Southside Bancshares, Inc. Annual Report 2023

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FY2023 Annual Report · Southside Bancshares, Inc.

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2023 ANNUAL REPORT

Table of Contents

LEE R. GIBSON LETTER FROM THE CEO

BOARD OF DIRECTORS

CELEBRATING PROGRESS AND ACHIEVEMENTS

OFFICERS

FINANCIAL HIGHLIGHTS

FORM 10-K

SOUTHSIDE BANK LOCATION MAP

LEE R. GIBSON

Letter From
The CEO

Dear Fellow Shareholders,

2023 was an interesting year, to say the least. The news of

closures of three high-profile U.S. banks, combined with a

100 basis point Federal funds rate hike by the Fed, mixed

with global unrest and geopolitical tensions, certainly led

2023 FINANCIAL RESULTS
INCLUDED:

way to roiling financial markets and ignited uncertainty for

• Net income of $86.7 million;

many across the nation. And while bank failures are not

something new, the prominence of the few that occurred in

2023 certainly made headlines, which illuminated their own

weaknesses and sparked concern and doubt on the national

• Earnings per diluted common share of $2.82;

• A 16.03% return on tangible common equity;

banking industry. Unfortunately, the success of the over 4,700

• A 9.1% increase in loans;

U.S. banks were overshadowed by the failure of three.

Despite the uneasy landscape, Southside ended the year with

strong financial results and is well positioned for another

great year in 2024. For over six decades, Southside has built

• Continued strong asset quality metrics; and

•

An increase in the cash dividend per common share.

upon its strong foundation of proven, conservative credit

We all know the financial industry often faces moments of

underwriting standards. These same practices, combined

stability, followed by moments of uncertainty. As the saying

with our strong portfolio, have paved the way for continued

goes, “The only constant is change,” and change is a concept

success and resiliency, even during uncertain times. Over

that we expect, examine, and embrace. And regardless of

80% of Southside’s deposits are insured by FDIC and/or

the changes that come, our commitment to our core values,

collateralized by the fair value of highly rated securities,

meeting the financial needs of our customers, and serving the

which even further solidifies our strong position.

humanistic needs of our communities remains unwavering.

The following results would not be possible without our

dedicated team members, whose talents and contributions

OUR CULTURE

continue to be the pathway to our success. I remain truly

Company culture remains a top priority for us, as well as

proud and grateful for their dedication, resiliency, and

all bank employees. Over the last few years, we have taken

commitment to excellence each day.

great steps and invested heavily in our team members’ well-

“Happy to help” isn’t just a saying…

it’s our way of showing that we

really care about people.

being – after all, they truly are our greatest asset. We believe

of this recognition, but more so, proud of our team members

the workplace should be one of camaraderie, support, and

for owning the mission of caring for customers, communities,

encouragement. We promote a “unified mindset” that focuses

and their fellow colleagues.

each day on 1) astounding others by how they are treated,

2) caring for and elevating others, 3) believing in yourself,

All of these efforts have led way to a united and unified team,

and 4) always doing what is right.

which in turn, has enhanced the overall customer experience.

We increased our average Google Review score by .5 star in

In 2023, we published The Blue Book: A Guide to Work

2023, and were also recognized as a “Texas Top Customer

Culture at Southside Bank, which provides an objective

Service Reputation Award Winner” by Texas Bankers

outlook into the culture all team members have a

Association. A focus on internal work culture not only makes

responsibility of creating and sustaining. In addition, a

Southside a great place to work for our team members, but a

culture training video was created and is shared with all new

great place to bank for our customers.

team members during the onboarding process. It is also

readily accessible and viewed as a regular reminder

for others.

INNOVATION AND TECHNOLOGY

Throughout 2023, Southside fulfilled its commitment to new

We have taken great strides at investing in our team members

and innovative ways to meet the needs of our customers

through programs like our Corporate Mentorship Program,

while improving operational efficiencies. Our Innovation

Core Leadership (a leadership academy for managers), and

Department, which was established in 2021, has been

competitive benefits for all full-time team members. We

successful at implementing two new systems to automate

offer multiple health and wellness initiatives and encourage

and streamline processes related to new accounts and loan

volunteerism by providing 20 hours of Volunteer Paid Time

origination.

Off (PTO) for team members to serve at non-profits in our

communities.

Our new online account opening system was implemented

in the fourth quarter of 2023 and was launched within our

Our commitment to our team members was recognized

branches during the first quarter of 2024. New customers have

by American Banker as a Best Bank to Work For in 2023.

enjoyed a smooth, swift, and seamless new account process. In

American Banker along with the Best Companies Group,

addition, a loan origination platform has been implemented

identified the top U.S. banks that excel at creating positive

for customers to easily submit loan applications online and

and supportive workplaces for employees. In the November

receive a quick answer resulting in faster turnaround times for

2023 publication, Southside was listed 24th out of 90 banks in

the customer to receive their funds and for the Bank to process

the country and the number one bank in Texas. We are proud

applications. The commercial platform will roll out in 2024.

ANNUAL REPORT | SOUTHSIDE BANCSHARES, INC.

area to the southeastern part of the state, has also enjoyed

healthy growth and thriving economies. Tyler is proud to

welcome a new medical school, right across the street from

the Southside corporate office, which promises to bring new

medical advancements and opportunities to the community,

in addition to new businesses and medical professionals. We

look forward to welcoming our neighbors and partnering

together to serve and grow this community as they plan to

open their doors in the fall of 2025.

IN CONCLUSION

As we look to the future, we have much to be optimistic

about. Our growing markets put us in favorable positions to

continue enjoying success well into the future. My confidence

in the future of Southside has much to do with my confidence

in our team members. We have surrounded ourselves with

immense talent who will continue to advance our progress

forward. Even more, it’s the way they deliver our products

and services that I am most proud of…with excellence,

passion, and concern for people and their communities.

We are thankful for the trust that our customers and clients

have given us and just has honored for the support of our

shareholders.

LEE R. GIBSON
President and Chief Executive Officer

COMMUNITY INVOLVEMENT

Our investment in communities remains top of mind.

Whether it’s supporting local non-profits, schools, civic

groups, or economic growth, our commitment to the

people that live and work right here in Texas has never been

stronger. We are truly proud of the Texas communities that

we are a part of and continue to look for ways to support and

build trust. After all, that’s what being a “community bank” is

all about…pride, ownership, and trust.

Throughout 2023, we focused heavily in supporting

organizations, schools, and civic groups whose concentration

was on meeting basic needs of people, providing financial

literacy classes, and supporting the economic growth of

communities. Team members proudly volunteered over 4,500

collective hours in service, and Southside was happy to invest

over $1.1 million back into our communities.

OUR MARKETS

Over the last two decades, we have been strategic in the

markets we have chosen to enter, all of which continue to

thrive. In 2023, we created a path to open a loan production

office in Dallas, further expanding our North Texas footprint.

Dallas/Fort Worth has one of the top five fastest growing

economies in the U.S. and is said to have the 20th largest

economy in the world.

The Austin and Houston markets continue to see steady

growth, and our regional leadership is making solid progress

at growing relationships and capitalizing on new commercial

lending opportunities, while continuing to grow deposits.

Our East Texas markets, spanning from the greater Tyler

SOUTHSIDE BANCSHARES, INC.

Celebrating Progress and
Achievements

FINANCIAL LITERACY
INITIATIVES

Southside team members extended their talents and
compassion for their communities through volunteerism as
well as teaching financial literacy. In 2023, team members
participated in more than a dozen financial literacy
initiatives, teaching classes at local schools and non-profit
organizations and hosting elementary and secondary school
financial education fairs in schools located in low-to-
moderate income areas. The Bank hosted Reverse Junior
Achievement (JA) in a Day again and taught a series of
classes using the JA curriculum. Team members in North
Texas continued participating in the Academy 4 program
where they mentored 4th grade students in economically
disadvantaged schools throughout the year.

CUSTOMER
SERVICE

Southside has always been proud of its reputation for outstanding
and personalized customer service, a point that was validated during
a 2023 customer feedback initiative. More than 1,000 online reviews
and survey cards were submitted by our customers raising our Google
score for every branch. Two branches won awards: one for the most
reviews and one for the most improved Google score. Individuals with
high reviews were also selected for special prizes and recognition.

CUSTOMER REVIEWS

I have never felt more appreciated or cared for by any
other bank. The customer service is fantastic and I am
a real person to them and not just a number on a page.
Switching to this bank is the best thing I have ever done.

Julie H.
Tyler

I walk in and the staff greets me by name. I call, they
recognize my voice! Can't get that from a big box bank
automated teller! Nice to have a sense of small-town life
in the big city. Highly recommend!

David F.
Fort Worth

Southside Bank has completely transformed our
perspective on banking. Right from the beginning, they
welcomed us as cherished members of their caring
family, going beyond the usual customer relationship.
What sets Southside apart is their personalized
treatment. They know us by name, remember our
preferences, and make every interaction feel special and
tailored to us.

Dereon H.
Arlington

CUSTOMER REVIEWS

ANNUAL REPORT | SOUTHSIDE BANCSHARES, INC.

FINANCIAL

Highlights

Dollars in thousands except per share amounts

NET INCOME:

PER SHARE DATA:

Earnings per common share - basic

Earnings per common share - diluted

Cash dividends paid per common share

Book value per common share

PERFORMANCE RATIOS:

Return on average assets

Return on average shareholders' equity

Dividend payout ratio - basic

Dividend payout ratio - diluted

Net interest margin

Net interest margin (fully taxable equivalent)*

BALANCE SHEET DATA:

Loans

Securities

Total assets

Noninterest bearing deposits

Interest bearing deposits

Total deposits

Other borrowings

Long-term debt

Total shareholders' equity

*A non-GAAP measure. See "Non-GAAP Financial
Measures" for more information and a reconciliation
to GAAP in our Form 10-K.

2023

2022

$ 86,692

$ 105,020

$ 2.82

$ 1.42

$ 25.56

1.11 %

11.50 %

50.35 %

2.92 %

3.09 %

$ 3.27

$ 3.26

$ 1.40

$ 23.65

1.43 %

13.42 %

42.81 %

42.94 %

3.11 %

3.32 %

$ 4,524,510

$ 4,147,691

$ 2,603,347

$ 2,625,743

$ 8,284,914

$ 7,558,636

$ 1,390,407

$ 1,671,562

$ 5,159,274

$ 4,526,457

$ 6,549,681

$ 6,198,019

$ 722,468

$ 374,511

$ 154,147

$ 158,939

$ 773,288

$ 745,997

SOUTHSIDE BANK

A Texas Bank

NEW
MEXICO

Southside currently operates 55 branches, one loan production office,
and a network of 73 ATMs/ITMs throughout East Texas, Southeast
Texas, and the greater Dallas/Fort Worth, Austin, and Houston areas.
Additionally, Southside is affiliated with over 60,000 ATMs across the
nation. Serving customers since 1960, Southside Bank is a community-
focused financial institution that offers a full range of financial products
and services to individuals and businesses.

MEXICO

ANNUAL REPORT | SOUTHSIDE BANCSHARES, INC.

OKLAHOMA

ARKANSAS

Lindale

Tyler

35W

820

Fort Worth

35W

Fort Worth

Dallas

Tyler

Lufkin

LOUISIANA

183

Austin

290

183

Houston

SOUTHSIDE BANCSHARES, INC.

Board of Directors

John R. (Bob) Garrett
Chairman of the Board

Donald W. Thedford
Vice Chairman of the Board

Lawrence L.
Anderson, MD

S. Elaine
Anderson, CPA

Michael J.
Bosworth

Herbert C.
Buie

Patricia A.
Callan

Shannon
Dacus

Alton L.
Frailey

Lee R. Gibson, CPA

President and CEO

George H. (Trey)
Henderson, III

Tony K.
Morgan, CPA

John F.
Sammons, Jr.

H. J.
Shands, III

Preston L.
Smith

William Sheehy

Director Emeritus

ANNUAL REPORT | SOUTHSIDE BANCSHARES, INC.SOUTHSIDE BANCSHARES, INC.

Officers

OFFICERS OF SOUTHSIDE BANCSHARES, INC.

Lee R. Gibson, CPA
President and
Chief Executive Officer

April Pugh, CPA
Executive Vice President and
Controller

Trent Wilson
Vice President and
Loan Review Officer

Julie N. Shamburger, CPA
Chief Financial Officer

Tim Alexander
Chief Lending Officer

T. L. Arnold
Chief Credit Officer

Vonna Crowley, CRCM
Chief Compliance Officer

Suni Davis, CPA, CERP
Chief Risk Officer

Sandi Hegwood, CPA, CIA
Chief Audit Executive

Brian K. McCabe
Chief Operations Officer

Anne Martinez
Executive Vice President
and Senior Loan Review Officer

Austin Fleet, CPA
Assistant Vice President and
Internal Auditor

Adam McElroy, CPA, CIA
Assistant Vice President and
Internal Auditor

Erika Morales
Assistant Vice President and
Senior Compliance Analyst

Petra Herbert
Banking Officer and
Loan Review Analyst

Mary McLarry
Corporate Secretary

Erin Byers
Senior Vice President
and Loan Review Officer

Brooke Mott, CRCM
Senior Vice President and
Fair and Responsible
Banking Officer

Lindsey Bailes, CPA
Vice President and
Investor Relations Officer

Katherine Clover, CPA, CIA, CISA
Vice President and
Internal Audit Manager

Misty de Wet, CPA, CIA
Vice President and
Internal Audit Manager

Roxanne Reynolds, CPA
Vice President and
and Internal Audit Manager

DIRECTORS OF SOUTHSIDE BANK

Julie N. Shamburger, CPA*
Chief Financial Officer

H. J. Shands, III
Retired Banker

William Sheehy
Director Emeritus
Retired Attorney

Preston L. Smith
President
PSI Production, Inc.

Donald W. Thedford
Vice Chairman of the Board
President
Don's TV & Appliance, Inc.

Lonny R. Uzzell*
Market President, East Texas

*Advisory Directors

Tim Alexander*
Chief Lending Officer

Lawrence L.
Anderson, MD
Retired Physician

S. Elaine
Anderson, CPA
Retired Healthcare Executive
Healthcare Consultant

T. L. Arnold*
Chief Credit Officer

Michael J. Bosworth
President
Bosworth & Associates

Herbert C. Buie
Retired CEO
and Business Owner

Patricia A. Callan
Principal
Callan Consulting

Tim Carter
Retired Banker

Shannon Dacus
President and Owner
The Dacus Firm

Alton L. Frailey
President
Alton L. Frailey & Associates, LLC

John R. (Bob) Garrett
Chairman of the Board
President
Fair Oil Company

Lee R. Gibson, CPA
President and
Chief Executive Officer

George H. (Trey)
Henderson, III
Owner
Henderson Mineral, Inc.

Brian K. McCabe*
Chief Operations Officer

Tony K. Morgan, CPA
Retired Accounting Partner

John F. Sammons, Jr.
Chairman and CEO
Mid-States Services, Inc.

ANNUAL REPORT | SOUTHSIDE BANCSHARES, INC.OFFICERS OF SOUTHSIDE BANK

Lee R. Gibson, CPA
President and Chief Executive Officer

Julie N. Shamburger, CPA
Chief Financial Officer

Tim Alexander
Chief Lending Officer

Sherri Anthony
Chief Banking Officer

T. L. Arnold
Chief Credit Officer

Faye Bond
Chief Innovation Officer

Vonna Crowley, CRCM
Chief Compliance Officer

Suni Davis, CPA, CERP
Chief Risk Officer

Brian K. McCabe
Chief Operations Officer

Gary Mills
Chief Technology Officer

Carlos Renteria, CISA, CISM, CDPSE
Chief Information Security Officer

James Schafer
Chief Information Officer

President
Bill Newburn, Wealth Management

Regional Presidents
Keith Donahoe, Central Texas
Mark Drennan, North Texas
Jared Green, East Texas

Market Presidents
Michael Goode, Nacogdoches
Codie Jenkins, Southeast Texas
Ernest King, CPA, Southeast Texas,

Wealth Management

Brian Turner, Tyler
Lonny R. Uzzell, East Texas
Alice Yang, Houston

Senior Executive Vice President
Curtis Burchard

Executive Vice Presidents
Joel Adams
Brad Browder, CFA
Kim Christie, CPA, CTFA
Charles Colley
Mark Cundiff
Pam Cunningham
Lynn Davis
Joe (Trey) Denman, III
Christopher Katri
Keith Leonhardt
Phyllis Milstead
Emily Moore, CPA, SHRM-SCP
Michael Phea
Chris Phelps
April Pugh, CPA
Leigh Anne Rozell, CAMS
Ron Veitenheimer

ANNUAL REPORT | SOUTHSIDE BANCSHARES, INC.2023

Form 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K
(Mark One)

☒

☐

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

For the fiscal year ended December 31, 2023
or

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
(State or Other Jurisdiction of
Incorporation or Organization)

1201 S. Beckham Avenue, Tyler

Texas
(Address of Principal Executive Offices)

75-1848732
(I.R.S. Employer
Identification No.)

75701
(Zip Code)

Registrant’s telephone number, including area code: (903) 531-7111

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 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
Non-accelerated filer

☒
☐

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive oﬃcers during the relevant recovery period pursuant to §240.10D-1(b). ☐

☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2023, was approximately $751.3
million (based upon the closing price of $26.16 per share as reported by the NASDAQ Global Select Market on June 30, 2023, the last
business day of the registrant’s most recently completed second fiscal quarter).

As of February 23, 2024, there were 30,255,576 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrant’s Proxy statement to be filed for the Annual Meeting of Shareholders to be held May 15, 2024 are
incorporated by reference into Part III of this Annual Report on Form 10-K. Other than those portions of the proxy statement specifically
incorporated by reference pursuant to Items 10-14 of Part III hereof, no other portions of the proxy statement shall be deemed so incorporated.

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-K, including "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements
and Supplementary Data."

Entities:
Southside Bancshares, Inc.
Southside Bank
Company

Bank
Omni

Southside

Other Acronyms,
Abbreviations and Terms:
2017 Incentive Plan
2022 Form 10-K

401(k) Plan
Acquired Retirement Plan
AFS
ALCO
AML
AOCI
ASC
ASU
ATM
BTFP
Basel Committee
BHCA
Board
BOLI
CARES Act
CBCA
CBLR
CDs
CECL

CET1
CFPB
CISO
CMOs
CRE
COVID-19
CRA
DEI
DIF
Dodd-Frank Act

Bank holding company for Southside Bank
Texas state bank and wholly owned subsidiary of Southside Bancshares, Inc.
Combined entities of Southside Bancshares, Inc. and its subsidiaries, including Southside
Bank
Southside Bank
OmniAmerican Bancorp, Inc., a bank holding company, and its wholly-owned subsidiary,
OmniAmerican Bank, acquired by Southside on December 17, 2014
Southside Bancshares, Inc.

