slowdown or recession;

•inflation and fluctuations in interest rates that reduce our margins and yields, the fair value of financial instruments, the level of loan originations or prepayments on loans we have made and make, and the cost we pay to retain and attract deposits and secure other types of funding;

•current or future legislation, regulatory changes or changes in monetary or fiscal policy that adversely affect the businesses in which we or our customers or our borrowers are engaged, including the impact of the Dodd-Frank Act, the Federal Reserve’s actions to increase interest rates, the capital requirements promulgated by the Basel Committee, the CARES Act, the Economic Aid Act and other regulatory responses to economic conditions;

•economic or other disruptions caused by acts of terrorism, war or other conflicts, including the Russia-Ukraine and Israeli-Hamas conflicts, natural disasters, such as hurricanes, freezes, flooding and other man-made disasters, such as oil spills or power outages, health emergencies, epidemics or pandemics, climate change or other catastrophic events;

•potential impacts of the adverse developments in the banking industry highlighted by high-profile bank failures, including impacts on customer confidence, deposit outflows, liquidity and the regulatory response thereto;

•technological changes, including potential cyber-security incidents and other disruptions, or innovations to the financial services industry, including as a result of the increased telework environment;

Southside Bancshares, Inc. |37

Table of Contents

•our ability to identify and address cyber-security risks such as data security breaches, malware, “denial of service” attacks, “hacking” and identity theft, which may be exacerbated by recent developments in generative artificial intelligence and which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage of our systems, increased costs, significant losses, or adverse effects to our reputation;

•changes in the interest rate yield curve such as flat, inverted or steep yield curves, or changes in the interest rate environment that impact net interest margins and may impact prepayments on our MBS portfolio;

•the risk that our enterprise risk management framework, compliance program or our corporate governance and supervisory oversight functions may not identify or address risks adequately, which may result in unexpected losses;

•the effect of compliance with legislation or regulatory changes;

•credit risks of borrowers, including any increase in those risks due to changing economic conditions;

•increases in our nonperforming assets;

•risks related to environmental liability as a result of certain lending activity;

•our ability to maintain adequate liquidity to fund operations and growth;

•our ability to control interest rate risk;

•any applicable regulatory limits or other restrictions on the Bank and its ability to pay dividends to us;

•the failure of our assumptions underlying our allowance for credit losses and other estimates;

•the failure to maintain an effective system of controls and procedures, including internal control over financial reporting;

•the effectiveness of our derivative financial instruments and hedging activities to manage risk;

•unexpected outcomes of, and the costs associated with, existing or new litigation involving us;

•potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions;

•changes impacting our balance sheet strategy;

•risks related to actual mortgage prepayments diverging from projections;

•risks related to fluctuations in the price per barrel of crude oil;

•significant increases in competition in the banking and financial services industry;

•changes in consumer spending, borrowing and saving habits, including as a result of rising inflation and recessionary concerns;

•execution of future acquisitions, reorganization or disposition transactions, including the risk that the anticipated benefits of such transactions are not realized;

•our ability to increase market share and control expenses;

•our ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by our customers;

•the effect of changes in federal or state tax laws;

•the effect of changes in accounting policies and practices;

•adverse changes in the status or financial condition of the GSEs which impact the GSEs’ guarantees or ability to pay or issue debt;

•adverse changes in the credit portfolios of other U.S. financial institutions relative to the performance of certain of our investment securities;

•risks related to actual U.S. agency MBS prepayments exceeding projected prepayment levels;

•risks related to U.S. agency MBS prepayments increasing due to U.S. government programs designed to assist homeowners to refinance their mortgage that might not otherwise have qualified;

•risks related to loans secured by real estate, including the risk that the value and marketability of collateral could decline;

•risks associated with our common stock and our other securities, including fluctuations in our stock price and general volatility in the stock market; and

•other risks and uncertainties discussed in “Part I – Item 1A. Risk Factors” in the 2023 Form 10-K.

Southside Bancshares, Inc. |38

Table of Contents

All written or oral forward-looking statements made by us or attributable to us are expressly qualified by this cautionary notice. We disclaim any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments, unless otherwise required by law.

Critical Accounting Estimates

Our accounting and reporting estimates conform with U.S. GAAP and general practices within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We consider accounting estimates that can (1) be replaced by other reasonable estimates and/or (2) changes to an estimate from period to period that have a material impact on the presentation of our financial condition, changes in financial condition or results of operations as well as (3) those estimates that require significant and complex assumptions about matters that are highly uncertain to be critical accounting estimates. We consider our critical accounting estimates to include allowance for credit losses on loans and off-balance-sheet credit exposure.

Critical accounting estimates include a high degree of uncertainty in the underlying assumptions. Management bases its estimates on historical experience, current information and other factors deemed relevant. The development, selection and disclosure of our critical accounting estimates are reviewed with the Audit Committee of the Company’s Board of Directors. Actual results could differ from these estimates. For additional information regarding critical accounting policies, refer to “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates,” “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Allowance for Credit Losses – Loans and Allowance for Credit Losses – Off-Balance-Sheet Credit Exposures,” “Note 1 – Summary of Significant Accounting and Reporting Policies,” “Note 5 – Loans and Allowance for Loan Losses” and “Note 17 – Off-Balance-Sheet Arrangements, Commitments and Contingencies” in the 2023 Form 10-K. As of March 31, 2024, there have been no significant changes to our critical accounting estimates.

Southside Bancshares, Inc. |39

Table of Contents

Non-GAAP Financial Measures

Certain non-GAAP measures are used by management to supplement the evaluation of our performance. These include the following fully taxable-equivalent measures: Net interest income (FTE), net interest margin (FTE) and net interest spread (FTE), which include the effects of taxable-equivalent adjustments using a federal income tax rate of 21% to increase tax-exempt interest income to a tax-equivalent basis. Interest income earned on certain assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments.

Net interest income (FTE), net interest margin (FTE) and net interest spread (FTE). Net interest income (FTE) is a non-GAAP measure that adjusts for the tax-favored status of net interest income from certain loans and investments and is not permitted under GAAP in the consolidated statements of income. We believe this measure to be the preferred industry measurement of net interest income, and that it enhances comparability of net interest income arising from taxable and tax-exempt sources. The most directly comparable financial measure calculated in accordance with GAAP is our net interest income. Net interest margin (FTE) is the ratio of net interest income (FTE) to average earning assets. The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin. Net interest spread (FTE) is the difference in the average yield on average earning assets on a tax-equivalent basis and the average rate paid on average interest bearing liabilities. The most directly comparable financial measure calculated in accordance with GAAP is our net interest spread.

These non-GAAP financial measures should not be considered alternatives to GAAP-basis financial statements and other bank holding companies may define or calculate these non-GAAP measures or similar measures differently. Whenever we present a non-GAAP financial measure in an SEC filing, we are also required to present the most directly comparable financial measure calculated and presented in accordance with GAAP and reconcile the differences between the non-GAAP financial measure and such comparable GAAP measure.

In the following table we present the reconciliation of net interest income to net interest income adjusted to a fully taxable-equivalent basis assuming a 21% marginal tax rate for interest earned on tax-exempt assets such as municipal loans and investment securities (dollars in thousands), along with the calculation of net interest margin (FTE) and net interest spread (FTE).


Non-GAAP Reconciliations
	Three Months Ended March 31,
	2024			2023
Net interest income (GAAP)	$	53,348		$	53,353
Tax equivalent adjustments:
Loans	656			697
Tax-exempt investment securities	2,080			2,550
Net interest income (FTE) (1)	$	56,084		$	56,600

Average earning assets	$	7,882,337		$	7,161,836

Net interest margin	2.72		%	3.02		%
Net interest margin (FTE) (1)	2.86		%	3.21		%

Net interest spread	2.02		%	2.44		%
Net interest spread (FTE) (1)	2.16		%	2.62		%

(1)These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.