Southside Bancshares, Inc. 2017 Incentive Plan
Southside Bancshares, Inc. Annual Report on Form 10-K filed with the SEC on February
24, 2023
401(k) Defined Contribution Plan
OmniAmerican Bank defined benefit pension plan
Available for sale
Asset/Liability Committee
Anti-money laundering
Accumulated other comprehensive income or loss
Accounting Standards Codification
Accounting Standards Update issued by the FASB
Automated teller machines
The Federal Reserve’s Bank Term Funding Program
Basel Committee on Banking Supervision
Bank Holding Company Act of 1956
Board of directors
Bank owned life insurance
Coronavirus Aid, Relief, and Economic Security Act
Change in Bank Control Act
Community Bank Leverage Ratio framework
Certificates of deposit
ASC 326, Financial Instruments- Credit Losses, also known as Current Expected Credit
Losses
Common Equity Tier 1
Consumer Financial Protection Bureau
Chief Information Security Officer
Collateralized mortgage obligations
Commercial real estate
Novel strain of coronavirus
Community Reinvestment Act
Diversity, equity and inclusion
FDIC’s Deposit Insurance Fund
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

DRIP
DRR
Economic Aid Act
ESOP
ETR
Exchange Act
Fannie Mae
FFIEC
FASB
FDIA
FDIC
FDICIA
Federal Reserve
FHLB
FinCEN
Fintech
FRA
FRBNY
FRDW
Freddie Mac
FTE
GAAP
GLBA
GNMA
GSEs
Guidelines

HTM
IBA
ITM
LIBOR
LIBOR Act
MBS
MVPE
NPI
NQSO
OFAC
OREO
PCAOB
PSU
REIT
Repurchase agreements

RESPA

Restoration Plan

Retirement Plan

ROATCE

ROU

RSU
SEC

Dividend Reinvestment Plan
Designated reserve ratio established by the Dodd-Frank Act
Economic Aid to Hard-Hit Small Business, Nonprofits and Venues Act
Employee Stock Ownership Plan
Effective tax rate
Securities Exchange Act of 1934
Federal National Mortgage Association
Federal Financial Institutions Examination Council
Financial Accounting Standards Board
Federal Deposit Insurance Act
Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation Improvement Act
The Board of Governors of the Federal Reserve System
Federal Home Loan Bank
Financial Crimes Enforcement Network
Financial technology
Federal Reserve Act
Federal Reserve Bank of New York
Federal Reserve Discount Window
Federal Home Loan Mortgage Corporation
Fully-taxable equivalents measurements
United States generally accepted accounting principles
Gramm-Leach-Bliley Act
Government National Mortgage Association
U.S. government-sponsored enterprises
Interagency Guidelines Prescribing Standards for Safety and Soundness adopted by
federal banking agencies
Held to maturity
ICE Benchmark Administration, the administrator of LIBOR
Interactive teller machines
London Interbank Offered Rate
Adjustable Interest Rate (LIBOR) Act
Mortgage-backed securities
Market value of portfolio equity
Nonpublic personal information
Nonqualified stock options
The U.S. Department of the Treasury’s Office of Foreign Assets Control
Other real estate owned
Public Company Accounting Oversight Board
Performance-based restrictive stock units
Real estate investment trust
Securities sold under agreements to repurchase

Real Estate Settlement Procedures Act

Nonfunded supplemental retirement plan

Defined benefit pension plan

Return on Average Tangible Common Equity

Right-of-use

Restricted stock units
Securities and Exchange Commission

SOFR
TDB

TDR

TILA

U.S.

Secured Overnight Financing Rate provided by the Federal Reserve Bank of New York
Texas Department of Banking

Troubled debt restructurings prior to implementation of ASU 2022-02 “Financial
Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage
Disclosures”
Truth in Lending Act

United States

USA PATRIOT Act

VIE

Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001
Variable interest entity

IMPORTANT INFORMATION ABOUT THIS REPORT

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.

PART I

ITEM 1. BUSINESS

FORWARD-LOOKING INFORMATION

The disclosures set forth in this item are qualified by the section captioned “Cautionary Notice Regarding Forward-
Looking Statements” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of
this Annual Report on Form 10-K and other cautionary statements set forth elsewhere in this report.

GENERAL

Southside Bancshares, Inc., incorporated in Texas in 1982, is a bank holding company for Southside Bank, a Texas state
bank headquartered in Tyler, Texas that was formed in 1960. We operate through 55 branches, 13 of which are located in
grocery stores, in addition to wealth management and trust services, and/or loan production, brokerage or other financial
services offices.

At December 31, 2023, our total assets were $8.28 billion, total loans were $4.52 billion, total deposits were $6.55
billion and total equity was $773.3 million. For the years ended December 31, 2023 and 2022, our net income was $86.7
million and $105.0 million, respectively. For the years ended December 31, 2023 and 2022, diluted earnings per common share
was $2.82 and $3.26, respectively. We have paid a cash dividend to shareholders every year since 1970 (including dividends
paid by Southside Bank prior to the incorporation of Southside Bancshares).

We are a community-focused financial institution that offers a full range of financial services to individuals, businesses,
municipal entities and nonprofit organizations in the communities that we serve. These services include consumer and
commercial loans, deposit accounts, wealth management, trust and brokerage services.

Our consumer loan services include 1-4 family residential loans, home equity loans, home improvement loans,
automobile loans and other consumer related loans. Commercial loan services include short-term working capital loans for
inventory and accounts receivable, short- and medium-term loans for equipment or other business capital expansion,
commercial real estate loans and municipal loans. We also offer construction loans for 1-4 family residential and commercial
real estate.

We offer a variety of deposit accounts with a wide range of interest rates and terms, including savings, money market,

interest and noninterest bearing checking accounts and CDs.

Our trust and wealth management services include investment management, administration of irrevocable, revocable and
testamentary trusts, estate administration, and custodian services, primarily for individuals and, to a lesser extent, partnerships
and corporations. Additionally, we offer retirement and employee benefit accounts, including but not limited to, IRAs, 401(k)
plans and profit sharing plans. At December 31, 2023, our wealth management and trust assets under management were
approximately $1.48 billion.

Our business strategy includes evaluating expansion opportunities through acquisitions of financial institutions in market
areas that could complement our existing franchise. We generally seek merger partners that are culturally similar, have
experienced management teams and possess either significant market presence or have potential for improved profitability
through financial management, economies of scale or expanded services.

We and our subsidiaries are subject to comprehensive regulation, examination and supervision by the Federal Reserve,
the TDB and the FDIC and are subject to numerous laws and regulations relating to internal controls, the extension of credit,
making of loans to individuals, deposits and all other facets of our operations.

Our primary executive offices are located at 1201 South Beckham Avenue, Tyler, Texas 75701 and our telephone
number is 903-531-7111. Our website can be found at www.southside.com. Our public filings with the SEC may be obtained
free of charge on either our website, https://investors.southside.com/ under the topic Financials, or the SEC’s website,
www.sec.gov, as soon as reasonably practicable after filing with the SEC.

MARKET AREA

We are headquartered in Tyler, Texas. The Tyler metropolitan area has an estimated population of 240,000 and is

located approximately 90 miles east of Dallas, Texas and 90 miles west of Shreveport, Louisiana.

We consider our primary market areas to be East Texas, Southeast Texas, as well as the greater Dallas-Fort Worth,
Austin and Houston, Texas areas. Our expectation is that our presence in all of the market areas we serve should grow in the
future. In addition, we continue to explore new markets in which we believe we can successfully expand.

The principal economic activities in our market areas include medical services, retail, education, financial services,
technology, distribution, manufacturing, government and to a lesser extent, oil and gas industries. These economic activities
support a growing regional system of medical service, retail and education centers. Tyler, Dallas-Fort Worth, Austin and
Houston are home to several nationally recognized health care systems that represent all major specialties.

Our 55 branches and 38 drive-thru facilities are located in and around Arlington, Austin, Bullard, Chandler, Cleburne,
Cleveland, Diboll, Euless, Fort Worth, Frisco, Granbury, Grapevine, Gresham, Gun Barrel City, Hawkins, Hemphill, Houston,
Irving, Jacksonville, Jasper, Kingwood, Lindale, Longview, Lufkin, Nacogdoches, Palestine, Pineland, San Augustine,
Splendora, Tyler, Watauga, Weatherford and Whitehouse. Our advertising is designed to target the market areas we serve. The
type and amount of advertising in each location is directly attributable to our market share in that area, combined with overall
cost.

Additionally, our customers may access various banking services through a wide network of ATMs, ITMs and through
automated telephone, internet and mobile banking products. These products allow our customers to apply for loans, open
deposit accounts, access account information and conduct various other transactions online from their smart phones or
computers.

RECENT DEVELOPMENTS

During the year ended December 31, 2023, we closed one traditional branch location in Lufkin, due to close proximity to

another Southside branch and a shift in customer preferences and their transition from in-branch banking to digital banking.

During the year ended December 31, 2023, we entered into a lease for a loan production office in Preston Center in

Dallas which opened during January 2024.

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 and a shift in customer preferences and their transition from in-branch banking to digital
banking.

THE BANKING INDUSTRY IN TEXAS

The banking industry is affected by general economic conditions such as interest rates, inflation, recession,
unemployment and other factors beyond our control. During the last 30 years the Texas economy has continued to diversify,
decreasing the overall impact of fluctuations in oil and gas prices; however, the oil and gas industry is still a significant
component of the Texas economy. The economic conditions and growth prospects for our markets, even against the headwinds
of inflation and potential recessionary concerns, continue to reflect a solid and positive overall outlook. Ongoing elevated
inflation levels and higher interest rates could have a negative impact on both our consumer and commercial borrowers.
However, currently the Texas markets we serve continue to remain healthy due to both job and population growth.

COMPETITION

The activities we are engaged in are highly competitive. Financial institutions such as credit unions, fintech companies,
consumer finance companies, insurance companies, brokerage companies and other financial institutions with varying degrees
of regulatory restrictions compete vigorously for a share of the financial services market. Fintech, brokerage and insurance
companies continue to become more competitive in the financial services arena and pose an ever-increasing challenge to
banks. Legislative changes also greatly affect the level of competition we face. Federal legislation allows credit unions to use
their expanded membership capabilities, combined with tax-free status, to compete more openly for traditional bank
business. The tax-free status granted to credit unions provides them with a significant competitive advantage. Many of the
largest banks operating in Texas, including some of the largest banks in the country, have offices in our market areas with
capital resources, broader geographic markets and legal lending limits substantially in excess of those available to us. We face
competition from institutions that offer products and services we do not or cannot currently offer. Some institutions we
compete with offer interest rate levels on loan and deposit products that we are unwilling to offer due to interest rate risk and
overall profitability concerns. We expect the level of competition to continue to increase.

HUMAN CAPITAL RESOURCES

At December 31, 2023, we employed approximately 815 full time equivalent persons. None of our employees are
represented by any unions or similar groups, and we have not experienced any type of strike or labor dispute. We consider the
relationship with our employees to be good, which we believe to be reflected in the average tenure of our employees exceeding
eight years, with the tenure of 35% of our employees exceeding ten years.

During 2023, Southside was awarded “Best Banks to Work For” by American Banker and obtained the number one
spot among all Texas Banks. The award identifies banks that excel at creating positive and supportive workplaces for
employees. We continuously work toward an outstanding workplace with competitive benefits for employees through our
initiatives outlined below.

We value diversity and are committed to creating a diverse and inclusive workforce. Our DEI officer oversees our
diversity, equity and inclusion efforts, which includes implementation of a three-year DEI training strategic plan company-
wide. As of December 31, 2023, women and ethnic minorities represented approximately 69% and 38% of our workforce,
respectively.

The health, safety and wellness of our employees is a top priority. In 2023, we continued to focus on the health and
wellness of our employees through several company-wide efforts including: a wellness program that allows employees to earn
cash rewards; a three-week wellness challenge to encourage healthy habits; on-site biometric screenings, as well as wellness
communications and webinars throughout the year. We maintain a comprehensive employee handbook, code of business
conduct, as well as other policies, including a harassment policy, whistleblower policy and a human rights policy statement, to
promote a safe and supportive workplace culture.

We believe employees to be our greatest asset and that our future success depends on our ability to attract, retain and
develop employees. Professional development is a key priority, which is facilitated through our many corporate initiatives
including extensive training programs, corporate mentoring, leadership programs, educational reimbursement and corporate and
personal development coaching.

As part of our effort to attract and retain employees, we offer a broad range of benefits, including, but not limited to,
15-30 days of annual paid time off based on length of employment, sick leave, participation in our ESOP, 401(k) match for
eligible employees and up to 20 hours of paid time off annually to volunteer. We believe our compensation package and
benefits are competitive with others in our industry. For additional information regarding our employee benefit plans, see
“Note 10 - Employee Benefits” to our consolidated financial statements included in this report.

SUPERVISION AND REGULATION

General

Banking is a complex, highly regulated industry. As a bank holding company under federal law, the Company is subject
to regulation, supervision and examination by the Federal Reserve. In addition, under state law, as the parent company of a
Texas-chartered state bank that is not a member of the Federal Reserve, the Company is subject to supervision and examination
by the TDB. As a Texas-chartered state bank, Southside Bank is subject to regulation, supervision and examination by the
TDB, as its chartering authority, and by the FDIC, as its primary federal regulator and deposit insurer. This system of
regulation and supervision provides a comprehensive legal framework for our operations and is intended primarily for the
protection of bank depositors, the FDIC’s DIF and the public, rather than our shareholders and creditors.

In addition to the system of regulation and supervision outlined above, the CFPB has authority to supervise and examine
depository institutions with more than $10 billion in assets for compliance with these federal consumer laws. The CFPB also
has rulemaking authority for a range of consumer financial protection laws (such as TILA, the Electronic Fund Transfer Act
and RESPA, among others). The authority to supervise and examine depository institutions with $10 billion or less in assets
(such as Southside Bank) for compliance with federal consumer laws remains largely with those institutions’ primary
regulators. However, the CFPB may participate in examinations of these smaller institutions on a “sampling basis” and may
refer potential enforcement actions against such institutions to their primary regulators. Accordingly, the CFPB may participate
in examinations of Southside Bank, and could supervise and examine other direct or indirect subsidiaries of the Company that
offer consumer financial products or services.

The earnings of Southside Bank and, therefore, the earnings of the Company, are affected by general economic
conditions, changes in federal and state laws and regulations and actions of various regulatory authorities, including those
referenced above.

Significant changes to federal and state laws, changes in the interpretation or application of such laws by regulators, and/
or the enactment of new legislation or adoption of new regulations could (i) materially impact the profitability of our business,
the value of assets we hold, or the value of collateral available for our loans; (ii) require changes to our business practices; (iii)
force us to discontinue certain businesses lines; and/or (iv) otherwise expose us to additional costs, taxes, liabilities,
enforcement actions and reputational risk. The likelihood, timing and scope of any such change of law, and the impact that any
such change may have on us, are impossible to determine with any certainty.

Set forth below are brief descriptions of the significant federal and state laws and regulations to which we are currently
subject. These descriptions do not purport to be complete and are qualified in their entirety by reference to the particular
statutory or regulatory provisions.

Holding Company Regulation

As a bank holding company regulated under the BHCA, as amended, the Company is registered with and subject to
regulation, supervision and examination by the Federal Reserve. The Company is required to file annual and other reports with,
and furnish information to, the Federal Reserve, which makes periodic inspections of the Company. The Federal Reserve may
also examine our nonbank subsidiaries.

Permitted Activities. Under the BHCA, a bank holding company is generally permitted to engage in, or acquire direct or

indirect control of more than five percent of the voting shares of any company engaged in, the following activities:

•

banking or managing or controlling banks;

furnishing services to or performing services for its subsidiaries; and

any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the
business of banking, including:

◦

factoring accounts receivable;

◦ making, acquiring, brokering or servicing loans and usual related activities;

◦

leasing personal or real property;

operating a nonbank depository institution, such as a savings association;

performing trust company functions;

conducting financial and investment advisory activities;

conducting discount securities brokerage activities;

◦

underwriting and dealing in government obligations and money market instruments;

providing specified management consulting and counseling activities;

performing selected data processing services and support services;

acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit
transactions;

performing selected insurance underwriting activities;

providing certain community development activities (such as making investments in projects designed
primarily to promote community welfare); and

issuing and selling money orders and similar consumer-type payment instruments.

The Federal Reserve has the authority to order a bank holding company or its subsidiaries to terminate any of these
activities or to terminate its ownership or control of any subsidiary when the Federal Reserve has reasonable cause to believe
that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety,
soundness or stability of it or any of its bank subsidiaries.

Under the BHCA, a bank holding company meeting certain eligibility requirements may elect to become a “financial
holding company,” which is a form of bank holding company with authority to engage in certain additional
activities. Specifically, a financial holding company and companies under its control may engage in activities that are
“financial in nature,” as defined by the GLBA and Federal Reserve interpretations, and therefore may engage in a broader range
of activities than those permitted for bank holding companies and their subsidiaries. Financial activities include insurance
brokerage and underwriting, securities underwriting and dealing, merchant banking, investment advisory and lending
activities. Financial holding companies and their subsidiaries also may engage in additional activities that are determined by
the Federal Reserve, in consultation with the U.S. Department of the Treasury, to be “financial in nature or incidental to” a
financial activity or are determined by the Federal Reserve unilaterally to be “complementary” to financial activities.

The Company has elected to become a financial holding company. Our election was declared effective based in part
upon a finding by the Federal Reserve that all of our depository institution subsidiaries satisfy the Federal Reserve’s
“well capitalized” and “well managed” standards and have at least a satisfactory rating under the CRA (discussed below). We
do not currently engage in financial activities beyond those permissible for a bank holding company. However, if we undertake
expanded financial activities (i.e., those that are not permissible for a bank holding company) and we subsequently fail to
continue to meet any of the prerequisites for “financial holding company” status, including those described above, we would be
required to enter into an agreement with the Federal Reserve to restore our compliance with all applicable requirements,
including specifically the “well-capitalized” and “well-managed” standards. If we do not return to compliance within 180 days
of such an agreement, the Federal Reserve may order the Company to divest its Bank, or the Company may discontinue (or
divest investments in companies engaged in) those expanded activities that are only permissible for financial holding
companies.

Capital Adequacy. Each of the federal banking agencies, including the Federal Reserve and the FDIC, has issued
substantially similar risk-based and minimum leverage capital guidelines applicable to the banking organizations they
supervise.

Under existing capital standards, a banking organization is required to continually monitor the ratio of its assets against

its capital so as to gauge its ability to absorb unexpected losses in an economic downturn.

The Bank is subject to the following minimum capital ratios: 4.5 percent Common Equity Tier 1 capital to risk-weighted
assets; 6.0 percent Tier 1 capital to risk-weighted assets; 8.0 percent total capital to risk-weighted assets; and 4.0 percent Tier 1
leverage ratio to average consolidated assets. The Bank must also maintain a minimum “capital conservation buffer” equal to
2.5% of its total risk-weighted assets. The “capital conservation buffer,” which must consist entirely of CET1, is designed to
absorb losses during periods of economic stress. The capital rules provide for a number of deductions from and adjustments to
CET1, which include the requirement that mortgage servicing rights, deferred tax assets arising from temporary differences that
could not be realized through net operating loss carrybacks and significant investments in non-consolidated financial entities be
deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate
exceed 15% of CET1.

Certain regulatory capital ratios of the Company and Southside Bank, as of December 31, 2023, are shown in the

following table.

Common equity tier 1 risk-based capital ratio .................................
Tier 1 risk-based capital ratio ...........................................................
Total risk-based capital ratio ............................................................
Leverage ratio ...................................................................................

Regulatory
Minimums

4.50 %
6.00 %
8.00 %
4.00 %

Capital Adequacy Ratios
Regulatory
Minimums
to be Well
Capitalized

Southside
Bancshares,
Inc.
12.28 %
13.32 %
15.73 %
9.39 %

Southside
Bank
14.88 %
14.88 %
15.62 %
10.49 %

6.50 %
8.00 %
10.00 %
5.00 %

On March 27, 2020 the federal bank agencies announced a final rule that permits banks that have adopted the CECL
standard to defer recognition of the estimated impact of credit losses on regulatory capital by permitting a three-year “phase-in”
approach commencing in 2022. We elected to adopt the transition option.

Eligible community banks and holding companies with less than $10 billion in consolidated assets may opt into the
CBLR framework. A “qualifying community banking organization” is one that has (i) less than $10 billion in total consolidated
assets; (ii) a leverage ratio greater than 9%; (iii) off-balance sheet exposures of 25% or less of total consolidated assets; and (iv)
trading assets and liabilities of 5% or less of total consolidated assets. Qualifying banks that meet these thresholds and elect the
CBLR framework, are exempt from the agencies’ current capital framework, including the risk-based capital requirements and
capital conservation buffer, and are deemed well-capitalized under the agencies’ prompt corrective action regulations.
Southside Bank has not elected to use the CBLR framework at this time.

Source of Strength. A bank holding company, such as us, is required to act as a source of financial and managerial
strength to its subsidiary banks. As a result, a bank holding company may be required to contribute additional capital to its
subsidiaries in the form of capital notes or other instruments which qualify as capital under regulatory rules. Any loans from
the holding company to its subsidiary banks likely will be unsecured and subordinated to the bank’s depositors and perhaps to
other creditors of the bank. In addition to the foregoing requirements, the Federal Reserve and other federal banking regulators
are authorized to require a company that directly or indirectly controls a bank to submit reports that are designed both to assess
the ability of such company to comply with its source of strength obligations and to enforce the company’s compliance with
these obligations. As of December 31, 2023, the Federal Reserve and other federal banking regulators have not issued rules
implementing this requirement.

In addition, if a bank holding company enters into bankruptcy or becomes subject to the orderly liquidation process
established by the Dodd-Frank Act, any commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee or the FDIC, as appropriate, and entitled
to a priority of payment. Furthermore, the FDIA provides that any insured depository institution generally will be liable for any
loss incurred by the FDIC in connection with the default of, or any assistance provided by the FDIC to, a commonly controlled
insured depository institution. Southside Bank is an FDIC-insured depository institution and thus subject to these requirements.
See also Bank Regulation - Prompt Corrective Action and Undercapitalization.

Dividends. The principal source of our liquidity at the parent company level is dividends from Southside
Bank. Southside Bank is subject to federal and state restrictions on its ability to pay dividends to the Company. We must pay
essentially all of our operating expenses from funds we receive from Southside Bank. Therefore, shareholders may receive
dividends from us only to the extent that funds are available after payment of our operating expenses. Consistent with its
source of strength policy, the Federal Reserve discourages bank holding companies from paying dividends except out of
operating earnings and prefers that dividends be paid only if, after the payment, the prospective rate of earnings retention
appears consistent with the bank holding company’s capital needs, asset quality and overall financial condition.

The ability of the Company or Southside Bank to pay dividends, and the contents of their respective dividend policies, is
subject to changes of law, as well as possible supervisory restrictions imposed by the TDB, FDIC or Federal Reserve. See also
Bank Regulation - Dividends for additional information.

Change in Control. Subject to certain exceptions, under the BHCA, the CBCA and the regulations promulgated
thereunder, persons who intend to acquire direct or indirect control of a depository institution or a bank holding company are
required to obtain the prior approval of the Federal Reserve. With respect to the Company, “control” is conclusively presumed
to exist where an acquiring party directly or indirectly owns, controls or has the power to vote at least 25% of our voting
securities. Under the Federal Reserve’s CBCA regulations, a rebuttable presumption of control would arise with respect to an
acquisition where, after the transaction, the acquiring party owns, controls or has the power to vote at least 10% (but less than

25%) of our voting securities. Under the Federal Reserve’s “Tiered Presumptions” framework, promulgated in 2010, the
Federal Reserve will consider the nature and extent of “controlling influences” that exist between a party and a banking
organization at different levels of voting security ownership (i.e., between 0% and 4.99%, or between 5% and 9.99%). The
Federal Reserve will presume that no control exists when a company owns 9.99% or less of another company, and no other
indicators of control exists.

Acquisitions. The BHCA provides that a bank holding company must obtain the prior approval of the Federal Reserve
(i) for the acquisition of more than five percent of the voting stock in any bank or bank holding company, (ii) for the acquisition
of substantially all the assets of any bank or bank holding company, or (iii) in order to merge or consolidate with another bank
holding company.

Regulatory Examination. Federal and state banking agencies require the Company and Southside Bank to prepare annual
reports on financial condition and to conduct an annual audit of financial affairs in compliance with minimum standards and
procedures. Southside Bank, and in some cases the Company and any nonbank affiliates, must undergo regular on-site
examinations by the appropriate regulatory agency, which will examine for adherence to a range of legal and regulatory
compliance responsibilities. A bank regulator conducting an examination has complete access to the books and records of the
examined institution, and the results of the examination are confidential. The cost of examinations may be assessed against the
examined organization as the agency deems necessary or appropriate. The FDIC has developed a method for insured
depository institutions to provide supplemental disclosure of the estimated fair value of assets and liabilities, to the extent
feasible and practicable, in any balance sheet, financial statement, report of condition or any other report.

Enforcement Authority. The Federal Reserve has broad enforcement powers over bank holding companies and their
nonbank subsidiaries, as well as “institution-affiliated parties,” including management, employees, agents, independent
contractors and consultants, such as attorneys and accountants and others who participate in the conduct of the institution’s
affairs, and has authority to prohibit activities that represent unsafe or unsound banking practices or constitute knowing or
reckless violations of laws or regulations. These powers may be exercised through the issuance of cease and desist orders, civil
money penalties or other actions. Civil money penalties can be as high as $1,000,000 for each day the activity continues and
criminal penalties for some financial institution crimes may include imprisonment for 20 years. Regulators have flexibility to
commence enforcement actions against institutions and institution-affiliated parties, and the FDIC has the authority to terminate
deposit insurance. When issued by a banking agency, cease and desist and similar orders may, among other things, require
affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement,
indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth, dispose of certain
assets, rescind agreements or contracts, refrain from declaring or paying dividends, or take other actions determined to be
appropriate by the ordering agency. The federal banking agencies also may remove a director or officer from an insured
depository institution (or bar them from the industry) if a violation is willful or reckless.

Bank Regulation

Southside Bank is a Texas-chartered commercial bank, the deposits of which are insured up to the applicable limits by
the FDIC. Southside Bank is not a member of the Federal Reserve. The Bank is subject to extensive regulation, examination
and supervision by the TDB, as its chartering authority, and by the FDIC, as its primary federal regulator and deposit
insurer. In addition, the CFPB could participate in examinations of the Bank (as described above) regarding the Bank’s
offering of consumer financial products and services. The federal and state laws applicable to banks regulate, among other
things, the scope of their activities and investments, lending and deposit-taking activities, borrowings, maintenance of retained
earnings and reserve accounts, distribution of earnings and payment of dividends.

Permitted Activities and Investments. Under the FDIA, the activities and investments of state nonmember banks are
generally limited to those permissible for national banks, notwithstanding state law. With FDIC approval, a state nonmember
bank may engage in activities not permissible for a national bank if the FDIC determines that the activity does not pose a
significant risk to the DIF and that the bank meets its minimum capital requirements. Similarly, under Texas law, a state bank
may engage in those activities permissible for national banks domiciled in Texas. The TDB may permit a Texas state bank to
engage in additional activities so long as the performance of the activity by the bank would not adversely affect the safety and
soundness of the bank.

In 2013, federal regulators promulgated the “Volcker Rule” to prohibit insured depository institutions and their affiliates
from proprietary trading and acquiring certain interests in hedge or private equity funds. The final rules contain certain
exemptions from the prohibition and permit the retention of certain ownership interests. Subsequent amendments to the
Volcker Rule exempt from coverage those banks with (i) total consolidated assets equal to $10 billion or less; and (ii) total
trading assets and liabilities equal to 5 percent or less of total consolidated assets. Based on this amendment, Southside Bank is
exempt from the Volcker Rule’s restrictions and prohibitions.

Brokered Deposits. Southside Bank also may be restricted in its ability to accept, renew or roll over brokered deposits,
depending on its capital classification. Subject to certain exceptions, deposits are “brokered” if they are placed at a bank
through the intervention of a third party in the business of facilitating the placement of deposits with FDIC-insured banks. Only
“well-capitalized” banks are permitted to accept, renew or roll over brokered deposits. The FDIC may, on a case-by-case basis,
permit banks that are adequately capitalized to accept brokered deposits if the FDIC determines that acceptance of such deposits
would not constitute an unsafe or unsound banking practice with respect to the bank. Undercapitalized banks generally may not
accept, renew or roll over brokered deposits. On December 15, 2020, the FDIC approved a final rule, effective April 1, 2021,
setting forth a new framework for determining when deposits accepted by an insured depository institution qualify as “brokered
deposits.” The new rule also clarifies when a third party may qualify as a “deposit broker,” and identifies several business
relationships between banks and third parties that are exempt from the brokered deposit restrictions. Additional guidance was
released by the FDIC on July 15, 2022, regarding how banks should treat the placement of deposits by third-parties under
“sweep arrangements” with broker-dealers.

Loans to One Borrower. Under Texas law, without the approval of the TDB and subject to certain limited exceptions for
loans secured by livestock, stored agricultural products, or readily marketable collateral, the maximum aggregate amount of
loans that Southside Bank is permitted to make to any one borrower is 25% of Tier 1 capital. For purposes of applying this
limit, loans to one borrower may be combined with loans to another borrower (i) when proceeds of the loan are to be used for
the direct benefit of the other borrower, to the extent of the proceeds so used, or (ii) when a “common enterprise” is deemed to
exist between the borrowers.

Insider Loans. Under Regulation O of the Federal Reserve, as made applicable to state nonmember banks by section
18(j)(2) of the FDIA, Southside Bank is subject to quantitative restrictions on extensions of credit to its executive officers and
directors, the executive officers and directors of the Company, any owner of 10% or more of its stock or the stock of Southside
Bancshares, Inc. and certain entities affiliated with any such persons. In general, any such extensions of credit must (i) not
exceed certain dollar limitations, (ii) be made on substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with third parties and (iii) not involve more than the normal risk of repayment
or present other unfavorable features. Additional restrictions are imposed on extensions of credit to executive officers. Certain
extensions of credit also require the approval of a bank’s board of directors. On December 22, 2020, the federal banking
agencies issued an Interagency Statement clarifying that they will not apply the quantitative and qualitative restrictions of
Regulation O to investors in large funds (e.g., mutual funds) that may hold an investment position in banks, and therefore could
qualify as an “insider” under current Regulation O definitions. On December 22, 2022, the agencies extended this relief to
January 1, 2024, and on December 15, 2023, the agencies extended this relief to January 1, 2025.

Deposit Insurance and Assessments. The deposits of Southside Bank are insured by the FDIC, up to the applicable limits
established by law and are subject to the deposit insurance premium assessments of the DIF. By statute, the DRR must be at
least 1.35 percent of estimated insured deposits. Based on circumstances related to the COVID-19 pandemic, the DRR dropped
below the statutory minimum in 2020, and the FDIC adopted a restoration plan to return the DRR to 1.35 percent by September
30, 2028. To that end, on October 24, 2022, the FDIC adopted a final rule raising the DIF assessment rate on all insured
depository institutions, including Southside Bank, by two basis points. This assessment rate became effective January 1, 2023,
with the first quarterly assessment due June 30, 2023. As a result of bank failures in March and May 2023, the DRR fell to 1.10
percent as of June 30, 2023. However, the FDIC projected that the reserve ratio will still reach the statutory minimum of 1.35
percent by the statutory deadline of September 30, 2028 as a result of the FDIC’s prior assessment rate adjustment. On
November 16, 2023, the FDIC approved a final rule to implement a special assessment to recover the loss to the DIF associated
with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank. The special assessment
is targeted primarily at larger banks with significant uninsured deposit levels. Specifically, the assessment base for the special
assessment is equal to a bank’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5
billion. As of December 31, 2022, Southside Bank had less than $5 billion in estimated uninsured deposits.

Capital Adequacy.

See Holding Company Regulation - Capital Adequacy.

Prompt Corrective Action and Undercapitalization. The FDICIA established a system of prompt corrective action to
resolve the problems of undercapitalized insured depository institutions. Under this system, the federal banking regulators are
required to rate insured depository institutions based on five capital categories as described below. The federal banking
regulators are also required to take mandatory supervisory actions and are authorized to take other discretionary actions, with
respect to insured depository institutions in the three undercapitalized categories, the severity of which will depend upon the
capital category in which the insured depository institution is assigned. Generally, subject to a narrow exception, the FDICIA
requires the banking regulator to appoint a receiver or conservator for an insured depository institution that is critically
undercapitalized. The federal banking agencies have specified by regulation the relevant capital level for each category.

Under the regulations, all insured depository institutions are assigned to one of the following capital categories:

• Well Capitalized - The insured depository institution exceeds the required minimum level for each relevant capital
measure. A well-capitalized insured depository institution is one (1) having a total risk-based capital ratio of 10
percent or greater, (2) having a Tier 1 risk-based capital ratio of 8 percent or greater, (3) having a CET1 capital ratio
of 6.5 percent or greater, (4) having a leverage capital ratio of 5 percent or greater and (5) that is not subject to any
order or written directive to meet and maintain a specific capital level for any capital measure.

•

Adequately Capitalized - The insured depository institution meets the required minimum level for each relevant
capital measure. An adequately-capitalized depository institution is one having (1) a total risk based capital ratio of 8
percent or more, (2) a Tier 1 capital ratio of 6 percent or more, (3) a CET1 capital ratio of 4.5 percent or more and (4)
a leverage ratio of 4 percent or more.

Undercapitalized - The insured depository institution fails to meet the required minimum level for any relevant capital
measure. An undercapitalized depository institution is one having (1) a total capital ratio of less than 8 percent, (2) a
Tier 1 capital ratio of less than 6 percent, (3) a CET1 capital ratio of less than 4.5 percent or (4) a leverage ratio of
less than 4 percent.

Significantly Undercapitalized - The insured depository institution is significantly below the required minimum level
for any relevant capital measure. A significantly undercapitalized institution is one having (1) a total risk-based
capital ratio of less than 6 percent (2) a Tier 1 capital ratio of less than 4 percent, (3) a CET1 ratio of less than 3
percent or (4) a leverage capital ratio of less than 3 percent.

Critically Undercapitalized - The insured depository institution fails to meet a critical capital level set by the
appropriate federal banking agency. A critically undercapitalized institution is one having a ratio of tangible equity to
total assets that is equal to or less than 2 percent.

The prompt corrective action regulations permit the appropriate federal banking regulator to downgrade an institution to
the next lower category if the regulator determines after notice and opportunity for hearing or response that (1) the institution is
in an unsafe or unsound condition or (2) that the institution has received and not corrected a less-than-satisfactory rating for any
of the categories of asset quality, management, earnings or liquidity in its most recent examination. Supervisory actions by the
appropriate federal banking regulator depend upon an institution’s classification within the five capital categories. Our
management believes that we and our Bank subsidiary have the requisite capital levels to qualify as well-capitalized institutions
under the FDICIA regulations.

If an institution fails to remain well capitalized, it will be subject to a variety of enforcement remedies that increase as the
capital condition worsens. For instance, the FDICIA generally prohibits a depository institution from making any capital
distribution, including payment of a dividend, or paying any management fee to its holding company if the depository
institution would thereafter be undercapitalized as a result. Undercapitalized depository institutions are also subject to
restrictions on borrowing from the Federal Reserve, may not accept brokered deposits, are subject to growth limitations and are
required to submit capital restoration plans for regulatory approval. A depository institution’s holding company must guarantee
any required capital restoration plan, up to an amount equal to the lesser of 5 percent of the depository institution’s assets at the
time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the
plan. Federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository institution’s capital. If a depository institution fails to
submit an acceptable plan, it is treated as if it is significantly undercapitalized.

Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions,
including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and
cessation of receipt of deposits from correspondent banks. In addition to the “prompt corrective action” directives, failure to
meet capital guidelines may subject a banking organization to a variety of other enforcement remedies, including additional
substantial restrictions on its operations and activities, termination of deposit insurance by the FDIC and, under certain
conditions, the appointment of a conservator or receiver.

Standards for Safety and Soundness. The FDIA requires the federal banking regulatory agencies to prescribe, by
regulation or guideline, operational and managerial standards for all insured depository institutions relating to: (i) internal
controls; (ii) information systems and internal audit systems; (iii) loan documentation; (iv) credit underwriting; (v) interest rate
risk exposure; and (vi) asset quality. The agencies also must prescribe standards for asset quality, earnings and stock valuation,
as well as standards for compensation, fees and benefits. The federal banking agencies have adopted regulations and
Guidelines to implement these required standards. The Guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the
FDIC determines that Southside Bank fails to meet any standards prescribed by the Guidelines, it may require Southside Bank
to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and

soundness compliance plans. Notably, in June 2020, the federal financial regulators issued the Interagency Examiner Guidance
for Assessing Safety and Soundness Considering the Effect of the COVID-19 Pandemic on Institutions. The guidance directs
bank examiners to focus specifically on how challenges created by the COVID-19 pandemic are being addressed by the
institution, particularly with respect to credit risk and asset quality.

The Dodd-Frank Act requires federal banking regulators to issue regulations or guidelines to prohibit incentive-based
compensation arrangements that encourage inappropriate risk taking by providing excessive compensation or that may lead to
material loss at certain financial institutions with $1 billion or more in assets. A joint proposed rule was published in the
Federal Register on April 14, 2011, and a second joint proposed rule was published on June 10, 2016; however, as of December
31, 2023, regulators have yet to issue a final rule (or further guidance) on the topic.

In addition, on May 8, 2020, the federal banking regulators published Interagency Guidance on Risk Systems, applicable
to all regulated depository institutions regardless of asset size, to be used in creating an appropriate “credit risk review system”
consistent with the existing Guidelines. The guidance encourages banks to consider (i) the qualification of the bank’s
reviewing personnel; (ii) the frequency, scope and depth of credit reviews; and (iii) appropriate internal distribution of credit
review results.