Management believes adjusting net interest income, net interest margin and net interest spread to a fully taxable-equivalent basis is a standard practice in the banking industry as these measures provide useful information to make peer comparisons. Tax-equivalent adjustments are reported in the respective earning asset categories as listed in the “Average Balances with Average Yields and Rates” tables under Results of Operations.

Southside Bancshares, Inc. |40

Table of Contents

OVERVIEW

ECONOMIC CONDITIONS

The economic conditions and growth prospects for our markets, even against the headwinds of inflation, continued higher interest rates and potential recessionary concerns, continue to reflect a solid and positive overall outlook. Ongoing elevated inflation levels and continued higher interest rates could have a negative impact on both our consumer and commercial borrowers. Currently, the Texas markets we serve continue to remain healthy due to both job and population growth.

DEPOSITS

Our deposits were $6.55 billion at March 31, 2024, a slight decrease of $3.9 million, or 0.1%, from December 31, 2023. At March 31, 2024, we had 179,889 total deposit accounts with an average balance of $32,000. Our estimated uninsured deposits was 36.5% of total deposits as of March 31, 2024. When excluding affiliate deposits (Southside-owned deposits) and public fund deposits (all collateralized), our total estimated deposits without insurance or collateral was 18.5% of total deposits as of March 31, 2024.

We continued to increase interest rates paid on deposits during the quarter in order to retain deposits. Our noninterest bearing deposits represent approximately 20.8% of total deposits. During the three months ended March 31, 2024, our cost of interest bearing deposits increased 115 basis points from 1.82% for the three months ended March 31, 2023 to 2.97%. Our cost of total deposits for the first quarter of 2024 increased 102 basis points from 1.34% for the three months ended March 31, 2023 to 2.36%.

CAPITAL RESOURCES AND LIQUIDITY

Our capital ratios and contingent liquidity sources remain solid. We utilized the Federal Reserve’s BTFP to reduce our overall funding costs and to enhance our interest rate risk position. On March 11, 2024, the Federal Reserve stopped extending new BTFP advances. As of March 31, 2024, our BTFP borrowings totaled $116.1 million at a cost of 5.40%, compared to $117.7 million at a cost of 4.37% at December 31, 2023.

The table below shows our total lines of credit, borrowings, total amounts available for future liquidity, and swapped value as of March 31, 2024 (in thousands):


	March 31, 2024
	Line of Credit		Borrowings		Total Available for Future Liquidity		Swapped

FHLB advances	$	2,325,710	$	312,466	$	2,013,244	$	310,000
Federal Reserve discount window	501,935		250,000		251,935		—
Correspondent bank lines of credit	80,000		—		80,000		—
Federal Reserve Bank Term Funding Program	116,085		116,085		—		—
Total liquidity lines	$	3,023,730	$	678,551	$	2,345,179	$	310,000

Operating Results

Net income decreased $4.5 million, or 17.4%, to $21.5 million for the three months ended March 31, 2024, compared to the same period in 2023. The decrease in net income was primarily a result of the $2.3 million decrease in noninterest income and the $2.0 million increase in noninterest expense. Earnings per diluted common share decreased $0.12, or 14.5%, to $0.71 for the three months ended March 31, 2024, compared to $0.83 for the three months ended March 31, 2023.

Southside Bancshares, Inc. |41

Table of Contents

Financial Condition

Our total assets increased $68.9 million, or 0.8%, to $8.35 billion at March 31, 2024 from $8.28 billion at December 31, 2023. Our securities portfolio increased by $108.8 million, or 4.2%, to $2.71 billion, compared to $2.60 billion at December 31, 2023. The increase in the securities portfolio was due to purchases of MBS, partially offset by a decrease in municipal bonds during the three months ended March 31, 2024. Our FHLB stock increased $16.0 million, or 134.2%, to $28.0 million from $11.9 million at December 31, 2023, due to the increase in our FHLB borrowings during the three months ended March 31, 2024.

Loans at March 31, 2024 were $4.58 billion, an increase of $52.9 million, or 1.2%, compared to December 31, 2023, due to increases of $244.9 million in commercial real estate loans and $23.8 million in 1-4 family residential loans. The increases were partially offset by decreases of $190.3 million in construction loans, $13.9 million in municipal loans, $8.8 million in commercial loans, and $2.7 million in loans to individuals. Loans held for sale decreased $10.1 million, or 93.1%, to $756,000 at March 31, 2024 from $10.9 million at December 31, 2023 due to the sale of a $7.9 million commercial real estate loan relationship during the three months ended March 31, 2024.

Our nonperforming assets at March 31, 2024 increased $4.0 million, or 99.4%, to $8.0 million and represented 0.10% of total assets, compared to $4.0 million, or 0.05% of total assets, at December 31, 2023. Nonaccruing loans increased $3.8 million, or 98.2%, to $7.7 million, and the ratio of nonaccruing loans to total loans was 0.17% and 0.09% for March 31, 2024 and December 31, 2023, respectively. The increase in nonaccrual loans was primarily due to one commercial real estate loan and one commercial loan relationship that were put on nonaccrual during the three months ended March 31, 2024. Restructured loans were $151,000 as of March 31, 2024, compared to $13,000 at December 31, 2023. There were no repossessed assets at March 31, 2024 or December 31, 2023. There was $119,000 and $99,000 of OREO at March 31, 2024 and December 31, 2023, respectively.

Our deposits slightly decreased $3.9 million, or 0.1%, with a balance of $6.55 billion at March 31, 2024 and December 31, 2023, which consisted of a decrease of $31.6 million in noninterest bearing deposits, partially offset by an increase of $27.7 million in interest bearing deposits.

Total FHLB borrowings increased $99.8 million, or 46.9%, to $312.5 million at March 31, 2024 from $212.6 million at December 31, 2023.

Other borrowings decreased $52.1 million, or 10.2%, to $457.7 million at March 31, 2024, from $509.8 million at December 31, 2023, which was primarily due to a $50.0 million decrease in borrowings from the FRDW.

Our total shareholders’ equity at March 31, 2024 increased 1.9%, or $14.6 million, to $787.9 million, or 9.4% of total assets, compared to $773.3 million, or 9.3% of total assets, at December 31, 2023. The increase in shareholders’ equity was the result of net income of $21.5 million, other comprehensive income of $2.6 million, stock compensation expense of $756,000, net issuance of common stock under employee stock plans of $350,000 and common stock issued under our dividend reinvestment plan of $306,000, partially offset by cash dividends paid of $10.9 million.

Key financial indicators management follows include, but are not limited to, numerous interest rate sensitivity and interest rate risk indicators, credit risk, operations risk, liquidity risk, capital risk, regulatory risk, inflation risk, competition risk, yield curve risk, U.S. agency MBS prepayment risk and economic risk indicators.

Southside Bancshares, Inc. |42

Table of Contents

Balance Sheet Strategy

Determining the appropriate size of the balance sheet is one of the critical decisions any bank makes. Our balance sheet is not merely the result of a series of micro-decisions, but rather the size is controlled based on the economics of assets compared to the economics of funding and funding sources. Changing interest rate environments and economic conditions require that we monitor the interest rate sensitivity of the assets, the funding driving our growth and closely align ALCO objectives accordingly.

Due to disruptions in the banking industry during the first quarter of 2023, we increased the balance of securities pledged as collateral at the FRDW in preparation for potential liquidity needs and utilized the BTFP as a source of wholesale funding to reduce interest cost and interest rate risk. We ended the first quarter of 2024 with approximately $251.9 million in available liquidity from the FRDW, in addition to the approximately $2.01 billion credit line available from FHLB due primarily to the blanket lien on our loan portfolio and to a lesser extent, securities available as collateral. At March 31, 2024, the estimated deposits, without insurance or collateral, to total deposits, excluding affiliate deposits (Southside-owned deposits) was 18.5%, or $1.21 billion.