Dividends. All dividends paid by Southside Bank are paid to the Company, as the sole shareholder of Southside
Bank. The ability of Southside Bank, as a Texas state bank, to pay dividends is restricted under federal and state law and
regulations. The FDICIA and the regulations of the FDIC generally prohibit an insured depository institution from making a
capital distribution (including payment of dividend) if, thereafter, the institution would not be at least adequately
capitalized. Under Texas law, Southside Bank generally may not pay a dividend reducing its capital and surplus without the
prior approval of the Texas Banking Commissioner. All dividends must be paid out of net profits then on hand, after deducting
expenses, including losses and provisions for loan losses.

Southside Bank’s general dividend policy is to pay dividends at levels consistent with maintaining liquidity and
preserving applicable capital ratios and servicing obligations. Southside Bank’s dividend policies are subject to the discretion
of its board of directors and will depend upon such factors as future earnings, financial conditions, cash needs, capital
adequacy, compliance with applicable statutory and regulatory requirements and general business conditions. The exact
amount of future dividends paid by Southside Bank will be a function of its general profitability (which cannot be accurately
estimated or assured), applicable tax rates in effect from year to year and the discretion of its board of directors.

Transactions with Affiliates. Southside Bank is subject to sections 23A and 23B of the FRA and the Federal Reserve’s
Regulation W, as made applicable to state nonmember banks by section 18(j) of the FDIA. Sections 23A and 23B of the FRA
restrict a bank’s ability to engage in certain transactions with its affiliates. An affiliate of a bank is any company or entity that
controls, is controlled by or is under common control with the bank. In a holding company context, the parent bank holding
company and any companies controlled by such parent bank holding company are generally affiliates of the bank.

Specifically, section 23A places limits on the amount of “covered transactions” between a bank and its affiliates,
including loans or extensions of credit to, investments in or certain other transactions with, affiliates. It also limits the amount
of any advances to third parties that are collateralized by the securities or obligations of affiliates. The aggregate of all covered
transactions is limited to 10 percent of the bank’s capital and surplus for any one affiliate and 20 percent for all
affiliates. Additionally, within the foregoing limitations, each credit transaction with an affiliate must meet specified collateral
requirements ranging from 100 to 130 percent of the loan amount, depending on the type of collateral. Further, banks are
prohibited from purchasing low quality assets from an affiliate. The definition of “covered transactions” has been broadened to
include derivative transactions and the borrowing or lending of securities if the transaction will cause a bank to have credit
exposure to an affiliate. The revised definition also includes the acceptance of debt obligations of an affiliate as collateral for a
loan or extension of credit to a third party. Furthermore, reverse repurchase transactions are viewed as extensions of credit
(instead of asset purchases) and thus become subject to collateral requirements.

Section 23B, among other things, prohibits a bank from engaging in certain transactions with affiliates unless the
transactions are on terms substantially the same, or at least as favorable to the bank, as those prevailing at the time for
comparable transactions with non-affiliated companies. Except for limitations on low quality asset purchases and transactions
that are deemed to be unsafe or unsound, Regulation W generally excludes affiliated depository institutions from treatment as
affiliates.

Anti-Tying Regulations. Under the BHCA and the Federal Reserve’s regulations, a bank is prohibited from engaging in
certain tying or reciprocity arrangements with its customers. In general, a bank may not extend credit, lease, sell property, or
furnish any services or fix or vary the consideration for these products or services on the condition that either: (i) the customer
obtain or provide some additional credit, property, or services from or to the bank, the bank holding company or subsidiaries
thereof or (ii) the customer not obtain credit, property, or service from a competitor, except to the extent reasonable conditions
are imposed to assure the soundness of the credit extended. A bank may, however, offer combined-balance products and may

otherwise offer more favorable terms if a customer obtains two or more traditional bank products. Also, certain foreign
transactions are exempt from the general rule.

Community Reinvestment Act. Under the CRA, Southside Bank has a continuing and affirmative obligation, consistent
with safe and sound banking practices, to help meet the needs of our entire community, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or programs for banks nor does it limit a bank’s
discretion to develop the types of products and services that it believes are best suited to its particular community.

On a periodic basis, the FDIC is charged with preparing a written evaluation of our record of meeting the credit needs of
the entire community and assigning a rating - outstanding, satisfactory, needs to improve or substantial noncompliance. Banks
are rated based on their actual performance in meeting community credit needs. The FDIC will take that rating into account in
its evaluation of any application made by the bank for, among other things, approval of the acquisition or establishment of a
branch or other deposit facility, an office relocation, a merger or the acquisition of shares of capital stock of another financial
institution. A bank’s CRA rating may be used as the basis to deny or condition an application. In addition, as discussed above,
a bank holding company may not become a financial holding company unless each of its subsidiary banks has a CRA rating of
at least “satisfactory.” As of September 7, 2021, the most recent exam date, Southside Bank has a CRA rating of “outstanding.”

On October 24, 2023, the federal banking agencies jointly issued a final rule modernizing and overhauling the prior CRA
regulations. Key elements of the final rule include (i) encouragement of expanded access to credit, investment, and basic
banking services in low- and moderate-income communities; (ii) updated CRA assessment areas by including activities
associated with online and mobile banking, branchless banking, and hybrid models; (iii) greater clarity and consistency in the
application of CRA regulations; and (iv) better tailoring CRA evaluations and data collection requirements by bank size and
type. Most of the final rule’s requirements will be applicable beginning January 1, 2026. The remaining requirements, including
new data reporting requirements, will be applicable on January 1, 2027.

Branch Banking. Pursuant to the Texas Finance Code, all banks located in Texas are authorized to branch
statewide. Accordingly, a bank located anywhere in Texas has the ability, subject to regulatory approval, to establish branch
facilities near any of our facilities and within our market area. Similarly, under applicable Federal law, out-of-state banks are
permitted to establish branches in Texas. If other banks were to establish branch facilities near our facilities, it is uncertain
whether these branch facilities would have a material adverse effect on our business.

De novo interstate branching by Southside Bank is also subject to the Federal interstate branching rules. All branching
in which Southside Bank may engage remains subject to regulatory approval and adherence to applicable legal and regulatory
requirements.

Consumer Protection Regulation. The activities of Southside Bank are subject to a variety of statutes and regulations
designed to protect consumers. Interest and other charges collected or contracted for by banks are subject to state usury laws
and federal laws concerning interest rates. Loan operations are also subject to federal laws and regulations applicable to credit
transactions, such as:

•

the Truth in Lending Act and Regulation Z, governing disclosures of credit terms to consumer borrowers;

the Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide information to
enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help
meet the housing needs of the community it serves;

the Equal Credit Opportunity Act and Regulation B, prohibiting discrimination on the basis of race, creed or other
prohibited factors in extending credit;

the Fair Credit Reporting Act and Regulation V, governing the use and provision of information to consumer
reporting agencies;

the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection
agencies; and

the guidance of the various federal agencies charged with the responsibility of implementing such federal laws.

Deposit and other operations also are subject to:

•

the Truth in Savings Act and Regulation DD, governing disclosure of deposit account terms to consumers;

the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records
and prescribes procedures for complying with administrative subpoenas of financial records; and

the Electronic Fund Transfer Act and Regulation E, which governs automatic deposits to and withdrawals from
deposit accounts and customers’ rights and liabilities arising from the use of ATMs and other electronic banking

services, which the CFPB has expanded to include a new compliance regime that governs consumer-initiated cross
border electronic transfers.

The foregoing laws and regulations are amended periodically. Notably, several were changed as a direct result of the
COVID-19 pandemic. For example, during the pandemic, the CFPB was particularly active and adopted several amendments
to Regulation Z. These included: (i) an interpretive rule clarifying that consumers can waive required waiting periods under
TILA/RESPA, and Regulation Z rescission rules, so as to enable consumers to obtain mortgage credit more quickly; (ii)
amending the definition of “qualified mortgage loan” to expand the number of mortgage loans that will be exempted from the
“ability to repay” consideration; and (iii) amending the asset-size threshold for purposes of determining when a creditor can be
exempted from the requirement to establish an escrow account for higher-price mortgages. The CFPB also issued a
“COVID-19 Mortgage Servicing Rule” on June 28, 2021, affording borrowers greater procedural safeguards designed to limit
situations in which a servicer can initiate foreclosures. While most of these protections expired in 2022, on January 18, 2023,
in its revised Mortgage Servicing Examination Procedures, the CFPB stated it expected servicers to continue to utilize these
safeguards, regardless of their expiration.

We cannot predict the extent to which new or modified regulations focused on consumer financial protection, whether
adopted by the TDB, the CFPB, or the federal banking agencies will have on our businesses. We are particularly unable to
predict a resurgence of COVID-19 (or the emergence of a similar pandemic), its long term impact on the Company, Southside
Bank, or its customers, or whether the federal or state legislatures, federal banking agencies, or the TDB will adopt new laws
intended to provide relief to borrowers adversely affected by the pandemic. Any such new laws may materially adversely affect
our business, financial condition or results of operations.

Commercial Real Estate Lending. Lending operations that involve a significant concentration of commercial real estate
loans are subject to enhanced scrutiny by federal banking regulators. The regulators have issued guidance with respect to the
risks posed by CRE lending concentrations. CRE loans generally include land development, construction loans, land and lot
loans to individuals, loans secured by multi-family property and nonfarm nonresidential real property where the primary source
of repayment is derived from rental income associated with the property. The guidance prescribes the following guidelines for
examiners to help identify institutions that are potentially exposed to concentration risk and may warrant greater supervisory
scrutiny:

•

total reported loans for construction, land development and other land represent 100 percent or more of the
institution’s total capital, or

total CRE loans represent 300 percent or more of the institution’s total capital and the outstanding balance of the
institution’s CRE loan portfolio has increased by 50 percent or more during the prior 36 months.

In addition, Federal regulations requiring risk retention of assets may impact our business by reducing the amount of our
CRE lending and increasing the cost of borrowing. A loan originator or a securitizer of asset-backed securities is required to
retain a percentage of the credit risk of securitized assets. On June 29, 2023, in response to the increased risks on CRE loans
created by the COVID-19 pandemic, the federal banking agencies issued an Interagency Policy Statement on prudent CRE
Loan Accommodations and Workouts. On December 18, 2023, the FDIC issued an advisory on Managing Commercial Real
Estate Concentrations in a Challenging Economic Environment.

Anti-Money Laundering. Southside Bank is subject to the regulations of the FinCEN, a bureau of the U.S. Department of
the Treasury, which implements the Bank Secrecy Act, as amended by the USA PATRIOT Act and the Anti-Money
Laundering Act of 2020. The USA PATRIOT Act gives the federal government the power to address terrorist threats through
enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money
laundering requirements. Title III of the USA PATRIOT Act includes measures intended to encourage information sharing
among banks, regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative
obligations on a broad range of financial institutions, including state-chartered banks like Southside Bank. Most recently, the
Anti-Money Laundering Act of 2020 expanded the coverage of the Bank Secrecy Act to include new categories of “financial
institutions,” expanding the types of monetary transactions that must be monitored and reported, and increasing the enforcement
authority of the U.S. Department of Justice with respect to federal anti-money laundering laws.

The Bank Secrecy Act, USA PATRIOT Act, and Anti-Money Laundering Act of 2020, along with the related FinCEN

regulations, impose numerous requirements with respect to financial institution operations, including the following:

•

establishment of AML programs, including adoption of written procedures and an ongoing employee training program,
designation of a compliance officer and auditing of the program;

establishment of a program specifying procedures for obtaining information from customers seeking to open new
accounts, including verifying the identity of customers within a reasonable period of time;

•

establishment of enhanced due diligence policies, procedures and controls designed to detect and report money
laundering, for financial institutions that administer, maintain or manage private bank accounts or correspondent
accounts for non-U.S. persons;

prohibitions on correspondent accounts for foreign shell banks and compliance with recordkeeping obligations with
respect to correspondent accounts of foreign banks;

filing of suspicious activities reports if a bank believes a customer may be violating U.S. laws and regulations; and

requirements that bank regulators consider bank holding and bank compliance with federal anti-money laundering
laws in connection with proposed merger or acquisition transactions.

In addition, under applicable FinCEN regulations, covered financial institutions, subject to certain exclusions and
exemptions, are required to identify and verify the identity of beneficial owners of legal entity customers. On August 13, 2020,
the federal banking agencies issued a joint statement addressing the circumstances under which an agency will issue a
mandatory “cease-and-desist” order to a regulated financial institution for failure to comply with its AML obligations,
emphasizing that the “effectiveness” of a bank’s AML program will be the key factor in the agency's decision. On June 30,
2021, FinCEN published the first set of “national AML priorities,” as required by the Bank Secrecy Act, which include, but are
not limited to, cybercrime, terrorist financing, fraud, and drug/human trafficking. FinCEN is required to implement regulations
to specify how covered financial institutions, such as Southside Bank, should incorporate these national priorities into their
AML programs. As of December 31, 2023, no such regulations have been proposed.

The Corporate Transparency Act was enacted in 2021, and FinCEN regulations promulgating the Act’s requirements
became effective on January 1, 2024. The regulations will require certain entities created or registered to do business in the
United States to disclose personal information about their beneficial owners, senior officers and other control persons to the
federal government. The Corporate Transparency Act requires FinCEN to promulgate rules to revise financial institutions’
customer due diligence obligations to bring them into conformity with the new beneficial ownership requirements. FinCEN has
not yet proposed this rule, but it must finalize the new rule by January 1, 2025.

Bank regulators routinely examine institutions for compliance with anti-money laundering obligations and have been
active in imposing cease and desist and other regulatory orders, and money penalty sanctions, against institutions found to be
violating these obligations. In addition, the Federal Bureau of Investigation can send bank regulatory agencies lists of the
names of persons suspected of involvement in terrorist activities. Southside Bank can be requested to search its records for any
relationships or transactions with persons on those lists and be required to report any identified relationships or transactions.

OFAC. OFAC is responsible for helping to ensure that U.S. entities, including banks, do not engage in transactions with
certain prohibited parties, as defined by various Executive Orders and Acts of Congress. OFAC publishes, and routinely
updates, lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts, including the
Specially Designated Nationals List. If we find a name on any transaction, account or wire transfer that is on an OFAC list, we
must undertake certain specified activities, which could include blocking or freezing the account or transaction requested, and
we must notify the appropriate authorities.

Privacy and Data Security; Cybersecurity. Under federal law, financial institutions are generally prohibited from
disclosing consumer nonpublic personal information to non-affiliated third parties unless the consumer has been given the
opportunity to object and has not objected to such disclosure. Financial institutions are further required, subject to certain
exceptions, to disclose their privacy policies to customers annually. Generally, Southside Bank must disclose its privacy policy
for collecting and protecting NPI to consumers, permit consumers to “opt out” of having NPI disclosed to non-affiliated third
parties, with some exceptions, and allow consumers to opt out of receiving marketing solicitations based on information about
the consumer received from another affiliate. Many states have also recently implemented or modified their data privacy laws
and some may apply to financial institutions. For example, in California, the California Privacy Rights Act became effective on
January 1, 2023, and provides new protections for those Southside Bank customers who reside in that state.

In addition, federal and state banking agencies have prescribed standards for maintaining the security and confidentiality
of consumer information, to which Southside Bank is subject. Pursuant to these standards, Southside Bank is required to have
an information security program to safeguard the confidentiality and security of customer information and to ensure proper
disposal. Southside Bank is also subject to state and federal laws for notifying individuals and regulators in the event of a
security breach affecting their personal information. Under federal law, customers must be notified when a financial institution
becomes aware of unauthorized access of sensitive customer information and misuse has occurred or is reasonably possible.

More broadly, on November 23, 2021, the federal banking regulators imposed a new cybersecurity-related notification
rule that would require banking organizations, including the Company and Southside Bank, to notify their primary federal
regulator as soon as possible (but within 36 hours) of incidents that have materially disrupted or degraded, or are reasonably
likely to materially disrupt or degrade, the banking organization’s ability to deliver services to a material portion of its customer

base, jeopardize the viability of key operations of the banking organization, or impact the stability of the financial sector. The
rule also imposes requirements on bank service providers to notify their affected banking organization customers of certain
computer-security incidents. This rule became effective on April 1, 2022. At the state level, as of January 2, 2020, Texas state
banks are required to notify the TDB of “cybersecurity incidents” within specified timeframes.

Regulatory Examination.

See Holding Company Regulation - Regulatory Examination.

Enforcement Authority. Southside Bank and its “institution-affiliated parties,” including management, employees,
agents, independent contractors and consultants, such as attorneys and accountants and others who participate in the conduct
of the institution’s affairs, are subject to potential civil and criminal penalties for violations of law, regulations or written orders
of a government agency. Violations can include failure to timely file required reports, filing false or misleading information or
submitting inaccurate reports. Civil penalties may be as high as $1,000,000 a day for such violations, and criminal penalties for
some financial institution crimes may include imprisonment for 20 years. Regulators have flexibility to commence enforcement
actions against institutions and institution-affiliated parties, and the FDIC has the authority to terminate deposit
insurance. When issued by a banking agency, cease and desist orders may, among other things, require affirmative action to
correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees
against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or
contracts, or take other actions determined to be appropriate by the ordering agency. The federal banking agencies also may
remove a director or officer from an insured depository institution (or bar them from the industry) if a violation is willful or
reckless.

Governmental Monetary Policies. The commercial banking business is affected not only by general economic
conditions but also by the monetary policies of the Federal Reserve. Changes in the discount rate on member bank borrowings,
control of borrowings, open market operations, the imposition of and changes in reserve requirements against member banks,
deposits and assets of foreign branches, the imposition of and changes in reserve requirements against certain borrowings by
banks and their affiliates and the placing of limits on interest rates which member banks may pay on time and savings deposits
are some of the instruments of monetary policy available to the Federal Reserve. These monetary policies influence to a
significant extent the overall growth of all bank loans, investments and deposits and the interest rates charged on loans or paid
on time and savings deposits. The nature of future monetary policies and the effect of such policies on Southside Bank’s future
business and earnings, therefore, cannot be predicted accurately.

Other Regulatory Matters. The Company and its affiliates are subject to oversight by the SEC, the NASDAQ Stock
Market, various state securities regulators and other regulatory authorities. The Company and its subsidiaries have from time to
time received requests for information from regulatory authorities in various states, including state attorneys general, securities
regulators and other regulatory authorities, concerning their business practices. Such requests are considered incidental to the
normal conduct of business.

ITEM 1A. RISK FACTORS

In addition to the other information contained in this Form 10-K, you should carefully consider the risks described
below, as well as the risk factors and uncertainties discussed in our other public filings with the SEC under the caption “Risk
Factors” in evaluating us and our business and making or continuing an investment in our stock. Set forth below are the
material risks and uncertainties that, if they were to occur, could materially and adversely affect our business, financial
condition, results of operations and the trading price of our common stock. Additional risks and uncertainties that management
is not aware of or focused on or that management currently deems immaterial may also impair our financial condition and
business operations. The trading price of our securities could decline due to the materialization of any of these risks, and our
shareholders may lose all or part of their investment. This Form 10-K also contains forward-looking statements that may not be
realized as a result of certain factors, including, but not limited to, the risks described herein and in our other public filings with
the SEC. Please refer to the section in this Form 10-K entitled “Cautionary Notice Regarding Forward-Looking Statements” for
additional information regarding forward-looking statements.