During the three months ended March 31, 2024, we entered into an additional $50 million cash flow hedge swap while $120 million of cash flow hedge swaps matured. At March 31, 2024, FHLB advances of $310 million and brokered deposits of $630 million were hedged with our $940 million of cash flow swaps. As of March 31, 2024, a pre-tax unrealized gain of $24.2 million was recognized in other comprehensive income, and there was no ineffective portion of these hedges. We continue to evaluate the lowest cost funding sources and will utilize either brokered deposits, FHLB advances or FRDW borrowings, or a combination of the three funding sources in addition to utilizing cash flow hedges to mitigate the impacts of interest rate movements. At March 31, 2024, the majority of the securities portfolio was funded by non-maturity deposits, some of which are included in wholesale funding that accounts for approximately 53% of the funding source, of which approximately 64% is swapped at a fixed rate, providing protection from rising interest rates.

We utilize wholesale funding and securities to enhance overall profitability to determine the appropriate leverage of our capital, determining acceptable levels of credit, interest rate and liquidity risk consistent with prudent capital management. This balance sheet strategy currently consists of borrowing funds from the brokered market, FHLB and the Federal Reserve through the FRDW and BTFP. These funds are invested primarily in U.S. agency MBS and long-term municipal securities and to a lesser extent, U.S. Treasury Bills and corporate securities. Although the securities purchased often carry lower yields than loans we make, these securities generally (i) increase the overall quality of our assets because of either the implicit or explicit guarantees of the U.S. Government, and the guarantees of the municipalities, (ii) are more liquid than individual loans and (iii) may be used to collateralize our borrowings or other obligations.

Risks associated with this asset structure include a potentially lower net interest rate spread and margin when compared to our peers, changes in the slope of the yield curve, increased interest rate risk, the length of interest rate cycles, changes in volatility or spreads associated with the MBS, municipal and corporate securities, the unpredictable nature of MBS prepayments and credit risks associated with the municipal and corporate securities. See “Part I - Item 1A. Risk Factors – Risks Related to Our Business” in the 2023 Form 10-K for a discussion of risks related to interest rates. An additional risk is significant increases in interest rates, especially long-term interest rates, which could adversely impact the fair value of the AFS securities portfolio and could also impact our equity capital. Due to the unpredictable nature of MBS prepayments, the length of interest rate cycles and the slope of the interest rate yield curve, net interest income could fluctuate more than simulated under the scenarios modeled by our ALCO and described under “Item 3. Quantitative and Qualitative Disclosures about Market Risk” in this Quarterly Report on Form 10-Q.

Our securities portfolio increased from $2.60 billion at December 31, 2023 to $2.71 billion at March 31, 2024. The increase in the securities portfolio was due to securities purchased during the three months ended March 31, 2024, which more than offset sales of securities and principal payments.

During the three months ended March 31, 2024, the composition of the securities portfolio continued to change as MBS increased while the remaining categories in the portfolio decreased. The increase in MBS was attributable to purchases of U.S. Agency MBS, partially offset by MBS principal payments. During the three months ended March 31, 2024, we purchased $237.5 million in short-term U.S. Treasury Bills and $155.8 million in MBS. Sales during the three months ended March 31, 2024 included $7.3 million in municipal securities to align the investment portfolio with the current balance sheet strategy. Sales of AFS securities for the three months ended March 31, 2024 resulted in a net realized loss of $18,000.

At March 31, 2024, securities as a percentage of assets totaled 32.5%, compared to 31.4% at December 31, 2023, due to a $108.8 million, or 4.2%, increase in securities, while cash and cash equivalents decreased to 5.62% of total assets at March 31, 2024, compared to 6.77% at December 31, 2023. Our balance sheet management strategy is dynamic and is continually evaluated as market conditions warrant.

Southside Bancshares, Inc. |43

Table of Contents

During 2022, we entered into partial term fair value hedges for certain of our fixed rate callable AFS municipal securities. The instruments are designated as fair value hedges as the changes in the fair value of the interest rate swap are expected to partially offset changes in the fair value of the hedged item attributable to changes in the SOFR swap rate, the designated benchmark interest rate. As of March 31, 2024, hedged securities with a carrying amount of $449.4 million are included in our AFS securities portfolio in our consolidated balance sheets representing approximately 32% and 82% of the AFS securities portfolio and the AFS municipal portfolio, respectively. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for us making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value.

With respect to funding sources, we primarily utilize deposits and to a lesser extent wholesale funding to achieve our strategy of minimizing cost while achieving overall interest rate risk objectives as well as the liability management objectives of the ALCO. Our primary wholesale funding sources are brokered deposits, FHLB and borrowings from the Federal Reserve through the FRDW and BTFP. Our FHLB borrowings increased 46.9%, or $99.8 million, to $312.5 million at March 31, 2024 from $212.6 million at December 31, 2023.

As of March 31, 2024, our total wholesale funding as a percentage of deposits, not including brokered deposits, decreased to 25.3% from 25.5% at December 31, 2023, and increased from 25.1% at March 31, 2023.

Our brokered deposits may consist of CDs and non-maturity deposits. We had $117.6 million in brokered CDs at March 31, 2024. We had no brokered CDs at December 31, 2023. At March 31, 2024, our brokered CDs had a weighted average cost of 533 basis points and remaining maturities of approximately three months or less. Our brokered non-maturity deposits decreased to $664.5 million at March 31, 2024, of which $630.0 million are related to our cash flow hedges, from $828.0 million at December 31, 2023, with a weighted average cost of 323 basis points for both periods. Our wholesale funding policy currently allows for maximum brokered deposits of the lesser of $1.20 billion, or 20% of total deposits. Potential higher interest expense and lack of customer loyalty are risks associated with the use of brokered deposits.

In connection with $940.0 million of our wholesale funds, the Bank has entered into various variable rate agreements and fixed or variable rate short-term pay agreements with an interest rate tied to overnight SOFR. In connection with $940.0 million and $1.01 billion of the agreements outstanding at March 31, 2024 and December 31, 2023, respectively, the Bank also entered into various interest rate swap contracts that are treated as cash flow hedges under ASC Topic 815, “Derivatives and Hedging” that are expected to be effective in hedging the variability in future cash flows at 3.08% with a remaining average weighted maturity of 2.3 years at March 31, 2024. Refer to “Note 11 – Derivative Financial Instruments and Hedging Activities” in our consolidated financial statements included in this report for a detailed description of our hedging policy and methodology related to derivative instruments.

Southside Bancshares, Inc. |44

Table of Contents

Results of Operations

Our results of operations are dependent primarily on net interest income, which is the difference between the interest income earned on assets (loans and investments) and interest expense due on our funding sources (deposits and borrowings) during a particular period. Results of operations are also affected by our noninterest income, provision for credit losses, noninterest expenses and income tax expense. General economic and competitive conditions, particularly changes in interest rates, changes in interest rate yield curves, prepayment rates of MBS and loans, repricing of loan relationships, government policies and actions of regulatory authorities also significantly affect our results of operations. Future changes in applicable law, regulations or government policies may also have a material impact on us.

The following table presents net interest income for the periods presented (in thousands):


	Three Months Ended
	March 31,
	2024		2023
Interest income:
Loans	$	68,211	$	54,776
Taxable investment securities	6,967		5,712
Tax-exempt investment securities	11,088		13,916
MBS	10,119		4,329
FHLB stock and equity investments	333		245
Other interest earning assets	6,040		1,870
Total interest income	102,758		80,848
Interest expense:
Deposits	38,198		19,906
FHLB borrowings	5,950		3,141
Subordinated notes	956		999
Trust preferred subordinated debentures	1,175		1,031
Repurchase agreements	967		492
Other borrowings	2,164		1,926
Total interest expense	49,410		27,495
Net interest income	$	53,348	$	53,353

Net Interest Income

Net interest income is one of the principal sources of a financial institution’s earnings stream and represents the difference or spread between interest and fee income generated from interest earning assets and the interest expense paid on interest bearing liabilities. Fluctuations in interest rates or interest rate yield curves, as well as repricing characteristics and volume and changes in the mix of interest earning assets and interest bearing liabilities, materially impact net interest income. During the year ended December 31, 2023, the Federal Reserve increased the target federal funds rate by 100 basis points to 5.25% to 5.50%. During the three months ended March 31, 2024, the Federal Reserve held the rate steady but has indicated it may cut interest rates in 2024. The increase in the federal funds rate has resulted in a slight decrease in our net interest income. If the federal funds rate remains elevated or increases further and the yield curve remains inverted, it may continue to negatively impact our net interest income.

Net interest income for the three months ended March 31, 2024, declined slightly when compared to the same period in 2023. The decrease in net interest income for the three months ended March 31, 2024, was due to the increase in interest expense on our interest bearing liabilities due to higher interest rates and an increase in the average balance of our interest bearing liabilities, partially offset by the increase in interest income, a result of the increase in the average yield and average balance of interest earning assets. Total interest income increased $21.9 million, or 27.1%, to $102.8 million for the three months ended March 31, 2024, compared to $80.8 million during the same period in 2023. Total interest expense increased $21.9 million, or 79.7%, to $49.4 million for the three months ended March 31, 2024, compared to $27.5 million for the same period in 2023. Our net interest margin and net interest margin (FTE), a non-GAAP measure, decreased to 2.72% and 2.86%, respectively, for the three months ended March 31, 2024, compared to 3.02% and 3.21%, respectively, for the same period in 2023, and our net interest spread and net interest spread (FTE), also a non-GAAP measure, decreased to 2.02% and 2.16%, respectively, compared to 2.44% and 2.62%, respectively, for the same period in 2023. See “Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.

Southside Bancshares, Inc. |45

Table of Contents

Quarterly Analysis of Changes in Interest Income and Interest Expense

The following table presents on a fully taxable-equivalent basis, a non-GAAP measure, the net change in net interest income and sets forth the dollar amount of increase (decrease) in the average volume of interest earning assets and interest bearing liabilities and from changes in yields/rates. Volume/Yield/Rate variances (change in volume times change in yield/rate) have been allocated to amounts attributable to changes in volumes and to changes in yields/rates in proportion to the amounts directly attributable to those changes (in thousands). The comparison between the quarters includes an additional change factor that shows the effect of the difference in the number of days in each period for assets and liabilities that accrue interest based upon the actual number of days in the period, as further discussed below.


	Three Months Ended March 31, 2024 Compared to 2023
	Change Attributable to						Total
Fully Taxable-Equivalent Basis:	Average Volume		Average Yield/Rate		Number of Days		Change
Interest income on:
Loans (1)	$	6,099	$	6,541	$	756	$	13,396
Loans held for sale	26		(28)		—		(2)
Taxable investment securities	773		405		77		1,255
Tax-exempt investment securities (1)	(4,096)		653		145		(3,298)
Mortgage-backed and related securities	3,646		2,033		111		5,790
FHLB stock, at cost, and equity investments	70		14		4		88
Interest earning deposits	3,932		180		57		4,169
Federal funds sold	(124)		116		9		1
Total earning assets	10,326		9,914		1,159		21,399
Interest expense on:
Savings accounts	(129)		224		16		111
CDs	1,212		3,608		114		4,934
Interest bearing demand accounts	3,347		9,610		290		13,247
FHLB borrowings	1,838		906		65		2,809
Subordinated notes, net of unamortized debt issuance costs	(49)		(5)		11		(43)
Trust preferred subordinated debentures, net of unamortized debt issuance costs	—		131		13		144
Repurchase agreements	241		224		10		475
Other borrowings	8		206		24		238
Total interest bearing liabilities	6,468		14,904		543		21,915
Net change	$	3,858	$	(4,990)	$	616	$	(516)

(1)Interest yields on loans and securities that are nontaxable for federal income tax purposes are presented on a fully taxable-equivalent basis. See “Non-GAAP Financial Measures” for more information and for a reconciliation to GAAP.

The increase in total interest income for the three months ended March 31, 2024, was attributable to an increase in the average yield on interest earning assets to 5.38% from 4.76% for the same period in 2023, as well as a $720.5 million, or 10.1%, increase in the average balance of interest earning assets for the three months ended March 31, 2024, compared to the same period in 2023. The increase in total interest expense for the three months ended March 31, 2024, was primarily attributable to the increase in interest rates on our interest bearing liabilities to 3.22% from 2.14% for the same period in 2023, and an increase in the average balance of our interest bearing liabilities of $969.8 million, or 18.6%, for the three months ended March 31, 2024, compared to the same period in 2023. The increase in average earning assets was primarily the result of the increase in loans, interest earning deposits and MBS, partially offset by the decrease in tax-exempt investment securities.

Southside Bancshares, Inc. |46

Table of Contents

The “Average Balances with Average Yields and Rates” table that follows shows average earning assets and interest bearing liabilities together with the average yield on the earning assets and the average rate of the interest bearing liabilities (dollars in thousands) for the three months ended March 31, 2024 and 2023. The interest and related yields presented are on a fully taxable-equivalent basis and are therefore non-GAAP measures. See “Non-GAAP Financial Measures” for more information, and for a reconciliation to GAAP.


	Average Balances with Average Yields and Rates (Annualized)
	(unaudited)
	Three Months Ended
	March 31, 2024						March 31, 2023
	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
ASSETS
Loans (1)	$	4,559,602	$	68,849	6.07	%	$	4,128,775	$	55,453	5.45	%
Loans held for sale	8,834		18		0.82	%	1,662		20		4.88	%
Securities:
Taxable investment securities (2)	780,423		6,967		3.59	%	690,864		5,712		3.35	%
Tax-exempt investment securities (2)	1,285,922		13,168		4.12	%	1,692,700		16,466		3.95	%
Mortgage-backed and related securities (2)	764,713		10,119		5.32	%	455,811		4,329		3.85	%
Total securities	2,831,058		30,254		4.30	%	2,839,375		26,507		3.79	%
FHLB stock, at cost, and equity investments	40,063		333		3.34	%	31,470		245		3.16	%
Interest earning deposits	380,181		5,202		5.50	%	87,924		1,033		4.76	%
Federal funds sold	62,599		838		5.38	%	72,630		837		4.67	%
Total earning assets	7,882,337		105,494		5.38	%	7,161,836		84,095		4.76	%
Cash and due from banks	114,379						107,765
Accrued interest and other assets	441,783						398,709
Less: Allowance for loan losses	(42,973)						(36,690)
Total assets	$	8,395,526					$	7,631,620
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings accounts	$	604,529	1,424		0.95	%	$	665,919	1,313		0.80	%
CDs	941,947		10,341		4.42	%	787,887		5,407		2.78	%
Interest bearing demand accounts	3,634,936		26,433		2.92	%	2,983,218		13,186		1.79	%
Total interest bearing deposits	5,181,412		38,198		2.97	%	4,437,024		19,906		1.82	%
FHLB borrowings	607,033		5,950		3.94	%	404,199		3,141		3.15	%
Subordinated notes, net of unamortized debt issuance costs	93,895		956		4.10	%	98,693		999		4.11	%
Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,270		1,175		7.84	%	60,265		1,031		6.94	%
Repurchase agreements	92,177		967		4.22	%	65,435		492		3.05	%
Other borrowings	137,287		2,164		6.34	%	136,700		1,926		5.71	%
Total interest bearing liabilities	6,172,074		49,410		3.22	%	5,202,316		27,495		2.14	%
Noninterest bearing deposits	1,338,384						1,588,725
Accrued expenses and other liabilities	100,014						81,829
Total liabilities	7,610,472						6,872,870
Shareholders’ equity	785,054						758,750
Total liabilities and shareholders’ equity	$	8,395,526					$	7,631,620
Net interest income (FTE)			$	56,084					$	56,600
Net interest margin (FTE)					2.86	%					3.21	%
Net interest spread (FTE)					2.16	%					2.62	%

(1)Interest on loans includes net fees on loans that are not material in amount.

(2)For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note: As of March 31, 2024 and 2023, loans totaling $7.7 million and $3.2 million, respectively were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

Southside Bancshares, Inc. |47

Table of Contents

Noninterest Income

Noninterest income consists of revenue generated from a broad range of financial services and activities and other fee-generating services that we either provide or in which we participate.