RISKS RELATED TO OUR BUSINESS

Our earnings are subject to interest rate risk.

Our earnings and cash flows are largely dependent upon our net interest income. Net interest income is the difference
between interest income earned on interest earning assets such as loans and securities and interest expense paid on interest
bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond our
control, including the rate of inflation, general economic conditions and policies of various governmental and regulatory
agencies and, in particular, the Federal Reserve. Since the beginning of 2022, the Federal Reserve has raised interest rates 11
times, to a federal funds rate of 5.25% – 5.50% as of July 31, 2023. In December 2023, the Federal Reserve held the federal
funds rate steady for the third consecutive meeting and indicated it may likely decrease the rate in 2024 and beyond. These
increased interest rates and uncertainty regarding future rates could negatively impact our cost of borrowing and reduce the
amount of money our customers borrow or adversely affect their ability to repay outstanding loan balances that may increase
due to adjustments in their variable rates.

Changes in monetary policy, interest rates, the yield curve, or market risk spreads, or a prolonged, flat or inverted yield
curve could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and
borrowings, but such changes could also affect:

•

our ability to originate loans and obtain deposits;

our ability to retain deposits in a rising rate environment;

net interest rate spreads and net interest rate margins;

our ability to enter into instruments to hedge against interest rate risk;

the fair value of our financial assets and liabilities; and

the average duration of our loan and securities portfolio.

If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans
and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be
adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on
deposits and other borrowings.

Any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our
financial condition and results of operations. See the section captioned “Net Interest Income” in “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in this report for further discussion related to our
management of interest rate risk.

We are subject to credit quality risks and our credit policies may not be sufficient to avoid losses.

We are subject to the risk of losses resulting from the failure of borrowers, guarantors and related parties to pay us the
interest and principal amounts due on their loans. Although we maintain well-defined credit policies and credit underwriting
and monitoring and collection procedures, these policies and procedures may not prevent losses, particularly during periods in
which the local, regional or national economy suffers a general decline. The effects of inflation and recessionary concerns on
economic activity could negatively affect the collateral values associated with our existing loans, our ability to liquidate the real
estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to
obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and
credit risk of our customers. Further, in the event of delinquencies, regulatory changes and policies designed to protect

borrowers may slow or prevent us from making business decisions or delay us from taking certain remediation actions, such as
foreclosure. If borrowers fail to repay their loans, our financial condition and results of operations would be adversely affected.

We have a high concentration of loans secured by real estate and a decline in the real estate market, for any reason, could
result in losses and materially and adversely affect our business, financial condition, results of operations and future prospects.

A significant portion of our loan portfolio is dependent on real estate. In addition to the importance of the financial
strength and cash flow characteristics of the borrower, loans are also often secured with real estate collateral. As of
December 31, 2023, approximately 80.8% of our loans have real estate as a primary or secondary component of collateral. The
real estate in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in
value during the time the credit is extended. A decline in the credit markets generally could adversely affect our financial
condition and results of operations if we are unable to extend credit or sell loans in the secondary market. An adverse change in
the economy affecting real estate values generally or in our primary markets specifically could significantly impair the value of
collateral underlying certain of our loans and our ability to sell the collateral at a profit or at all upon foreclosure. Furthermore,
it is likely that, in a declining real estate market, we would be required to further increase our allowance for loan losses. If we
are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to
increase our allowance for loan losses, our profitability and financial condition could be adversely impacted.

Our information systems may experience an interruption or breach in security.

We rely heavily on communications and information systems to conduct our business. Our communications and
information systems remain vulnerable to unexpected disruptions and failures. Any failure, interruption or breach in security of
these systems could result in a material adverse effect on our customer relationships, general ledger, deposit, loan and other
systems. While we have policies and procedures designed to prevent or limit the effect of a failure, interruption or security
breach of our information systems, there can be no assurance that we will adhere to such policies or procedures or that they can
prevent any such failures, interruptions, cybersecurity breaches or other security breaches or, if they do occur, that they will be
adequately addressed. The occurrence of any failures, interruptions or security breaches of our information systems could
damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny and disclosure
obligations or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on
our business strategy, financial condition and results of operations.

In our ordinary course of business, we rely on electronic communications and information systems to conduct our
businesses and to collect and store sensitive data, including financial information regarding our customers and personally
identifiable information of our customers and employees. The integrity of information systems of financial institutions is under
significant threat from cyber-attacks by third parties, including through coordinated attacks sponsored by foreign nations and
criminal organizations to disrupt business operations and other compromises to data and systems for political or criminal
purposes. We employ an in-depth, layered, defense approach that leverages people, processes and technology to manage and
maintain cybersecurity controls.

Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe as attacks are
sophisticated, and attackers respond rapidly to changes in defensive measures. Cybersecurity risks may also occur with our
third-party service providers and may interfere with their ability to fulfill their contractual obligations to us, with potential for
financial loss or liability that could have a material adverse effect on our business strategy, financial condition or results of
operations. We offer our customers the ability to bank remotely and provide other technology-based products and services,
which services include the secure transmission of confidential information over the Internet and other remote channels. To the
extent that our customers’ systems are not secure or are otherwise compromised, our network could be vulnerable to
unauthorized access, malicious software, phishing schemes and other security breaches. To the extent that our activities or the
activities of our customers or third-party service providers involve the storage and transmission of confidential information,
security breaches and malicious software could expose us to claims, regulatory scrutiny, litigation and other possible liabilities.

In addition, we permit a portion of our employees to work remotely from their homes. However, consumer technology in
employees’ homes may not provide similar performance or security as commercial-grade technology in our offices. This, along
with reliance on employees’ residential internet, could cause network, system, application, and communication limitations or
instability, affecting customer experience for some departments. The continuation of these work-from-home measures also
introduces additional operational risk, including increased cybersecurity risk. These cyber risks include greater phishing,
malware, and other social engineering attacks targeted at employees working from home. Increased risk of unauthorized
dissemination of confidential information, greater risk of privacy breach due to screen/voice/video conversation outside private
office space, limited ability to restore the systems in the event of a system failure or interruption, greater risk of a security
breach resulting in destruction or misuse of valuable information, and potential impairment of our ability to perform critical
functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and
could seriously disrupt our operations and the operations of any impacted customers.

Our systems and those of our customers and third-party service providers are under constant threat, and it is possible that
we could experience a significant compromise, significant data loss or material financial losses related to cyber-attacks in the
future. We may suffer material financial losses related to these risks in the future or we may be subject to liability for
compromises to our customer or third-party service provider systems. Any such losses or liabilities could have a material
adverse effect on our business strategy, financial condition or results of operations and could expose us to reputation risk, the
loss of customer business, increased operational costs, as well as additional regulatory scrutiny, possible litigation and related
financial liability. These risks also include possible business interruption, including the inability to access critical information
and systems.

General political or economic conditions in the United States could adversely affect our financial condition and results of
operations.

The state of the economy and various economic, social and political factors, including inflation, recession, pandemics,
unemployment, social unrest/civil disorder, interest rates, declining oil prices and the level of U.S. debt, as well as
governmental action and uncertainty resulting from U.S. and global political trends, including weakness in foreign sovereign
debt and currencies, hostile actions of foreign governments (including the Russian-Ukranian War and the Israel/Hamas
conflict), may directly and indirectly have a destabilizing effect on our financial condition and results of operations.
Unfavorable or uncertain international, national or regional political or economic environments could drive losses beyond those
which are provided for in our allowance for loan losses and result in the following consequences:

•

increases in loan delinquencies;

increases in nonperforming assets and foreclosures;

decreases in demand for our products and services, which could adversely affect our liquidity position;

decreases in the value of the collateral securing our loans, especially real estate, which could reduce customers’
borrowing power;

decreases in the credit quality of our non-U.S. Government and non-U.S. agency investment securities, corporate
and municipal securities;

an adverse or unfavorable resolution of the Fannie Mae or Freddie Mac conservatorship; and

decreases in the real estate values subject to ad-valorem taxes by municipalities that impact such municipalities’
ability to repay their debt, which could adversely affect our municipal loans or debt securities.

Any of the foregoing could adversely affect our financial condition and results of operations.

Negative developments in the banking industry could adversely affect our current and projected business operations and our
financial condition and results of operations.

Bank failures in the first half of 2023 and related negative media attention have generated significant market trading
volatility among publicly traded bank holding companies like the Company and, in particular, regional and community banks
like the Bank. These developments have negatively impacted customer confidence in regional and community banks, which
could prompt customers to transfer their deposits to larger financial institutions. Further, competition for deposits has increased
in recent periods, and the cost of funding has similarly increased, putting pressure on our net interest margin. If we were
required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses as a result of the negative
impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital.
If we were required to raise additional capital in the current environment, any such capital raise may be on unfavorable terms,
thereby negatively impacting book value and profitability. While we have taken actions to increase our funding, there is no
guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.

We also anticipate increased regulatory scrutiny – in the course of routine examinations and otherwise – and new
regulations directed towards banks similar to our size, designed to address the negative developments in the banking industry in
2023, all of which may increase our costs of doing business and reduce our profitability. Among other things, there is an
increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, losses embedded in the
held-to-maturity portion of our securities portfolio, contingent liquidity, CRE composition and concentration, capital position
and our general oversight and internal control structures regarding the foregoing. As a result, the Bank could continue to face
increased scrutiny or be viewed as higher risk by regulators and the investor community.

Rising interest rates have decreased the value of a portion of the Company’s securities portfolio, and the Company would
realize losses if it were required to sell such securities to meet liquidity needs.

As a result of inflationary pressures and the resulting rapid increases in interest rates in 2022 and the first half of 2023,
the fair value of our securities classified as available for sale and held-to-maturity has declined. This has resulted in unrealized

losses on AFS securities embedded in other comprehensive income as a part of shareholders’ equity. If the Company were
required to sell such securities to meet liquidity needs, including in the event of deposit outflows or slower deposit growth, it
may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the
Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company
has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the
event of sudden liquidity needs.

We rely on other companies to provide key components of our business infrastructure.

Third parties provide key components of our business infrastructure, such as banking services, core processing and
internet connections and network access. Any disruption in such services provided by these third parties or any failure of these
third parties to handle current or higher volumes of use could adversely affect our ability to deliver products and services to our
customers and otherwise to conduct business. Technological or financial difficulties of one of our third-party service providers
or their subcontractors could adversely affect our business to the extent those difficulties result in the interruption or
discontinuation of services provided by that party. In addition, one or more of our third-party service providers may become
subject to cyber-attacks or information security breaches, including as a result of increased remote working, that could result in
the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary
and other information, or otherwise disrupt our or our customers’ or other third parties’ business strategies, financial condition
or results of operations. While we have processes in place to monitor our third-party service providers’ data and information
security safeguards, there can be no assurance that we will adhere to such processes. We also do not control such service
providers’ day-to-day operations, and preventing a successful attack or security breach at one or more of such third-party
service providers is not within our control. The occurrence of any such breaches or failures could damage our reputation, result
in a loss of customer business and expose us to additional regulatory scrutiny, disclosure obligations, civil litigation and
possible financial liability, any of which could have a material adverse effect on our business strategy, financial condition and
results of operations. Further, in some instances we may be held responsible for the failure of such third parties to comply with
government regulations. We may not be insured against all types of losses as a result of third-party failures, and our insurance
coverage may not be adequate to cover all losses resulting from system failures, third-party breaches or other disruptions.
Failures in our business structure or in the structure of one or more of our third-party service providers could interrupt our
operations or increase the cost of doing business.

We continually encounter technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new
technology-driven products and services including those related to or involving artificial intelligence, machine learnings,
blockchain and other distributed ledger technologies. The effective use of technology increases efficiency and enables financial
institutions to better serve customers and reduce costs. Our future success depends, in part, upon our ability to address the
needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to
create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in
technological improvements. We may not be able to effectively implement new technology-driven products and services or be
successful in marketing these products and services to our customers, and even if we implement such products and services, we
may incur substantial costs in doing so. Failure to successfully keep pace with technological changes affecting the financial
services industry could have a material adverse impact on our business, financial condition and results of operations.

We are subject to the risk that our U.S. agency MBS could prepay faster than we have projected.

We have purchased and may continue to purchase MBS at premiums. Our prepayment assumptions take into account
market consensus speeds, current trends and past experience. If actual prepayments exceed our projections, the amortization
expense associated with these MBS will increase, thereby decreasing our net income. The increase in amortization expense and
the corresponding decrease in net income could have a material adverse effect on our financial condition and results of
operations.

We rely on dividends from our bank subsidiary for most of our revenue.

Southside Bancshares, Inc. is a separate and distinct legal entity from its subsidiaries. We receive substantially all of our
revenue from dividends from the Bank. These dividends are the principal source of funds to pay dividends on our common
stock to our shareholders and interest and principal on our debt. Various federal and/or state laws and regulations limit the
amount of dividends that the Bank and certain of our nonbank subsidiaries may pay to us. In addition, our right to participate in
a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s
creditors. In the event the Bank is unable to pay dividends to us, we may not be able to service debt, pay obligations or pay
dividends to our shareholders. The inability to receive dividends from the Bank could have a material adverse effect on our

business, financial condition and results of operations. See the section captioned “Supervision and Regulation” in “Item 1.
Business” and “Note 13 – Shareholders’ Equity” to our consolidated financial statements included in this report.

You may not receive dividends on our common stock.

Although we have historically declared quarterly cash dividends on our common stock, we are not required to do so and
may reduce or cease to pay common stock dividends to our shareholders in the future. If we reduce or cease to pay common
stock dividends, the market price of our common stock could be adversely affected.

As noted above, our ability to pay dividends depends primarily upon the receipt of dividends or other capital
distributions from the Bank. The Bank’s ability to pay dividends to us is subject to, among other things, its earnings, financial
condition and need for funds, as well as federal and state governmental policies and regulations applicable to us and the Bank,
including the statutory requirement that we serve as a source of financial strength for the Bank, which limits the amount that
may be paid as dividends without prior regulatory approval. Additionally, if the Bank’s earnings are not sufficient to pay
dividends to us while maintaining adequate capital levels, we may not be able to pay dividends to our shareholders. See
“Supervision and Regulation — Holding Company Regulation — Dividends” included in this report.

We may not be able to attract and retain skilled personnel.

Our success depends, in large part, on our ability to attract and retain key personnel. Competition for the best personnel
in most of our activities can be intense, and we may not be able to hire or retain acceptable personnel. The increase of “remote
work” opportunities in the financial services industry means that community banks must compete more directly against larger
financial institutions for qualified workers. The federal banking agencies have also issued comprehensive guidance on incentive
compensation limitations, and jointly proposed additional restrictions in the future, which may impact our retention of qualified
personnel. The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our
business because of their skills, knowledge of our market, relationships in the communities we serve, years of industry
experience and the difficulty of promptly finding qualified replacement personnel. Although we have employment agreements
with certain of our executive officers, there is no guarantee that these officers and other key personnel will remain employed
with the Company.

We operate in a highly competitive industry and market area.

We face substantial competition in all areas of our operations from a variety of different competitors, many of which are
larger and may have more financial resources. Such competitors primarily include national, regional and community banks
within the various markets we operate. Additionally, various out-of-state banks have entered or have announced plans to enter
the market areas in which we currently operate. We also face competition from many other types of financial institutions,
including, without limitation, credit unions, fintech companies, finance companies, brokerage firms, insurance companies,
factoring companies and other financial intermediaries. The financial services industry could become even more competitive as
a result of legislative, regulatory and technological changes, continued consolidation and recent trends in the credit and
mortgage lending markets. Banks, securities firms and insurance companies can be affiliated under the umbrella of a financial
holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance
(both agency and underwriting) and merchant banking. Also, technology has lowered barriers to entry and made it possible for
nonbanks to offer certain products and services traditionally provided by banks, such as automatic transfer and automatic
payment systems. Our competitors may have fewer regulatory constraints and may have lower cost structures. Additionally,
due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of
products and services as well as better pricing for those products and services than we can, including lower or discontinued
fees, such as non-sufficient funds and overdraft fees.

Our ability to compete successfully depends on a number of factors, including:

•

the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high
ethical standards and safe, sound assets;

the ability to expand our market position;

the scope, relevance and pricing of products and services offered to meet customer needs and demands;

the rate at which we introduce new products and services relative to our competitors;

our ability to invest in or partner with technology providers offering banking solutions and delivery channels at a
level equal to our competitors;

customer satisfaction with our level of service; and

industry and general economic trends.

Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely
affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of
operations.

Our accounting estimates and risk management processes rely on analytical and forecasting models.

The process we use to estimate our loan losses and to measure our retirement plan liabilities and the fair value of our
financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures
on our financial condition and results of operations, depend upon the use of analytical and forecasting models. These models
reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. The
adoption of CECL in 2020 increased the complexity of these analytical and forecasting models. Even if these assumptions are
adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their
implementation. If the models we use for interest rate risk and asset-liability management are inadequate, we may incur
increased or unexpected losses upon changes in market interest rates or other market measures. If the methodology we use for
determining our loan losses are inadequate, our allowance for loan losses may not be sufficient to support future charge-offs. If
the models we use to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments
may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial
instruments. If the key assumptions and models used to measure the retirement plan liabilities and expense are inadequate, the
liability may not accurately reflect the amount required to fund the benefit obligation. Any such failure in our analytical or
forecasting models could have a material adverse effect on our business, financial condition and results of operations.

Our allowance for loan losses may be insufficient.

We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to
expense. This allowance represents management’s best estimate of expected losses that may occur over the contractual life of
our current loan portfolio. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and
risks expected in the loan portfolio considering historical losses, current conditions and reasonable and supportable
forecasts. The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit
risks; loan loss experience; current loan portfolio quality; present and forecasted economic, political and regulatory conditions,
including inflation and recessionary concerns; the Federal Reserve’s aggressive raising of the federal funds rate throughout
2022 and most of 2023; and unidentified losses expected in the current loan portfolio. The determination of the appropriate
level of the allowance for loan losses inherently involves a high degree of subjectivity and requires management to make
significant estimates and assumptions regarding current credit risks and future trends, all of which may undergo material
changes. Changes in economic conditions affecting the value of properties used as collateral for loans, problems affecting the
credit of borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both
within and outside of our control, may require an increase in the allowance for loan losses. Business and consumer customers
of the Bank may be currently experiencing varying degrees of financial distress, which may continue over the coming months
and may adversely affect their ability to timely pay interest and principal on their loans and the value of the collateral securing
their obligations. This in turn may influence the recognition of credit losses in our loan portfolios and may increase our
allowance for credit losses, particularly should more customers draw on their lines of credit or seek additional loans to help
finance their businesses. In addition, bank regulatory agencies periodically review our allowance for loan losses and may
require an increase in the provision for loan losses or the recognition of further loan charge-offs (in accordance with GAAP),
based on judgments different than those of management. If charge-offs in future periods exceed the allowance for loan losses,
we may need additional provisions to increase the allowance for loan losses. Any increases in the allowance for loan losses will
result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of
operations.