The following table details the categories included in noninterest income (dollars in thousands):


	Three Months Ended March 31,				2024
					Change From
	2024		2023		2023
Deposit services	$	5,985	$	6,422	$	(437)	(6.8)	%
Net gain (loss) on sale of securities AFS	(18)		(2,146)		2,128		99.2	%
Net gain on sale of equity securities	—		2,416		(2,416)		(100.0)	%
Gain (loss) on sale of loans	(436)		104		(540)		(519.2)	%
Trust fees	1,336		1,467		(131)		(8.9)	%
BOLI	784		1,675		(891)		(53.2)	%
Brokerage services	1,014		697		317		45.5	%
Other noninterest income	1,059		1,398		(339)		(24.2)	%
Total noninterest income	$	9,724	$	12,033	$	(2,309)	(19.2)	%

The decrease in noninterest income for the three months ended March 31, 2024, when compared to the same period in 2023, was due to a $2.4 million net gain on sale of equity securities during the three months ended March 31, 2023, as well as a decrease in BOLI income, a loss on sale of loans, and decreases in deposit services income and other noninterest income during the three months ended March 31, 2024. These decreases were partially offset by a decrease in net loss on sale of securities AFS and an increase in brokerage services income during the three months ended March 31, 2024.

During the three months ended March 31, 2024, we sold municipal securities that resulted in a net loss on sale of AFS securities of $18,000.

During the three months ended March 31, 2023, we sold equity securities that resulted in a net gain of $2.4 million.

The loss on sale of loans for the three months ended March 31, 2024, was due to a $512,000 loss on the sale of a commercial real estate loan relationship during the first quarter of 2024.

The decrease in BOLI income for the three months ended March 31, 2024, when compared to the same period in 2023, was primarily due to a death benefit of $951,000 realized in the first quarter of 2023 for a former covered officer.

Brokerage services income increased for the three months ended March 31, 2024, when compared to the same period in 2023, due to an increase in assets under management.

Other noninterest income decreased for the three months ended March 31, 2024, when compared to the same period in 2023, primarily due to decreases in swap fee income, investment income, other recoveries and merchant services income, partially offset by an increase in mortgage servicing fee income.

Southside Bancshares, Inc. |48

Table of Contents

Noninterest Expense

We incur certain types of noninterest expenses associated with the operation of our various business activities. The following table details the categories included in noninterest expense (dollars in thousands):


	Three Months Ended March 31,				2024
					Change From
	2024		2023		2023
Salaries and employee benefits	$	23,113	$	21,856	$	1,257	5.8	%
Net occupancy	3,362		3,734		(372)		(10.0)	%

Advertising, travel & entertainment	950		1,050		(100)		(9.5)	%
ATM expense	325		355		(30)		(8.5)	%
Professional fees	1,154		1,372		(218)		(15.9)	%
Software and data processing	2,856		2,055		801		39.0	%
Communications	449		327		122		37.3	%
FDIC insurance	943		544		399		73.3	%
Amortization of intangibles	337		478		(141)		(29.5)	%

Other noninterest expense	3,392		3,078		314		10.2	%
Total noninterest expense	$	36,881	$	34,849	$	2,032	5.8	%

The increase in noninterest expense for the three months ended March 31, 2024, when compared to the same period in 2023, was due to increases in salaries and employee benefits, software and data processing expense, FDIC insurance and other noninterest expense, partially offset by decreases in net occupancy expense and professional fees.

Salaries and employee benefits expense increased during the three months ended March 31, 2024, compared to the same period in 2023, due to increases in direct salary expense and retirement expense, partially offset by a decrease in health insurance expense.

For the three months ended March 31, 2024, direct salary expense increased $1.2 million, or 6.6%, when compared to the same period in 2023, primarily due to normal salary increases effective in the first quarter of 2024 and approximately $618,000 associated with future cost reductions.

Retirement expense, included in salaries and employee benefits, increased $173,000, or 24.6%, for the three months ended March 31, 2024, when compared to the same period in 2023. This increase was due to increases in our 401(k) matching expense, deferred compensation expense, split dollar expense and post-retirement benefits expense.

Health and life insurance expense, included in salaries and employee benefits, decreased $164,000, or 7.8%, for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to a decrease in health claims expense. We have a self-insured health plan which is supplemented with a stop loss policy.

Net occupancy expense decreased for the three months ended March 31, 2024, when compared to the same period in 2023, due to decreases in repairs, property insurance expense, depreciation and utilities expense.

Professional fees decreased for the three months ended March 31, 2024, when compared to the same period in 2023, due to a decrease in consulting and legal fees.

Software and data processing expense increased for the three months ended March 31, 2024, when compared to the same period in 2023, due to new software contracts and increases in existing contract renewal costs.

Communications expense increased for the three months ended March 31, 2024, when compared to the same period in 2023, driven by initial costs related to a project to improve network management efficiency.

FDIC insurance increased for the three months ended March 31, 2024, when compared to the same period in 2023, due to an increase in the rate assessed by the FDIC and an increase in our assessment base resulting from an increase in our total assets.

Amortization of intangibles decreased for the three months ended March 31, 2024, when compared to the same period in 2023, due primarily to a decrease in core deposit intangible amortization which is recognized on an accelerated method resulting in a decline in expense over the amortization period.

The increase in other noninterest expense for the three months ended March 31, 2024, when compared to the same period in 2023, was due to increases in printing and supplies expense, trust expense, third-party deposit fee expense and a decrease in gains on other real estate.

Southside Bancshares, Inc. |49

Table of Contents

Income Taxes

Pre-tax income for the three months ended March 31, 2024 was $26.1 million, a decrease of 14.5% compared to $30.6 million for the same period in 2023. We recorded income tax expense of $4.6 million for the three months ended March 31, 2024, compared to income tax expense of $4.5 million for the same period in 2023. The ETR as a percentage of pre-tax income was 17.7% for the three months ended March 31, 2024, compared to an ETR as a percentage of pre-tax income of 14.9% for the same period in 2023. The increase in the ETR for the three months ended March 31, 2024 was primarily a result of a decrease in net tax-exempt income as a percentage of pre-tax income as compared to the same period in 2023. The increase in income tax expense is due to the higher ETR for the three months ended March 31, 2024 compared to the same period in 2023.

The ETR differs from the statutory rate of 21% primarily due to the effect of tax-exempt income from municipal loans and securities, as well as BOLI. The net deferred tax asset totaled $29.9 million at March 31, 2024, compared to $30.4 million at December 31, 2023. The slight decrease in the net deferred tax asset is primarily the result of an increase in the estimated fair value of the hedging derivatives.

See “Note 11 – Income Taxes” to our consolidated financial statements included in this report. No valuation allowance was recorded at March 31, 2024 or December 31, 2023, as management believes it is more likely than not that all of the deferred tax asset items will be realized in future years.

Southside Bancshares, Inc. |50

Table of Contents

Composition of Loans

One of our main objectives is to seek attractive lending opportunities in Texas, primarily in the market areas in which we operate. Refer to “Part I – Item 1. Business – Market Area” in the 2023 Form 10-K for a discussion of our primary market area and the geographic concentration of our loan portfolio as of December 31, 2023. There were no substantial changes in these concentrations during the three months ended March 31, 2024. The majority of our loan originations are made to borrowers who live in and/or conduct business in the market areas of Texas in which we operate or adjoin, with the exception of municipal loans, which are made primarily throughout the state of Texas. Municipal loans are made to municipalities, counties, school districts and colleges.

The following table sets forth loan totals by class as of the dates presented (dollars in thousands):


							Compared to
							December 31, 2023		March 31, 2023
	March 31, 2024		December 31, 2023		March 31, 2023		Change (%)		Change (%)

Real estate loans:
Construction	$	599,464	$	789,744	$	591,894	(24.1)	%	1.3	%
1-4 family residential	720,508		696,738		672,595		3.4	%	7.1	%
Commercial	2,413,345		2,168,451		1,990,861		11.3	%	21.2	%
Commercial loans	358,053		366,893		388,182		(2.4)	%	(7.8)	%
Municipal loans	427,225		441,168		438,566		(3.2)	%	(2.6)	%
Loans to individuals	58,773		61,516		70,546		(4.5)	%	(16.7)	%
Total loans	$	4,577,368	$	4,524,510	$	4,152,644	1.2	%	10.2	%

Our total loan portfolio increased $52.9 million, or 1.2%, and $424.7 million, or 10.2%, at March 31, 2024 compared to December 31, 2023 and March 31, 2023, respectively, with net increases in total real estate loans, partially offset by decreases in commercial loans, municipal loans and loans to individuals.

At March 31, 2024, our real estate loans represented 81.6% of our loan portfolio and were comprised of commercial real estate loans of 64.6%, 1-4 family residential loans of 19.3% and construction loans of 16.1%. Commercial real estate loans primarily include loans collateralized by retail, commercial office buildings, multi-family residential buildings, medical facilities and offices, senior living, assisted living and skilled nursing facilities, warehouse facilities, hotels and churches. Our 1-4 family residential loans consist primarily of loans secured by first mortgages on owner occupied 1-4 family residences. Our construction loans are collateralized by property located primarily in or near the market areas we serve. A number of our construction loans will be owner occupied upon completion. Construction loans for non-owner occupied projects are financed, but these typically have cash flows from leases with tenants, secondary sources of repayment, and in some cases, additional collateral.

Nonperforming Assets

Nonperforming assets consist of delinquent loans 90 days or more past due, nonaccrual loans, OREO, repossessed assets and restructured loans. Nonaccrual loans are loans 90 days or more delinquent and collection in full of both the principal and interest is not expected. Additionally, some loans that are not delinquent or that are delinquent less than 90 days may be placed on nonaccrual status if it is probable that we will not receive contractual principal and interest payments in accordance with the terms of the respective loan agreements. When a loan is categorized as nonaccrual, the accrual of interest is discontinued and any accrued balance is reversed for financial statement purposes. OREO represents real estate taken in full or partial satisfaction of debts previously contracted. The dollar amount of OREO is based on a current evaluation of the OREO at the time it is recorded on our books, net of estimated selling costs. Updated valuations are obtained as needed and any additional impairments are recognized. Restructured loans represent loans that have been modified due to the borrower experiencing financial difficulty to provide interest rate reductions or below market interest rates, restructuring amortization schedules and other actions intended to minimize potential losses. Categorization of a loan as nonperforming is not in itself a reliable indicator of potential loan loss. Other factors, such as the value of collateral securing the loan and the financial condition of the borrower are considered in judgments as to potential loan loss.

Southside Bancshares, Inc. |51

Table of Contents

The following table sets forth nonperforming assets for the periods presented (dollars in thousands):


							Compared to
							December 31, 2023		March 31, 2023
	March 31, 2024		December 31, 2023		March 31, 2023		Change (%)		Change (%)







Nonaccrual loans	$	7,709	$	3,889	$	3,169	98.2	%	143.3	%
Accruing loans past due more than 90 days	—		—		—		—		—
Restructured loans (1)	151		13		—		1,061.5	%	100.0	%
OREO	119		99		—		20.2	%	100.0	%
Repossessed assets	—		—		11		—		(100.0)	%
Total nonperforming assets	$	7,979	$	4,001	$	3,180	99.4	%	150.9	%

Total loans	$	4,577,368	$	4,524,510	$	4,152,644
Allowance for loan losses at end of period	43,557		42,674		36,332


Ratio of nonaccruing loans to:
Total loans	0.17	%	0.09	%	0.08	%
Ratio of nonperforming assets to:
Total assets	0.10	%	0.05	%	0.04	%
Total loans	0.17	%	0.09	%	0.08	%
Total loans and OREO	0.17	%	0.09	%	0.08	%
Ratio of allowance for loan losses to:
Nonaccruing loans	565.01	%	1,097.30	%	1,146.48	%
Nonperforming assets	545.90	%	1,066.58	%	1,142.52	%
Total loans	0.95	%	0.94	%	0.87	%
Net charge-offs to average loans outstanding	0.03	%	0.06	%	0.03	%

We actively market all OREO properties and do not hold them for investment purposes.

Allowance for Credit Losses – Loans

In accordance with ASC 326, the allowance for credit losses on loans is estimated and recognized upon origination of the loan based on expected credit losses. The CECL model uses historical experience and current conditions for homogeneous pools of loans, and reasonable and supportable forecasts about future events. The impact of varying economic conditions and portfolio stress factors are a component of the credit loss models applied to each portfolio. Reserve factors are specific to the loan segments that share similar risk characteristics based on the probability of default assumptions and loss given default assumptions, over the contractual term. The forecasted periods gradually mean-revert the economic inputs to their long-run historical trends. Management evaluates the economic data points used in the Moody’s forecasting scenarios on a quarterly basis to determine the most appropriate impact to the various portfolio characteristics based on management’s view and applies weighting to various forecasting scenarios as deemed appropriate based on known and expected economic activities. Management also considers and may apply relevant qualitative factors, not previously considered, to determine the appropriate allowance level. The use of the CECL model includes significant judgment by management and may differ from those of our peers due to different historical loss patterns, economic forecasts, and the length of time of the reasonable and supportable forecast period and reversion period.

We utilize Moody’s Analytics economic forecast scenarios and assign probability weighting to those scenarios which best reflect management’s views on the economic forecast. The probability weighting and scenarios utilized for the estimate of the allowance were generally reflective of increased economic and repricing uncertainty forecasted in our CECL model as of March 31, 2024.

When determining the appropriate allowance for credit losses on our loan portfolio, our commercial construction and real estate loans, commercial loans and municipal loans utilize the probability of default/loss given default discounted cash flow approach. Reserves on these loans are based upon risk factors including the loan type and structure, collateral type, leverage ratio,

Southside Bancshares, Inc. |52

Table of Contents

refinancing risk and origination quality, among others. Our consumer construction real estate loans, 1-4 family residential loans and our loans to individuals use a loss rate based upon risk factors including loan types, origination year and credit scores.

Loans evaluated collectively in a pool are monitored to ensure they continue to exhibit similar risk characteristics with other loans in the pool. If a loan does not share similar risk characteristics with other loans, expected credit losses for that loan are evaluated individually.

As of March 31, 2024, our review of the loan portfolio indicated that an allowance for loan losses of $43.6 million was appropriate to cover expected losses in the portfolio. Changes in economic and other conditions, including the application of the CECL model may require future adjustments to the allowance for loan losses.

During the three months ended March 31, 2024, the allowance for loan losses increased $883,000, or 2.1%, to $43.6 million, or 0.95% of total loans, when compared to $42.7 million, or 0.94% of total loans at December 31, 2023.

For the three months ended March 31, 2024, loan charge-offs were $634,000, and recoveries were $347,000. For the three months ended March 31, 2023, loan charge-offs were $633,000, and recoveries were $362,000. We recorded a provision for credit losses for loans of $1.2 million and $88,000 for three months ended March 31, 2024 and 2023, respectively.

Allowance for Credit Losses – Off-Balance-Sheet Credit Exposures

Allowance for off-balance-sheet credit exposures were as follows (in thousands):


	Three Months Ended March 31,
	2024		2023

Balance at beginning of period	$	3,932	$	3,687

Provision for (reversal of) off-balance-sheet credit exposures	(1,112)		(128)
Balance at end of period	$	2,820	$	3,559

Our off-balance-sheet credit exposures include contractual commitments to extend credit and standby letters of credit. For these credit exposures we evaluate the expected credit losses using usage given defaults and credit conversion factors depending on the type of commitment and based upon historical usage rates. These assumptions are reevaluated on an annual basis and adjusted if necessary. For additional information regarding our methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures, see “Note 12 – Off-Balance-Sheet Arrangements, Commitments and Contingencies” to our consolidated financial statements included in this report.