Our interest rate risk, liquidity, fair value of securities and profitability are dependent upon the successful management of our
balance sheet strategy.

We implemented a balance sheet strategy for the purpose of enhancing overall profitability by maximizing the use of our
capital. The effectiveness of our balance sheet strategy, and therefore our profitability, may be adversely affected by a number
of factors, including reduced net interest margin and spread, adverse changes in the market liquidity and fair value of our
investment securities and U.S. agency MBS, incorrect modeling results due to the unpredictable nature of MBS prepayments,
the length of interest rate cycles and the slope of the interest rate yield curve. In addition, we may not be able to obtain
wholesale funding to profitably and properly fund our balance sheet strategy. If our balance sheet strategy is flawed or poorly
implemented, we may incur significant losses. See the section captioned “Balance Sheet Strategy” in “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in this report for further discussion related to our
balance sheet strategy.

Our process for managing risk may not be effective in mitigating risk or losses to us.

The objective of our risk management process is to mitigate risk and loss to our organization. We have established
procedures that are intended to identify, measure, monitor, report and analyze the types of risks to which we are subject,
including liquidity risk, credit risk, market risk, interest rate risk, operational risk, cybersecurity risk, legal and compliance risk
and reputational risk, among others. However, as with any risk management process, there are inherent limitations to our risk
management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or
identified. The ongoing developments in the financial institutions industry continue to highlight both the importance and some
of the limitations of managing unanticipated risks. If our risk management processes prove ineffective, we could suffer
unexpected losses and could be materially adversely affected.

New lines of business or new products and services may subject us to additional risks.

From time to time, we may implement new delivery systems, such as internet banking, or offer new products and
services within existing lines of business. In developing and marketing new delivery systems and/or new products and services,
we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business
and/or new products or services may not be achieved, and price and profitability targets may not prove feasible. External
factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the
successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or
new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to
successfully manage these risks in the development and implementation of new lines of business or new products or services
could have a material adverse effect on our business, results of operations and financial condition.

Acquisitions and potential acquisitions may disrupt our business and dilute shareholder value.

We occasionally evaluate merger and acquisition opportunities and conduct due diligence activities related to possible
transactions with other financial institutions and financial services companies. As a result, merger or acquisition discussions
and, in some cases, negotiations may take place, and future mergers or acquisitions involving cash, debt or equity securities
may occur at any time. Acquisitions typically involve the payment of a premium over book and fair values, and, therefore,
some dilution of our tangible book value and net income per common share may occur in connection with any future
transaction. Furthermore, failure to realize expected revenue increases, cost savings, increases in geographic or product
presence and/or other projected benefits and synergies from an acquisition could have a material adverse effect on our financial
condition and results of operations.

Our profitability depends significantly on economic conditions in the State of Texas.

Our success depends primarily on the general economic conditions in the State of Texas and the specific local markets
within Texas in which we operate. Unlike larger national or other regional banks that are more geographically diversified, we
provide banking and financial services to customers primarily in the State of Texas and the local markets in which we operate
within Texas. The local economic conditions in these areas have a significant impact on the demand for our products and
services, as well as the ability of our customers to repay loans, the value of the collateral securing our loans and the stability of
our deposit funding sources. Moreover, a substantial percentage of the securities in our municipal bond portfolio were issued
by political subdivisions and agencies within the State of Texas. A significant decline in general economic conditions, caused
by inflation, recession, crude oil prices, acts of terrorism, pandemics, natural or man-made disasters, outbreak of hostilities or
other international or domestic occurrences, unemployment, plant or business closings or downsizing, changes in securities
markets or other factors could impact these local economic conditions and, in turn, have a material adverse effect on our
financial condition and results of operations.

Funding to provide liquidity may not be available to us on favorable terms or at all.

Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. The liquidity of the Bank is
necessary to make loans and leases and to repay deposit liabilities as they become due or are demanded by customers. Our
board of directors establishes liquidity policies and limits. Management and our ALCO regularly monitor the overall liquidity
position of the Bank and the Company to ensure that various alternative strategies exist to cover unanticipated events that could
affect liquidity. Management and our ALCO also establish policies and monitor guidelines to diversify the Bank’s funding
sources to avoid concentrations in excess of board-approved policies from any one market source. Funding sources include
federal funds purchased, repurchase agreements, noncore deposits and short- and long-term debt. The Bank is also a member of
the FHLB System, which provides funding through advance agreements to members that are collateralized with U.S. Treasury
securities, MBS, commercial MBS and loans.

We maintain a portfolio of securities that can be used as a secondary source of liquidity. Other sources of liquidity
include sales or securitizations of loans, our ability to acquire additional national market, noncore deposits, additional
collateralized borrowings such as FHLB advance agreements, the issuance and sale of debt securities and the issuance and sale

of preferred or common securities in public or private transactions. The Bank also can borrow from the FRDW and request
advances from the BTFP through March 11, 2024.

We have historically had access to a number of alternative sources of liquidity, but if there is an increase in volatility in
the credit and liquidity markets similar to 2008, there is no assurance that we will be able to obtain such liquidity on terms that
are favorable to us, or at all. The cost of out-of-market deposits may exceed the cost of deposits of similar maturity in our local
market area, making such deposits unattractive sources of funding; financial institutions may be unwilling to extend credit to
banks because of concerns about the banking industry and the economy in general, and there may not be a viable market for
raising equity capital.

If we were unable to access any of these funding sources when needed, we might be unable to meet customers’ needs,
which could adversely impact our financial condition, results of operations, cash flows and liquidity and level of regulatory-
qualifying capital.

If we fail to maintain an effective system of disclosure controls and procedures, including internal control over financial
reporting, we may not be able to accurately report our financial results or prevent fraud, which could have a material adverse
effect on our business, results of operations and financial condition. In addition, current and potential shareholders could lose
confidence in our financial reporting, which could harm the trading price of our common stock.

Management regularly monitors, reviews and updates our disclosure controls and procedures, including our internal
control over financial reporting. Any system of controls, however well designed and operated, is based in part on certain
assumptions and can provide only reasonable assurances that the controls will be effective. Any failure or circumvention of our
controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse
effect on our business, results of operations and financial condition.

Failure to achieve and maintain an effective internal control environment could prevent us from accurately reporting our
financial results, preventing or detecting fraud or providing timely and reliable financial information pursuant to our reporting
obligations, which could result in a material weakness in our internal controls over financial reporting and the restatement of
previously filed financial statements and could have a material adverse effect on our business, financial condition and results of
operations. Further, ineffective internal controls could cause our investors to lose confidence in our financial information,
which could affect the trading price of our common stock.

The value of our goodwill and other intangible assets may decline in the future.

As of December 31, 2023, we had $204.0 million of goodwill and other intangible assets. A significant decline in our
expected future cash flows, a significant adverse change in the business climate, slower growth rates or a significant and
sustained decline in the price of our common stock may necessitate taking charges in the future related to the impairment of our
goodwill and other intangible assets. If we were to conclude that a future write-down of goodwill and other intangible assets is
necessary, we would record the appropriate charge, which could have a material adverse effect on our business, financial
condition and results of operations.

We are subject to environmental liability as a result of certain lending activities.

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may
foreclose on and take title to properties securing certain loans. There is a risk that hazardous or toxic substances could be found
on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal
injury and property damage. Environmental remediation may require us to incur substantial expenses and may materially
reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more
stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental
liability. Although we have policies and procedures that require us to perform an environmental review before initiating any
foreclosure action on nonresidential real property, these reviews may not be sufficient to detect all potential environmental
hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a
material adverse effect on our financial condition and results of operations.

We may be adversely affected by declining crude oil prices.

Since 2022, the market price of a barrel of West Texas Intermediate crude oil fluctuated from a low of approximately
$65 to a high of approximately $89. To partially mitigate this volatility, oil producers continue to find ways to control
production costs. Decreased market oil prices compressed margins for many U.S. and Texas-based oil producers, as well as
oilfield service providers, energy equipment manufacturers and transportation suppliers, among others. As of December 31,
2023, energy loans comprised approximately 2.09% of our loan portfolio. Energy production and related industries represent a
significant part of the economies in our primary markets. Although crude oil prices are not presently depressed, if oil prices
were to decline significantly for an extended period, we could experience weaker loan demand from the energy industry and
increased losses within our energy portfolio. A prolonged period of low oil prices could also have a negative impact on the

U.S. economy and, in particular, the economies of energy-dominant states such as Texas, which in turn could have a material
adverse effect on our business, financial condition and results of operations.

Severe weather, natural disasters, climate change, acts of war or terrorism, health emergencies, epidemics or pandemics and
other external events could significantly impact our business.

Severe weather, natural disasters, climate change, acts of war or terrorism, health emergencies, epidemics or pandemics
and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect
the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral
securing loans, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses. For
example, because of our location and the location of the market areas we serve, severe weather is more likely than in other areas
of the country. Although management has established disaster recovery policies and procedures, there can be no assurance of
the effectiveness of such policies and procedures, and the occurrence of any such event could have a material adverse effect on
our business, financial condition and results of operations.

RISKS ASSOCIATED WITH THE BANKING INDUSTRY

We are subject or may become subject to extensive government regulation and supervision.

Southside Bancshares, Inc., primarily through the Bank, and certain of its nonbank subsidiaries, is subject to extensive
federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal
deposit insurance funds and the banking system as a whole, not shareholders. These regulations affect our lending practices,
capital structure, investment practices and dividend policy and growth, among other things. The statutory and regulatory
framework under which we operate has changed substantially as the result of the enactment of the Dodd-Frank Act and the
Regulatory Relief Act, and the adoption of the Basel III Capital Rules, the European Union’s General Data Protection
Regulations and data protection laws enacted by several U.S states. The Dodd-Frank Act represents a significant overhaul of
many aspects of the regulation of the financial services industry, addressing, among other things, systemic risk, capital
adequacy, deposit insurance assessments, consumer financial protection (as implemented through the CFPB), interchange fees,
derivatives, lending limits, mortgage lending practices, registration of investment advisors and changes among bank regulatory
authorities. In addition, Congress and federal and state regulatory agencies continually review banking laws, regulations and
policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or
implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. Such changes could
subject us to additional costs, limit deposit fees and other types of fees we charge, limit the types of financial services and
products we may offer and/or increase the ability of nonbanks to offer competing financial services and products, among other
things. While we cannot predict the impact of regulatory changes that may arise out of the current financial and economic
environment, any regulatory changes or increased regulatory scrutiny could increase costs directly related to complying with
new regulatory requirements. Failure to comply with laws, regulations or policies could result in sanctions by regulatory
agencies, civil money penalties and/or reputational damage, which could have a material adverse effect on our business,
financial condition and results of operations. While our policies and procedures are designed to prevent any such violations,
there can be no assurance that such violations will not occur. See the section captioned “Supervision and Regulation” in
“Item 1. Business” and “Note 13 – Shareholders’ Equity” to our consolidated financial statements included in this report.

We may become subject to increased regulatory capital requirements.

The capital requirements applicable to Southside Bancshares, Inc. and the Bank are subject to change as a result of future
government actions. Each of the federal banking agencies, including the Federal Reserve and the FDIC, has issued
substantially similar risk-based and leverage capital guidelines applicable to the banking organizations they supervise. For
additional discussion relating to capital adequacy refer to “Item 1. Business - Supervision and Regulation - Capital
Adequacy” in this report. The Company believes it will continue to meet the capital guidelines, however complying with new
capital rules mandated by the federal banking agencies may affect our operations, including our asset portfolios and financial
performance.

Changes in accounting and tax rules applicable to banks could adversely affect our financial condition and results of
operations.

From time to time, the FASB and the SEC change the financial accounting and reporting standards that govern the
preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and
report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard
retroactively, resulting in us restating prior period financial statements. For a discussion of the reporting and accounting
implications to the Company and Southside Bank resulting from recent changes to the tax laws, refer to “Item 1. Business -
Supervision and Regulation - Regulatory Examination” in this report.

Financial services companies depend on the accuracy and completeness of information about customers and counterparties
and inaccuracies in such information, including as a result of fraud, could adversely impact our business, financial condition
and results of operations.

In deciding whether to extend credit or enter into other transactions with third parties, we rely on information furnished
by or on behalf of customers and counterparties, including financial statements, credit reports and other financial
information. We may also rely on representations of those customers, counterparties or other third parties, such as independent
auditors or property appraisers, as to the accuracy and completeness of that information. Such information could be inaccurate,
including as a result of fraud on behalf of our customers, counterparties or other third parties. In times of increased economic
stress, we are at an increased risk of fraud losses. We cannot assure you that our underwriting and operational controls will
prevent or detect such fraud or that we will not experience fraud losses or incur costs or other damages related to such fraud.
Our customers may also experience fraud in their businesses which could adversely affect their ability to repay their loans or
make use of our services. Our exposure and the exposure of our customers to fraud may increase our financial risk and
reputation risk as it may result in unexpected loan losses that exceed those that have been provided for in our allowance for loan
losses. Reliance on inaccurate or misleading information from our customers, counterparties and other third parties, including
as a result of fraud, could have a material adverse impact on our business, financial condition and results of operations.

Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing parties to complete financial transactions that historically have involved
banks through alternative methods. For example, consumers can now maintain funds that would have historically been held as
bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and/or
transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries could result in
the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss
of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our financial
condition and results of operations.

The soundness of other financial institutions could adversely affect us.

Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We
have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the
financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and
other institutional customers. Many of these transactions expose us to credit risk in the event of default of our counterparty or
customer. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at
prices insufficient to recover the full amount of the loan or derivative exposure due to us. There is no assurance that any such
losses would not materially and adversely affect our results of operations or earnings.

We are subject to claims and litigation pertaining to fiduciary responsibility.

From time to time, customers make claims and take legal action pertaining to the performance of our fiduciary
responsibilities. Whether customer claims and legal actions related to the performance of our fiduciary responsibilities are
merited, defending claims is costly and diverts management’s attention, and if such claims and legal actions are not resolved in
a manner favorable to us, they may result in significant financial liability and/or adversely affect our market perception and
products and services as well as impact customer demand for those products and services. Any financial liability or
reputational damage resulting from claims and legal actions could have a material adverse effect on our business, financial
condition and results of operations.

GENERAL RISK FACTORS

Our stock price can be volatile.

Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you

find attractive. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:

•

actual or anticipated variations in our results of operations, financial condition or asset quality;

changes in recommendations by securities analysts;

operating and stock price performance of other companies that investors deem comparable to us;

news reports relating to trends, concerns and other issues in the financial services industry, including regulatory
actions against other financial institutions;

perceptions in the marketplace regarding us and/or our competitors;

perceptions in the marketplace regarding the impact of changes in price per barrel of crude oil, real estate values and
interest rates on the Texas economy;

•

new technology used or services offered by competitors;

significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or
involving us or our competitors;

failure to integrate acquisitions or realize anticipated benefits from acquisitions;

future issuances of our common stock or other securities;

additions or departures of key personnel;

changes in government regulations; and

geopolitical conditions such as acts or threats of terrorism or military conflicts, health emergencies, epidemics or
pandemics.

General market fluctuations, industry factors and general economic and political conditions and events, such as economic
slowdowns or recessions, inflation, interest rate changes or credit loss trends, could also cause our stock price to decrease
regardless of operating results.

The holders of our subordinated notes and junior subordinated debentures have rights that are senior to those of our common
stock shareholders.

On November 6, 2020, we issued $100.0 million of 3.875% fixed-to-floating rate subordinated notes, which mature in
November 2030. On September 19, 2016, we issued $100.0 million of 5.50% fixed-to-floating subordinated notes, which we
redeemed on September 30, 2021. On September 4, 2003, we issued $20.6 million of floating rate junior subordinated
debentures in connection with a $20.0 million trust preferred securities issuance by our subsidiary Southside Statutory Trust
III. These junior subordinated debentures mature in September 2033. On August 8 and 10, 2007, we issued $23.2 million and
$12.9 million, respectively, of fixed-to-floating rate junior subordinated debentures in connection with $22.5 million and $12.5
million, respectively, trust preferred securities issuances by our subsidiaries Southside Statutory Trust IV and V,
respectively. Trust IV matures October 2037 and Trust V matures September 2037. On October 10, 2007, as part of an
acquisition, we assumed $3.6 million of floating rate junior subordinated debentures to Magnolia Trust Company I in
connection with $3.5 million of trust preferred securities issued in 2005 that mature in 2035.

We conditionally guarantee payments of the principal and interest on the trust preferred securities. Our subordinated
notes and the junior subordinated debentures are senior to our shares of common stock. We must make payments on the junior
subordinated debentures (and the related trust preferred securities) before any dividends can be paid on our common stock, and
in the event of bankruptcy, dissolution or liquidation, the holders of the debentures must be satisfied before any distributions
can be made to the holders of common stock. We have the right to defer distributions on our debentures (and the related trust
preferred securities) for up to five years, during which time no dividends may be paid to holders of common stock.

The trading volume in our common stock is less than that of other larger financial services companies.

Although our common stock is listed for trading on the NASDAQ Global Select Market, the trading volume for our
common stock is low relative to other larger financial services companies, and you are not assured liquidity with respect to
transactions in our common stock. A public trading market having the desired characteristics of depth, liquidity and orderliness
depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence
depends on the individual decisions of investors and general economic and market conditions over which we have no
control. Given the lower trading volume of our common stock, significant sales of our common stock or the expectation of
these sales, could cause our stock price to fall.

We may issue additional securities, which could dilute your ownership percentage.

In certain situations, our board of directors has the authority, without any vote of our shareholders, to issue shares of our
authorized but unissued stock. In the future, we may issue additional securities, through public or private offerings, to raise
additional capital or finance acquisitions. Any such issuance would dilute the ownership of current holders of our common
stock.

Securities analyst might not continue coverage on our common stock, which could adversely affect the market for our common
stock.

The trading price of our common stock depends in part on the research and reports that securities analysts publish about
us and our business. We do not have any control over these analysts and they may not continue to cover our common stock. If
securities analysts do not continue to cover our common stock, the lack of research coverage may adversely affect its market
price. If securities analysts continue to cover our common stock and our common stock is the subject of an unfavorable report,
the price of our common stock may decline. If one or more of these analysts cease to cover us or fail to publish regular reports

on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our common stock to
decline.

Provisions of our certificate of formation and bylaws, as well as state and federal banking regulations, could delay or prevent a
takeover of us by a third party.

Our certificate of formation and bylaws could delay, defer or prevent a third party from acquiring us, despite the possible
benefit to our shareholders, or otherwise adversely affect the price of our common stock. These provisions include, among
others, requiring advance notice for raising business matters or nominating directors at shareholders’ meetings and staggered
board elections.

Any individual, acting alone or with other individuals, who are seeking to acquire, directly or indirectly, 10.0% or more
of our outstanding common stock must comply with the CBCA, which requires prior notice to the Federal Reserve for any
acquisition. Additionally, any entity that wants to acquire 5.0% or more of our outstanding common stock, or otherwise control
us, may need to obtain the prior approval of the Federal Reserve under the BHCA. As a result, prospective investors in our
common stock need to be aware of and comply with those requirements, to the extent applicable. These provisions may
discourage potential acquisition proposals and could delay or prevent a change in control, including under circumstances in
which our shareholders might otherwise receive a premium over the market price of our share.