Southside Bancshares, Inc. |53

Table of Contents

Capital Resources and Liquidity

The Company’s Common Equity Tier 1 capital includes common stock and related paid-in capital, net of treasury stock, and retained earnings. The Bank’s Common Equity Tier 1 capital includes common stock and related paid-in capital, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include accumulated other comprehensive income in Common Equity Tier 1. We also elected, for a five-year transitional period, the effects of credit loss accounting under CECL from Common Equity Tier 1, as further discussed below. Common Equity Tier 1 for both the Company and the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities.

Tier 1 capital includes Common Equity Tier 1 capital and additional Tier 1 capital. For the Company, additional Tier 1 capital at March 31, 2024 included $58.5 million of trust preferred securities. For bank holding companies that had assets of less than $15 billion as of December 31, 2009, trust preferred securities issued prior to May 19, 2010 can be treated as Tier 1 capital to the extent that they do not exceed 25% of Tier 1 capital after the application of capital deductions and adjustments. The Bank did not have any additional Tier 1 capital beyond Common Equity Tier 1 at March 31, 2024.

Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital for both the Company and the Bank includes a permissible portion of the allowance for credit losses on loans and off-balance sheet exposures. Tier 2 capital for the Company also includes $93.9 million of qualified subordinated debt as of March 31, 2024. The permissible portion of qualified subordinated notes decreases 20% per year during the final five years of the term of the notes.

In April 2020, the FDIC, Federal Reserve, and the Office of the Comptroller of the Currency issued supplemental instructions allowing banking organizations that implement CECL before the end of 2020, the option to delay for two years an estimate of the CECL methodologies’ effect on regulatory capital, relative to the incurred loss methodologies effect on capital, followed by a three-year transition period. We elected to adopt the five-year transition option. In accordance with CECL guidance, a CECL transitional amount totaling $2.0 million has been added back to CET1 as of March 31, 2024, representing 25% of the $8.2 million transitional amount at December 31, 2023.

Management believes that, as of March 31, 2024, we met all capital adequacy requirements to which we were subject. It is management’s intention to maintain our capital at a level acceptable to all regulatory authorities and future dividend payments will be determined accordingly. Regulatory authorities require that any dividend payments made by either us or the Bank not exceed earnings for that year. Accordingly, shareholders should not anticipate a continuation of the cash dividend payments simply because of the existence of a dividend reinvestment program. The payment of dividends will depend upon future earnings, our financial condition and other related factors including the discretion of the Board.

Southside Bancshares, Inc. |54

Table of Contents

To be categorized as well capitalized we must maintain minimum Common Equity Tier 1 risk-based, Tier 1 risk-based, Total capital risk-based and Tier 1 leverage ratios as set forth in the following table (dollars in thousands):


	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Actions Provisions
March 31, 2024	Amount		Ratio		Amount		Ratio		Amount		Amount
Common Equity Tier 1 (to Risk-Weighted Assets)
Consolidated	$	700,566	12.43	%	$	253,539	4.50	%	N/A		N/A
Bank Only	$	843,989	14.98	%	$	253,524	4.50	%	$	366,201	6.50	%

Tier 1 Capital (to Risk-Weighted Assets)
Consolidated	$	759,026	13.47	%	$	338,051	6.00	%	N/A		N/A
Bank Only	$	843,989	14.98	%	$	338,032	6.00	%	$	450,709	8.00	%

Total Capital (to Risk-Weighted Assets)
Consolidated	$	896,741	15.92	%	$	450,735	8.00	%	N/A		N/A
Bank Only	$	887,791	15.76	%	$	450,709	8.00	%	$	563,386	10.00	%

Tier 1 Capital (to Average Assets) (1)
Consolidated	$	759,026	9.22	%	$	329,309	4.00	%	N/A		N/A
Bank Only	$	843,989	10.25	%	$	329,205	4.00	%	$	411,506	5.00	%


	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Actions Provisions
December 31, 2023	Amount		Ratio		Amount		Ratio		Amount		Ratio










Common Equity Tier 1 (to Risk-Weighted Assets)
Consolidated	$	690,296	12.28	%	$	252,954	4.50	%	N/A		N/A
Bank Only	$	836,228	14.88	%	$	252,865	4.50	%	$	365,249	6.50	%

Tier 1 Capital (to Risk-Weighted Assets)
Consolidated	$	748,755	13.32	%	$	337,273	6.00	%	N/A		N/A
Bank Only	$	836,228	14.88	%	$	337,153	6.00	%	$	449,537	8.00	%

Total Capital (to Risk-Weighted Assets)
Consolidated	$	884,095	15.73	%	$	449,697	8.00	%	N/A		N/A
Bank Only	$	877,691	15.62	%	$	449,537	8.00	%	$	561,922	10.00	%

Tier 1 Capital (to Average Assets) (1)
Consolidated	$	748,755	9.39	%	$	318,906	4.00	%	N/A		N/A
Bank Only	$	836,228	10.49	%	$	318,814	4.00	%	$	398,517	5.00	%

(1)Refers to quarterly average assets as calculated in accordance with policies established by bank regulatory agencies.

As of March 31, 2024, Southside Bancshares and Southside Bank met all capital adequacy requirements under the Basel III Capital Rules that became fully phased-in as of January 1, 2019. Refer to the Supervision and Regulation section in the 2023 Form 10-K for further discussion of our capital requirements.

Southside Bancshares, Inc. |55

Table of Contents

The table below summarizes our key equity ratios for the periods presented:


	Three Months Ended March 31,
	2024		2023
Return on average assets	1.03	%	1.38	%
Return on average shareholders’ equity	11.02	%	13.92	%
Dividend payout ratio – Basic	50.70	%	42.17	%
Dividend payout ratio – Diluted	50.70	%	42.17	%
Average shareholders’ equity to average total assets	9.35	%	9.94	%

Management of Liquidity

Liquidity management involves our ability to convert assets to cash with minimum risk of loss while enabling us to meet our current and future obligations to our customers at any time. This means addressing (1) the immediate cash withdrawal requirements of depositors and other fund providers; (2) the funding requirements of lines and letters of credit; and (3) the short-term credit needs of customers. Liquidity is provided by cash, interest earning deposits and short-term investments that can be readily liquidated with a minimum risk of loss. At March 31, 2024, these investments were 8.1% of total assets, as compared with 8.9% for December 31, 2023 and 7.5% for March 31, 2023. The decrease to 8.1% at March 31, 2024 as compared to December 31, 2023, is reflective of a decrease in interest earning deposits and cash and due from banks, as well as an increase in total assets, partially offset by an increase in short-term investment portfolio. Liquidity is further provided through the matching, by time period, of rate sensitive interest earning assets with rate sensitive interest bearing liabilities. The Bank has three unsecured lines of credit for the purchase of overnight federal funds at prevailing rates with Frost Bank, Amegy Bank and TIB – The Independent Bankers Bank for $40.0 million, $25.0 million and $15.0 million, respectively. There were no federal funds purchased at March 31, 2024 or December 31, 2023. To provide more liquidity in response to economic conditions in recent years, the Federal Reserve has encouraged broader use of the discount window. At March 31, 2024, the amount of additional funding the Bank could obtain from the FRDW, collateralized by securities, was approximately $251.9 million. There were $250.0 million in borrowings from the FRDW at March 31, 2024, and $300.0 million at December 31, 2023. To provide more stability and to assure banks have the ability to meet the needs of all of their depositors, the Federal Reserve created the BTFP in the first quarter of 2023. On March 11, 2024, the Federal Reserve stopped extending new BTFP advances. There were $116.1 million in borrowings from the BTFP at March 31, 2024. At March 31, 2024, the amount of additional funding the Bank could obtain from FHLB, collateralized by securities, FHLB stock and nonspecified loans and securities, was approximately $2.01 billion, net of FHLB stock purchases required. The Bank has a $5.0 million line of credit with Frost Bank to be used to issue letters of credit, and at March 31, 2024, the line had one outstanding letter of credit for $155,000. The Bank currently has no outstanding letters of credit from FHLB held as collateral for its public fund deposits.

Interest rate sensitivity management seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates. The ALCO closely monitors various liquidity ratios and interest rate spreads and margins. The ALCO utilizes a simulation model to perform interest rate simulation tests that apply various interest rate scenarios including immediate shocks and MVPE to assist in determining our overall interest rate risk and the adequacy of our liquidity position. In addition, the ALCO utilizes this simulation model to determine the impact on net interest income of various interest rate scenarios. By utilizing this technology, we can determine changes that need to be made to the asset and liability mix to minimize the change in net interest income under these various interest rate scenarios.

Management continually evaluates our liquidity position and currently believes the Company has adequate funding to meet our financial needs.

Expansion

On January 16, 2024, we opened a loan production office in Preston Center in Dallas.

Branch Closure

In January 2024, we announced our plan to close a traditional branch location in Jasper on May 3, 2024, due to close proximity to another Southside branch.

In April 2024, we announced our plan to close a retail grocery store branch location in Kingwood on November 2, 2024.

Recent Accounting Pronouncements

See “Note 1 – Summary of Significant Accounting and Reporting Policies” in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Southside Bancshares, Inc. |56

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The disclosures set forth in this item are qualified by the section captioned “Forward-Looking Statements” included in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report and other cautionary statements set forth elsewhere in this Quarterly Report on Form 10-Q.

Refer to the discussion of market risks included in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the 2023 Form 10-K.

In the banking industry, a major risk exposure is changing interest rates. The primary objective of monitoring our interest rate sensitivity, or risk, is to provide management the tools necessary to manage the balance sheet to minimize adverse changes in net interest income as a result of changes in the direction and level of interest rates. Federal Reserve monetary control efforts, the effects of deregulation, economic uncertainty and legislative changes have been significant factors affecting the task of managing interest rate sensitivity positions in recent years.

In an attempt to manage our exposure to changes in interest rates, management closely monitors our exposure to interest rate risk through our ALCO. Our ALCO meets regularly and reviews our interest rate risk position and makes recommendations to our board for adjusting this position. In addition, our board regularly reviews our asset/liability position. We primarily use two methods for measuring and analyzing interest rate risk: net income simulation analysis and MVPE modeling. We utilize the net income simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. This model quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next 12 months. The model is used to measure the impact on net interest income relative to a base case scenario of rates immediately increasing 100 and 200 basis points or decreasing 50, 100 and 200 basis points over the next 12 months. These simulations incorporate assumptions regarding balance sheet growth and mix, pricing and the repricing and maturity characteristics of the existing and projected balance sheet. The impact of interest rate-related risks such as prepayment, basis and option risk are also considered. The model has interest rate floors and no interest rates are assumed to go negative. We continue to monitor interest rates and anticipate rate changes during the remainder of 2024.

The following table reflects the noted increases and decreases in interest rates under the model simulations and the anticipated impact on net interest income relative to the base case over the next 12 months for the periods presented.


	Anticipated impact over the next 12 months
	March 31,
Rate projections:	2024		2023
Increase:
100 basis points	3.26	%	5.44	%
200 basis points	6.40	%	10.50	%

Decrease:
50 basis points	(1.12)	%	(3.17)	%
100 basis points	(2.38)	%	(6.68)	%
200 basis points	(4.88)	%	(13.65)	%

As part of the overall assumptions, certain assets and liabilities are given reasonable floors. This type of simulation analysis requires numerous assumptions including but not limited to changes in balance sheet mix, prepayment rates on mortgage-related assets and fixed rate loans, cash flows and repricing of all financial instruments, changes in volumes and pricing, future shapes of the yield curve, relationship of market interest rates to each other (basis risk), credit spread and deposit sensitivity. Assumptions are based on management’s best estimates but may not accurately reflect actual results under certain changes in interest rates.

Economic conditions and growth prospects are currently impacted by record inflation, continued higher interest rates and potential recessionary concerns. Furthermore, worker shortages, supply chain disruptions and inflationary conditions, have had some impact on the level of economic growth in our market areas. Ongoing elevated inflation levels and higher interest rates could have a negative impact on the financial condition of both our consumer and commercial borrowers.

The ALCO monitors various liquidity ratios to ensure a satisfactory liquidity position for us. Management continually evaluates the condition of the economy, the pattern of market interest rates and other economic data to determine the types of investments that should be made and at what maturities. Using this analysis, management from time to time assumes calculated interest sensitivity gap positions to maximize net interest income based upon anticipated movements in the general level of

Southside Bancshares, Inc. |57

Table of Contents

interest rates. Regulatory authorities also monitor our gap position along with other liquidity ratios. In addition, as described above, we utilize a simulation model to determine the impact of net interest income under several different interest rate scenarios. By utilizing this model, we can determine changes that need to be made to the asset and liability mixes to mitigate the change in net interest income under these various interest rate scenarios.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), undertook an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report, and, based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report, in recording, processing, summarizing and reporting in a timely manner the information that the Company is required to disclose in its reports under the Exchange Act and in accumulating and communicating to the Company’s management, including the Company’s CEO and CFO, such information as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

No changes were made to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are a party to various litigation in the normal course of business. Management, after consulting with our legal counsel, believes that any liability resulting from litigation will not have a material effect on our financial position, results of operations or liquidity.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors previously disclosed in the 2023 Form 10-K.

Southside Bancshares, Inc. |58

Table of Contents

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

On July 20, 2023, our board of directors approved a Stock Repurchase Plan authorizing the repurchase of up to 1.0 million shares of the Company’s outstanding common stock. Repurchases may be carried out in open market purchases, privately negotiated transactions or pursuant to any trading plan that might be adopted in accordance with Rule 10b5-1 of the Exchange Act, as amended. The Company has no obligation to repurchase any shares under the Stock Repurchase Plan and may modify, suspend or discontinue the plan at any time.

The following table provides information with respect to purchases made by or on behalf of any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act), of our common stock during the three months ended March 31, 2024:


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Number of Shares That May Yet Be Purchased Under the Stock Repurchase Plan at the End of the Period
January 1, 2024 - January 31, 2024	—	$	—	—	641,032
February 1, 2024 - February 29, 2024	—			—	641,032
March 1, 2024 - March 31, 2024	—			—	641,032
Total	—	$	—	—

We have not purchased any shares of common stock pursuant to the Stock Repurchase Plan subsequent to March 31, 2024.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

Pursuant to Item 408(a) of Regulation S-K, none of our directors or executive officers adopted, terminated or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024.

Southside Bancshares, Inc. |59

Table of Contents

ITEM 6. EXHIBITS

Exhibit Index

Incorporated by Reference

Exhibit Number

Exhibit Description

Filed Herewith

Exhibit

Form

Filing Date

File No.

(3)

Articles of Incorporation and Bylaws

3.1

Restated Certificate of Formation of Southside Bancshares, Inc.

3.1

8-K

05/14/2018

0-12247

3.2

Amended and Restated Bylaws of Southside Bancshares, Inc.

3.1

8-K

02/22/2018

0-12247

(31)

Rule 13a-14(a)/15d-14(a) Certifications

31.1

Certification of Chief Executive Officer

31.2

Certification of Chief Financial Officer

(32)

Section 1350 Certification

†32

Certification of Executive Officer and Chief Financial Officer

(101)

Interactive Date File

101.INS

XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

† The certification attached as Exhibit 32 accompanies this Quarterly Report on Form 10-Q and is “furnished” to the Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by us for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Southside Bancshares, Inc. |60

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SOUTHSIDE BANCSHARES, INC.

DATE:	April 26, 2024	BY:	/s/ Lee R. Gibson
			Lee R. Gibson, CPA
			President and Chief Executive Officer
			(Principal Executive Officer)




DATE:	April 26, 2024	BY:	/s/ Julie N. Shamburger
			Julie N. Shamburger, CPA
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

Southside Bancshares, Inc. |61