An investment in our common stock is not an insured deposit.

Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit
insurance fund or by any other public or private entity. Investment in our common stock is inherently risky for the reasons
described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price
of common stock in any company. As a result, if you acquire our common stock, you may lose some or all of your investment.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 1C. CYBERSECURITY

Risk Management Strategy

Given the increasing reliance on technology and potential of cyber threats, we have integrated a cybersecurity component
into our risk management program, which is designed to identify, assess and mitigate risks across various aspects of the
Company. We have a dedicated Information Security Department, which is led by our Chief Information Security Officer. The
Information Security Department serves to protect the security and confidentiality of customer information, protect against any
threats or hazards to the security or integrity of Company information and protect against unauthorized access to, or use of, such
information that could result in substantial harm or inconvenience to our customers.

Our information security program strives to protect the confidentiality, integrity and availability of information and
information systems and is aligned to the Company’s business and risk management strategies. It shares common
methodologies, reporting channels and governance processes that apply to other areas of enterprise risk. Key elements of our
cybersecurity risk management program include:

•

IT risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products,
services, and our broader enterprise information technology environment;

Information Security Department responsible for managing our cybersecurity risk assessment processes, our security
controls, and our response to a cybersecurity incident;

Cybersecurity Assessment Toolkit (developed by the FFIEC) is assessed annually, tracks program maturity, changes in
risk profile, and reviews security controls critical to reduce cybersecurity risk. Results are presented to and approved
by the Board;

Ransomware Assessment Toolkit (developed by the Bankers Electronic Crimes Task Force, state bank regulators and
the U.S. Secret Service) is assessed biannually to capture any gaps and address any potential control deficiencies;

training and awareness programs for employees that include periodic and ongoing assessments to drive adoption and
awareness of cybersecurity processes and controls;

the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security
controls;

a cybersecurity incident response plan that includes procedures for responding to a cybersecurity incident; and

•

a third-party risk management process for service providers, suppliers, and vendors, including those external service
providers we engage in our cybersecurity risk management processes.

Risks from cybersecurity threats are assessed with existing controls and residual risk is monitored. We have not
experienced any material cybersecurity incidents that have materially affected, or are reasonably likely to materially affect, the
Company, including its business strategy, results of operations or financial condition. We cannot provide full assurance that
our cybersecurity risk management processes described will be fully implemented, complied with or effective in protecting our
systems and information. While we maintain cybersecurity insurance, the costs related to cybersecurity threats or disruptions
may not be fully insured. See “Part I - Item 1A. Risk Factors – Risks Related to Our Business” in this report for a discussion
of risks related to cybersecurity.

Governance

Management’s Role

Our CISO leads our Information Security Department, is responsible for the information security program, which
includes cybersecurity, and reports to the Chief Risk Officer. Our CISO joined the Company in 2012. He has 18 years of
experience, involving both information technology and information security. He has a Master of Business Administration in
Cybersecurity, graduate studies certificate in cybersecurity and has achieved four certifications, including Certified Information
Security Manager, Certified Information Systems Auditor, Certified Data Privacy Solutions Engineer and Cisco Certified
Network Associate. The CISO provides an annual report of the information security program and monthly reports to the Audit
Committee, including any security incident or notable security event for the period. The CISO also reports to the Company’s
Risk Committee on risk assessments annually and key risk indicators at least quarterly.

We also have a trained response team lead by the CISO, consisting of key individuals from our finance, operations, risk,
compliance, communications, human resources, banking and information technology departments, that is engaged for
cybersecurity related incidents where necessary and as appropriate.

Board Oversight of Cybersecurity

The Company’s Audit and Risk Committees oversee cybersecurity risk and the information security program which
includes overseeing management’s actions to identify, assess, mitigate and remediate or prevent material cybersecurity risks.
The Audit Committee receives an annual report of the information security program and monthly reports from the CISO on
notable security events for the period. The notable security event briefings by the CISO are intended to create discussion that
allows Board members to understand the impact, controls and risk. The Risk Committee receives annual reports from the CISO
on risk assessments and reports on key risk indicators at least quarterly. The Company’s Risk Committee receives at least one
annual training from the CISO on the information security program, cybersecurity controls or cybersecurity threats.

Both the Bank’s internal Risk Committee and the Company’s Risk Committee review all risk assessments and
remediations annually. The information security program includes policies and standards that define the risk assessment
procedures, reporting and an incident response plan. The incident response plan defines escalations to senior management and
the Board, as well as required notifications and timeframes to customers and regulatory authorities.

ITEM 2. PROPERTIES

The primary executive offices of Southside are located at 1201 South Beckham Avenue, Tyler, Texas 75701. This site
also houses a banking center, a technology center, back office support areas and wealth management and trust services.
Additional executive offices are located at 1320 South University Drive, Fort Worth, Texas 76107 in University Center II and
at 104 N. Temple, Diboll, Texas 75941. Additional wealth management and trust services are located at 2510 West Frank
Street, Lufkin, Texas 75904. All of these locations are owned by Southside. As of December 31, 2023, Southside operated 55
branches which includes traditional full service branches and full service branches within grocery stores. These branches are
located in the state of Texas in the Dallas/Fort Worth, East Texas, Southeast Texas, Austin and Houston regions. Of the 55
branches, 36 are owned and 19 are leased. In addition to our branches, Southside also operates drive-thrus, wealth management
and trust services or other financial services offices which Southside owns. Southside also owns 73 ATMs/ITMs located
throughout our market areas.

For additional information concerning our properties, refer to “Note 6 – Premises and Equipment” and “Note 16 –

Leases” to our consolidated financial statements included in this report.

ITEM 3. LEGAL PROCEEDINGS

We are party to legal proceedings arising in the normal conduct of business. Management believes that such litigation is

not material to our financial position, results of operations or cash flows.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

Our common stock trades on the NASDAQ Global Select Market under the symbol “SBSI.”

SHAREHOLDERS

There were approximately 1,400 holders of record of our common stock, the only class of equity securities currently

issued and outstanding, as of February 23, 2024.

DIVIDENDS

See the section captioned “Item 8. Financial Statements and Supplementary Data - Note 13 – Shareholders’ Equity” in
our consolidated financial statements included in this report for the amount of cash dividends we paid. Also, see “Item 1 -
Business - Supervision and Regulation - Dividends” and “Item 7 - Management's Discussion and Analysis of the Financial
Condition and Results of Operations - Capital Resources and Liquidity” for restrictions on our present or future ability to pay
dividends, particularly those restrictions arising under federal and state banking laws.

ISSUER SECURITY REPURCHASES

On December 13, 2022, our board of directors increased its authorization under the Company’s Stock Repurchase
Plan, previously authorized in March 2022, by an additional 1.0 million shares, for a total authorization to repurchase up to 2.0
million shares of Southside common stock. During the first six months of 2023, all remaining authorized shares under the
Stock Repurchase Plan were repurchased. 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. During 2023, we
repurchased a total of 1,435,193 shares at an average price per share of $31.44.

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
December 31, 2023:

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

October 1, 2023 - October 31, 2023 ............

146,580 $

28.54

146,580

November 1, 2023 - November 30, 2023 ....

December 1, 2023 - December 31, 2023 .....

—

Total .............................................................

146,580 $

28.54

146,580

641,032

We have not purchased any common stock pursuant to the Stock Repurchase Plan subsequent to December 31, 2023.

RECENT SALES OF UNREGISTERED SECURITIES

There were no equity securities sold by us during the years ended December 31, 2023, 2022 or 2021 that were not

registered under the Securities Act of 1933.

FINANCIAL PERFORMANCE

The following performance graph compares the returns for the indexes indicated assuming that $100 was invested on
December 31, 2018 and that all dividends are reinvested. The performance graph does not constitute soliciting material and
should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates the performance graph by
reference therein.

Southside Bancshares, Inc.

Total Return Performance

Southside Bancshares, Inc.

Russell 2000 Index

Peer Group

200

150

e
u
l
a
V
x
e
d
n

100

50
12/31/18

12/31/19

12/31/20

12/31/21

12/31/22

12/31/23

Index
Southside Bancshares, Inc.
Russell 2000 Index
SBSI Peer Group*

Period Ending

12/31/18

12/31/19

12/31/20

12/31/21

12/31/22

100.00
100.00
100.00

121.32
125.53
120.20

105.86
150.58
122.26

147.74
172.90
155.72

131.71
137.56
143.05

12/31/23
120.00
160.85
133.25

*Peer group includes Cullen/Frost Bankers, Inc.(CFR), First Financial Bankshares, Inc.(FFIN), Hilltop Holdings (HTH), Independent Bank Group,
Inc. (IBTX), Prosperity Bancshares, Inc. (PB), Texas Capital Bancshares, Inc. (TCBI) and Veritex Holdings, Inc. (VBTX).

Source: S&P Global Market Intelligence
© 2024

ITEM 6. [RESERVED]

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

OF OPERATIONS

The following discussion and analysis provides a comparison of our results of operations for the years ended
December 31, 2023 and 2022 and financial condition as of December 31, 2023 and 2022. This discussion should be read in
conjunction with the financial statements and related notes included elsewhere in this report. Refer to Management’s
Discussion and Analysis of Financial Condition and Results of Operations included in our 2022 Form 10-K for a discussion and
analysis of the more significant factors that affected periods prior to 2022.

CAUTIONARY NOTICE REGARDING 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
additional interest rate increases 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;

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;

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

the risks identified in “Part I - Item 1A. Risk Factors – Risks Related to Our Business” in this report.

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. Actual results could differ
from those estimates. We consider our critical accounting estimates to include the following:

Allowance for Credit Losses. The allowance for credit losses includes credit losses on loans as well as the off-balance-
sheet credit exposure, which is reported as a component of other liabilities on our consolidated balance sheets. The allowance
for credit losses on loans is estimated and recognized upon origination of the loan based on expected credit losses. The off-
balance-sheet credit exposure is evaluated using the expected credit losses using usage given defaults and credit conversion
factors depending on the type of commitment and based upon historical usage rates. The CECL model uses historical
experience and current conditions for homogeneous pools of loans, and reasonable and supportable forecasts about future
events. Management selects models through which historical reserve factor estimates are calibrated to economic forecasts over
the reasonable and supportable forecast period based on the projected performance of specific economic variables that
statistically correlate with the probability of default and loss given default pools. Loss estimates revert to the long-term trend of
each economic variable beyond the forecast period. Management selects economic variables it believes to be most relevant
based on the composition of the loan portfolio and customer base, including forecasted levels of employment, gross domestic
product, corporate bond and treasury spreads, industrial production levels, consumer and commercial real estate price indices as
well as housing statistics. The allowance for credit losses is highly sensitive to the economic forecasts used to develop the
estimate. Due to the high level of uncertainty regarding significant assumptions, we evaluate a range of economic scenarios,
including a more severe economic forecast scenario, with varying speeds of recovery. Selecting a different forecast could result
in a significantly different estimated allowance for credit losses. To the extent actual outcomes differ from management
estimates, additional provision for credit losses may be required that would adversely impact earnings in future periods.

Refer to “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” to our consolidated financial statements included in this
report for a detailed description of our estimation process and methodology related to the allowance for loan losses.

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).

Net interest income (GAAP) ................................................................................ $
Tax-equivalent adjustments:

Loans .........................................................................................................
Tax-exempt investment securities .............................................................

Net interest income (FTE) (1)

........................................................................... $

Years Ended December 31,

2023
215,027

2,724
9,939
227,690

2022
212,341

2,993
11,388
226,722

2021
189,557

2,920
10,045
202,522

Average earning assets ......................................................................................... $ 7,361,199

$ 6,822,667

$ 6,402,554

Net interest margin ...............................................................................................
Net interest margin (FTE) (1)
................................................................................

Net interest spread ................................................................................................
Net interest spread (FTE) (1)
.................................................................................

2.92 %
3.09 %

2.25 %
2.42 %

3.11 %
3.32 %

2.86 %
3.07 %

2.96 %
3.16 %

2.80 %
3.01 %

(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.

OVERVIEW

ECONOMIC CONDITIONS

The economic conditions and growth prospects for our markets, even against the headwinds of inflation and potential
recessionary concerns, continue to reflect a solid and positive overall outlook. Ongoing elevated inflation levels and 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 increased $351.7 million, or 5.7%, to $6.55 billion at December 31, 2023 from $6.20 billion at
December 31, 2022. At December 31, 2023, we had 180,057 total deposit accounts with an average balance of $32,000. Our
estimated uninsured deposits was 37.5% of total deposits as of December 31, 2023. When excluding affiliate deposits
(Southside-owned deposits) and public fund deposits (all collateralized), our total estimated deposits without insurance or
collateral was 19.0% of total deposits as of December 31, 2023.

We continued to increase interest rates paid on deposits during the year in order to retain deposits. Our noninterest
bearing deposits represent approximately 21.2% of total deposits. Our cost of interest bearing deposits increased 168 basis
points, from 0.66% for the year ended December 31, 2022, to 2.34% for the year ended December 31, 2023. Our cost of total
deposits increased 129 basis points, from 0.48% for the year ended December 31, 2022, to 1.77% for the year ended December
31, 2023.

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. Advances can be requested under the BTFP until March 11,
2024. As of December 31, 2023, our BTFP borrowings of $117.7 million were at a cost of 4.37%.

The table below shows our total lines of credit, current borrowings as of December 31, 2023, total amounts available for future
borrowings, and swapped value (in thousands):

December 31, 2023

Line of Credit

Borrowings

Total Available
for Future
Liquidity

Swapped

FHLB advances ........................................................................ $

2,158,321

212,648

1,945,673 $

210,000

Federal Reserve discount window ............................................

Correspondent bank lines of credit ...........................................

Federal Reserve Bank Term Funding Program ........................

513,052

62,500

117,718

300,000

—

117,710

213,052

62,500

—

Total liquidity lines ................................................................... $

2,851,591

630,358

2,221,233 $

210,000

OPERATING RESULTS

During the year ended December 31, 2023, our net income decreased $18.3 million, or 17.5%, to $86.7 million from
$105.0 million for the same period in 2022. The decrease in net income was primarily a result of the $10.3 million increase in
noninterest expense, the $5.9 million increase in the provision for credit losses and the $5.0 million decrease in noninterest
income, partially offset by the $2.7 million increase in net interest income. Earnings per diluted common share decreased $0.44,
or 13.5%, to $2.82 for the year ended December 31, 2023, compared to $3.26 for the same period in 2022.

The following table sets forth selected financial data regarding our results of operations and financial position for, and as of the
end of, each of the fiscal years in the three-year period ended December 31, 2023. This information should be read in
conjunction with “Item 8. Financial Statements and Supplementary Data,” as set forth in this report (in thousands, except per
share data):

As of and for the Years Ended December 31,

2023

2022

2021

$ 1,299,014
1,326,729
4,147,691
7,558,636
1,671,562
4,526,457
6,198,019
153,358
98,674

$ 2,764,325
90,780
3,645,162
7,259,602
1,644,775
4,077,552
5,722,327
344,038
98,534

60,265
745,997

252,981
40,640
3,241
25,843
(3,819)
40,857
130,326
105,020

3.27
3.26
1.40
23.65

36,515

0.88 %
696
0.02 %

10,862

0.26 %
0.14 %

12.63 %
13.70 %
16.11 %
9.96 %
10.65 %

60,260
912,172

215,987
26,430
(16,964)
26,368
3,862
49,336
125,030
113,401

3.48
3.47
1.37
28.20

35,273

0.97 %
771
0.02 %

11,609

0.32 %
0.16 %

14.17 %
15.43 %
18.15 %
10.33 %
12.47 %

Summary Balance Sheet Data

Securities AFS, at estimated fair value .......................................................... $ 1,296,294
Securities HTM, at carrying value .................................................................
1,307,053
Loans ..............................................................................................................
4,524,510
Total assets .....................................................................................................
8,284,914
Noninterest bearing deposits ..........................................................................
1,390,407
Interest bearing deposits .................................................................................
5,159,274
Total deposits .................................................................................................
6,549,681
FHLB borrowings ..........................................................................................
212,648
Subordinated notes, net of unamortized debt issuance costs .........................
93,877
Trust preferred subordinated debentures, net of unamortized debt issuance
costs ................................................................................................................
Shareholders’ equity.......................................................................................

60,270
773,288

Summary Income Statement Data

Interest income ............................................................................................... $
Interest expense ..............................................................................................
Provision for (reversal of) credit losses .........................................................
Deposit services .............................................................................................
Net gain (loss) on sale of securities AFS .......................................................
Noninterest income ........................................................................................
Noninterest expense .......................................................................................
Net income .....................................................................................................

Per Common Share Data

Earnings-basic ................................................................................................ $
Earnings-diluted .............................................................................................
Cash dividends declared and paid ..................................................................
Book value .....................................................................................................

Asset Quality

Allowance for loan losses .............................................................................. $
Allowance for loan losses to total loans .........................................................
Net loan charge-offs ....................................................................................... $
Net loan charge-offs to average loans ............................................................
Nonperforming assets .................................................................................... $
Nonperforming assets to:

Total loans ..............................................................................................
Total assets .............................................................................................

Consolidated Capital Ratios

Common equity tier 1 capital .........................................................................
Tier 1 risk-based capital .................................................................................
Total risk-based capital ..................................................................................
Tier 1 leverage capital ....................................................................................
Average shareholders’ equity to average total assets .....................................

359,741
144,714
9,154
25,497
(15,976)
35,834
140,578
86,692

2.82
2.82
1.42
25.56

42,674

0.94 %

2,750

0.06 %

4,001

0.09 %
0.05 %

12.28 %
13.32 %
15.73 %
9.39 %
9.63 %

FINANCIAL CONDITION

Our total assets increased $726.3 million, or 9.6%, to $8.28 billion at December 31, 2023 from $7.56 billion at
December 31, 2022. Our securities portfolio decreased by $22.4 million, or 0.9%, to $2.60 billion, compared to $2.63 billion at
December 31, 2022. The decrease in the securities portfolio was due to the sale of municipal bonds, partially offset by
purchases of MBS and to a lesser extent, U.S. Treasury Bills during the year ended December 31, 2023. Our FHLB stock
increased $2.7 million, or 29.9%, to $11.9 million from $9.2 million at December 31, 2022, due to the increase in our FHLB
borrowings during the year ended December 31, 2023.

Loans at December 31, 2023 were $4.52 billion, an increase of $376.8 million, or 9.1%, compared December 31, 2022,
due to increases of $230.1 million in construction loans, $180.7 million in commercial real estate loans and $33.2 million in 1-4
family residential loans. The increases were partially offset by decreases of $45.2 million in commercial loans, $13.1 million in
loans to individuals and $8.9 million in municipal loans. Loans held for sale increased $10.2 million, or 1,533.3%, to $10.9
million at December 31, 2023 from $667,000 at December 31, 2022, due to the transfer of an $8.1 million commercial real
estate loan relationship to loans held for sale that included a write down of $788,000 to fair value.

Our nonperforming assets at December 31, 2023 decreased $6.9 million, or 63.2%, to $4.0 million and represented
0.05% of total assets, compared to $10.9 million, or 0.14% of total assets, at December 31, 2022. Nonaccruing loans increased
$1.0 million, or 36.6%, to $3.9 million, and the ratio of nonaccruing loans to total loans was 0.09% and 0.07% at December 31,
2023 and December 31, 2022, respectively. Restructured loans were $13,000 as of December 31, 2023, compared to $7.8
million at December 31, 2022. The decrease in restructured loans was due to the adoption of ASU 2022-22 on January 1, 2023,
which allowed for the prospective exclusion of loan modifications that are performing but would have previously required
disclosure as troubled debt restructures in nonperforming assets. There were no repossessed assets at December 31, 2023 and
$74,000 at December 31, 2022. There was $99,000 and $93,000 of OREO at December 31, 2023 and December 31, 2022,
respectively.

Our deposits increased $351.7 million, or 5.7%, to $6.55 billion at December 31, 2023 from $6.20 billion at
December 31, 2022, which consisted of an increase of $632.8 million in interest bearing deposits, partially offset by a decrease
of $281.2 million in noninterest bearing deposits. The increase in interest bearing deposits was due to the increase in interest
rates we paid during 2023 as well as an increase in our brokered deposits of $168.8 million, or 25.6%, to fund our cash flow
hedge swaps. Additionally, our public fund deposits increased $305.7 million, or 33.7%, most of which was interest bearing, to
$1.21 billion at December 31, 2023, from $907.7 million at December 31, 2022.

Total FHLB borrowings increased $59.3 million, or 38.7%, to $212.6 million at December 31, 2023, from $153.4

million at December 31, 2022.

Other borrowings increased $288.7 million, or 130.5%, to $509.8 million at December 31, 2023, from $221.2 million at
December 31, 2022, which consisted of an increase of $112.0 million in borrowings from the FRDW, $117.7 million in
borrowings from the BTFP and an increase of $59.0 million in repurchase agreements.

Our total shareholders’ equity at December 31, 2023 increased 3.7%, or $27.3 million, to $773.3 million, or 9.3% of total
assets, compared to $746.0 million, or 9.9% of total assets, at December 31, 2022. The increase in shareholders’ equity was the
result of net income of $86.7 million, other comprehensive income of $24.0 million, stock compensation expense of $3.6
million, common stock issued under our dividend reinvestment plan of $1.2 million and net issuance of common stock under
employee stock plans of $485,000, partially offset by the repurchase of $45.1 million of our common stock and cash dividends
paid of $43.6 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.

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 fourth quarter of 2023 with approximately $213.1 million in available
liquidity between the FRDW and the BTFP in addition to the approximately $1.95 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 December 31,
2023, the estimated deposits, without insurance or collateral, to total deposits, excluding affiliate deposits (Southside-owned
deposits) was 19.0%, or $1.24 billion.

During the year ended December 31, 2023, we entered into $600 million of additional cash flow hedge swaps, $100
million of which were terminated in the second quarter. We also replaced $60 million of brokered deposits with FHLB
advances as the funding source for cash flow hedge swaps, bringing this funding source to $210 million. At December 31,
2023, brokered deposits funded $800 million of our $1.01 billion remaining cash flow hedge swaps. As of December 31, 2023,
a pre-tax unrealized gain of $17.3 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 for our cash flow swaps and will utilize either
brokered deposits, FHLB advances or FRDW borrowings, or a combination of the three funding sources. At December 31,
2023, the majority of the securities portfolio was funded by non-maturity deposits, some of which are included in wholesale
funding that accounts for approximately 55% of the funding source, of which approximately 69% 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 this report 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 7A. Quantitative and Qualitative Disclosures about Market Risk”
in this report.

Our securities portfolio decreased slightly from $2.63 billion at December 31, 2022 to $2.60 billion at December 31,
2023. The decrease in the securities portfolio was due to sales of securities and principal payments during the year ended
December 31, 2023, which more than offset securities purchased.

During the year ended December 31, 2023, the composition of the securities portfolio continued to change as U.S.
Treasury Bills and 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 sales and principal payments. During the year ended
December 31, 2023, we purchased $1.43 billion in short-term U.S. Treasury Bills, $614.1 million in MBS and $5.8 million in
investment grade subordinated corporate debt. Sales during the year ended December 31, 2023, included $422.3 million in
municipal securities, $372.7 million in U.S. Treasury Bills and $346.5 million in MBS to align the investment portfolio with the
current balance sheet strategy. During the fourth quarter, sales of AFS securities were due to strategic opportunities related to a
drop in treasury rates and reinvestment of the proceeds primarily into higher yielding securities and to a lesser extent, into
loans. Sales of AFS securities for the year ended December 31, 2023, resulted in a net realized loss of $16.0 million which was
partially offset by the sale of equity securities that resulted in a net gain of $5.1 million for the year ended December 31, 2023.

At December 31, 2023, securities as a percentage of assets totaled 31.4%, compared to 34.7% at December 31, 2022, due
primarily to a $726.3 million, or 9.6%, increase in the total assets, while cash and cash equivalents increased to 6.77% of total
assets at December 31, 2023, compared to 2.64% at December 31, 2022. Our balance sheet management strategy is dynamic
and is continually evaluated as market conditions warrant.

During the year ended 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 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 December 31, 2023, hedged securities with a carrying amount of $460.4 million are
included in our AFS securities portfolio in our consolidated balance sheets representing approximately 36% and 81% 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 38.7%, or $59.3 million, to $212.6 million at December 31,
2023 from $153.4 million at December 31, 2022.

As of December 31, 2023, our total wholesale funding as a percentage of deposits, not including brokered deposits,

increased to 25.5%, from 18.1% at December 31, 2022.

Our brokered deposits may consist of CDs and non-maturity deposits. We had no brokered CDs at December 31, 2023,
compared to $220.9 million at December 31, 2022. Our brokered non-maturity deposits increased to $828.0 million at
December 31, 2023, of which $800.0 million are related to our cash flow hedges, from $438.4 million at December 31, 2022,
with a weighted average cost of 323 basis points and 126 basis points, respectively. 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 $1.01 billion 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 $1.01 billion
and $575.0 million of the agreements outstanding at December 31, 2023 and December 31, 2022, 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 attributable to fluctuations in the
underlying SOFR interest rate. The interest rate swap contracts had an average interest rate of 2.75% with a remaining average
weighted maturity of 2.3 years at December 31, 2023. 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.

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. Refer to Management’s Discussion and
Analysis of Financial Condition and Results of Operations included in our 2022 Form 10-K for a discussion and analysis of the
periods prior to 2022.

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

Years Ended December 31,

2023

2022

2021

Interest income:

Loans ................................................................................................................. $

244,803 $

170,410 $

144,803

Taxable investment securities ............................................................................

Tax-exempt investment securities .....................................................................
MBS ...................................................................................................................

FHLB stock and equity investments ..................................................................

Other interest earning assets ..............................................................................

31,186

54,629
19,450

1,185

8,488

18,940

45,001
16,639

503

1,488

13,312

37,730
19,534

530

Total interest income ....................................................................................

359,741

252,981

215,987

Interest expense:

Deposits .............................................................................................................

108,157

FHLB borrowings ..............................................................................................

Subordinated notes ............................................................................................

Trust preferred subordinated debentures ...........................................................

Repurchase agreements .....................................................................................

Other borrowings ...............................................................................................

Total interest expense ...................................................................................

6,777

3,920

4,504

3,431

17,925

144,714

29,075

3,291

4,015

2,397

199

1,663

40,640

9,404

7,348

8,246

1,390

—

26,430

Net interest income ............................................................................................... $

215,027 $

212,341 $

189,557

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% but held the rate steady in December 2023 for the third consecutive meeting and has indicated it may cut rates
in 2024. The increase in the federal funds rate has increased our net interest income. However, if the federal funds rate
increases further and the yield curve remains inverted, it may be less beneficial to our net interest income.

Net interest income was $215.0 million for the year ended December 31, 2023, compared to $212.3 million for the same
period in 2022, an increase of $2.7 million, or 1.3%. The increase in net interest income for the year ended December 31, 2023
was due to the increase in the average yield as well as the average balance of interest earning assets, partially offset by the
increase in interest expense on our interest bearing liabilities due to the increase in interest rates and an increase in the average
balance of our interest bearing liabilities. Total interest income increased $106.8 million, or 42.2%, to $359.7 million for the
year ended December 31, 2023, compared to $253.0 million for the same period in 2022. Total interest expense increased
$104.1 million, or 256.1%, to $144.7 million for the year ended December 31, 2023, compared to $40.6 million for the same
period in 2022. Our net interest margin and net interest margin (FTE), a non-GAAP measure, decreased to 2.92% and 3.09%,
respectively, for the year ended December 31, 2023, compared to 3.11% and 3.32%, respectively, for the same period in 2022,
and our net interest spread and net interest spread (FTE), also a non-GAAP measure, decreased to 2.25% and 2.42%,
respectively, compared to 2.86% and 3.07%, respectively, for the same period in 2022. See “Non-GAAP Financial Measures”
for more information and for a reconciliation to GAAP.

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):

Fully Taxable-Equivalent Basis:
Interest income on:

Year Ended December 31, 2023
Compared to 2022

Year Ended December 31, 2022
Compared to 2021

Change Attributable to
Average
Average
Yield/Rate
Volume

Total
Change

Change Attributable to
Average
Average
Yield/Rate
Volume

Total
Change

.............................................................. $ 18,139 $

Loans (1)
Loans held for sale ..............................................
Taxable investment securities ............................
Tax-exempt investment securities (1)
...................
Mortgage-backed and related securities ..............
FHLB stock, at cost, and equity investments ......
Interest earning deposits ......................................
Federal funds sold ...............................................
Total earning assets ........................................

Interest expense on:

Savings accounts .................................................
CDs ......................................................................
Interest bearing demand accounts .......................
FHLB borrowings ...............................................
Subordinated notes, net of unamortized debt
issuance costs ......................................................

Trust preferred subordinated debentures, net of
unamortized debt issuance costs .........................
Repurchase agreements .......................................
Other borrowings ................................................
Total interest bearing liabilities ......................

30
7,482
(4,287)
(917)

101
845
1,305
22,698

(100)
3,907
(120)
3,446

(105)

—
986
15,061
23,075

55,937 $ 74,076 $ 10,475 $
48
12,246
8,179
2,811

(33)
5,201
9,024
(8,635)

18
4,764
12,466
3,728

581
3,157
1,693
82,344

682
4,002
2,998
105,042

3,895
21,340
50,160
40

3,795
25,247
50,040
3,486

(291)
(3)
1,126
16,864

173
(514)
1,645
(8,637)

15,213 $
25
427
(410)
5,740

264
287
—
21,546

712
2,538
15,117
4,580

25,688
(8)
5,628
8,614
(2,895)

(27)
284
1,126
38,410

885
2,024
16,762
(4,057)

(95)

(3,122)

(1,109)

(4,231)

2,107
2,246
1,201
80,999

2,107
3,232
16,262
104,074

—
19
1,663
(8,773)

1,007
138
—
22,983
(1,437) $

1,007
157
1,663
14,210
24,200

Net change ................................................... $

(377) $

1,345 $

968 $ 25,637 $

(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 year ended December 31, 2023 was attributable to the increase in average
yield on interest earning assets to 5.06% from 3.92% for the year ended December 31, 2022, as well as a $538.5 million, or
7.9%, increase in the average balance of interest earning assets for the year ended December 31, 2023, compared to the year
ended December 31, 2022. The increase in average earning assets was primarily the result of the increase in loans and taxable
investment securities, partially offset by the decrease in tax-exempt investment securities.

The increase in total interest expense for the year ended December 31, 2023 was primarily attributable to the increase in
interest rates on our interest bearing liabilities to 2.64% from 0.85% for the year ended December 31, 2022, and an increase in
the average balance of our interest bearing liabilities of $727.8 million, or 15.3%, when compared to the same period in 2022.

Interest bearing demand, savings and noninterest bearing demand deposits are considered the lowest cost deposits and
decreased to 85.9% of total average deposits for the year ended December 31, 2023 from 90.5% for the year ended
December 31, 2022.

At December 31, 2023, we had no brokered CDs, compared to brokered CDs being 3.6% of deposits at December 31,
2022. Our brokered non-maturity deposits increased to 12.6% of deposits at December 31, 2023, compared to 7.1% of deposits
at December 31, 2022. 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.

AVERAGE BALANCES WITH AVERAGE YIELDS AND RATES

The following table presents 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 for the years ended December 31, 2023, 2022 and 2021.
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. The information should be
reviewed in conjunction with the consolidated financial statements for the same years then ended (dollars in thousands):

December 31, 2023

Average Balances with Average Yields and Rates
Year Ended
December 31, 2022

December 31, 2021

Average
Balance

Interest

Avg
Yield/
Rate

Average
Balance

Interest

Avg
Yield/
Rate

Average
Balance

Interest

Avg
Yield/
Rate

ASSETS
Loans (1)
Loans held for sale .........................
Securities:

.......................................... $ 4,300,138 $ 247,431
96

1,681

5.75 % $ 3,918,249 $ 173,355
48
1,098
5.71 %

4.42 % $ 3,668,149 $ 147,667
56
2,063
4.37 %

4.03 %
2.71 %

Taxable investment
securities (2) .......................
Tax-exempt investment
securities (2)
Mortgage-backed and
related securities (2)

........................

............
Total securities .....

FHLB stock, at cost, and equity
investments ....................................
Interest earning deposits .................
Federal funds sold ..........................
Total earning assets ..................
Cash and due from banks ...............
Accrued interest and other assets ...
Less: Allowance for loan
losses .................................

845,907

31,186

3.69 %

627,546

18,940

3.02 %

454,836

13,312

2.93 %

1,554,519

64,568

4.15 % 1,675,227

56,389

3.37 % 1,407,231

47,775

3.39 %

470,692
2,871,118

19,450
115,204

4.13 %
496,940
4.01 % 2,799,713

16,639
91,968

3.35 %
793,300
3.28 % 2,655,367

19,534
80,621

1,185
4,364
4,124
372,404

24,971
83,343
79,948
7,361,199
107,018
397,860

21,255
4.75 %
37,898
5.24 %
5.16 %
44,454
5.06 % 6,822,667
104,602
457,782

503
362
1,126
267,362

37,549
2.37 %
39,426
0.96 %
2.53 %
—
3.92 % 6,402,554
94,959
670,062

530
78
—
228,952

2.46 %
3.04 %

1.41 %
0.20 %
—
3.58 %

(37,890)
Total assets ............................... $ 7,828,187

(35,962)
$ 7,349,089

(43,064)
$ 7,124,511

LIABILITIES AND
SHAREHOLDERS’ EQUITY
Savings accounts ............................ $ 636,603
862,211
CDs ................................................
3,122,319
Interest bearing demand accounts ..
4,621,133
Total interest bearing deposits ..
276,584
FHLB borrowings ..........................

5,633
30,906
71,618
108,157
6,777

0.88 % $ 671,402
3.58 %
579,223
2.29 % 3,139,628
2.34 % 4,390,253
135,926
2.45 %

1,838
5,659
21,578
29,075
3,291

0.27 % $ 578,245
0.98 %
663,789
0.69 % 2,464,670
0.66 % 3,706,704
665,384
2.42 %

953
3,635
4,816
9,404
7,348

0.16 %
0.55 %
0.20 %
0.25 %
1.10 %

96,024

3,920

4.08 %

98,604

4,015

4.07 %

171,857

8,246

4.80 %

Subordinated notes, net of
unamortized debt issuance costs ....
Trust preferred subordinated
debentures, net of unamortized
debt issuance costs .........................
Repurchase agreements ..................
Other borrowings ...........................
Total interest bearing liabilities
Noninterest bearing deposits ..........
Accrued expenses and other
liabilities .........................................
Total liabilities ..........................
Shareholders’ equity ......................

60,267
91,132
345,544
5,490,684
1,485,896

97,509
7,074,089
754,098

Total liabilities and
shareholders’ equity .................. $ 7,828,187

Net interest income (FTE) ..............
Net interest margin (FTE) ..............
Net interest spread (FTE) ...............

4,504
3,431
17,925
144,714

60,262
7.47 %
29,919
3.76 %
5.19 %
47,926
2.64 % 4,762,890
1,712,849

2,397
199
1,663
40,640

60,258
3.98 %
22,257
0.67 %
3.47 %
—
0.85 % 4,626,460
1,516,682

1,390
42
—
26,430

2.31 %
0.19 %
—
0.57 %

90,988
6,566,727
782,362

$ 7,349,089

93,136
6,236,278
888,233

$ 7,124,511

$ 227,690

$ 226,722

$ 202,522

3.09 %
2.42 %

3.32 %
3.07 %

3.16 %
3.01 %

(1)
(2)

Interest on loans includes net fees on loans that are not material in amount.
For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note: As of December 31, 2023, 2022 and 2021, loans totaling $3.9 million, $2.8 million and $2.5 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.

PROVISION FOR CREDIT LOSSES

For the year ended December 31, 2023, there was a provision for credit losses of $9.2 million, compared to $3.2 million
for the year ended December 31, 2022. The increase in provision expense for the year ended December 31, 2023, compared to
2022, was primarily due to increased economic and repricing concerns forecasted in our CECL model.

As of December 31, 2023, and 2022, our reviews of the loan portfolio indicated that loan loss allowances of $42.7
million and $36.5 million, respectively, were appropriate to cover expected credit losses in the portfolio. See the section
captioned “Allowance for Credit Losses - Loans” elsewhere in this discussion for further analysis of the provision for credit
losses for loans.

The balance of the allowance for off-balance-sheet credit exposures at December 31, 2023 and 2022, was $3.9 million
and $3.7 million, respectively, and is included in other liabilities. See the section captioned “Allowance for Credit Losses -
Off-Balance-Sheet Credit Exposures” elsewhere in this discussion for further analysis of the provision for credit losses for off-
balance-sheet credit exposures.

The following table details the provision for (reversal of) loan losses and provision for (reversal of) off-balance-sheet

credit exposures for the years ended December 31, 2023, 2022 and 2021 (dollars in thousands):

2023

Increase
(Decrease)

2022

Increase
(Decrease)

2021

Provision for (reversal of) loan losses .............. $ 8,909 $ 6,971

359.7 % $ 1,938 $ 14,900

115.0 % $ (12,962)

Provision for (reversal of) off-balance-sheet
credit exposures ................................................

245

(1,058)

(81.2) %

1,303

5,305

132.6 %

(4,002)

Total provision for (reversal of) credit losses $ 9,154 $ 5,913

182.4 % $ 3,241 $ 20,205

119.1 % $ (16,964)

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 for the years ended December 31, 2023, 2022

and 2021 (dollars in thousands):

2023

Increase
(Decrease)

2022

Increase
(Decrease)

2021

Deposit services .................................................... $ 25,497 $

(346)

(1.3) % $ 25,843 $

(525)

(2.0) % $ 26,368

Net gain (loss) on sale of securities AFS .............

(15,976)

(12,157)

Net gain on sale of equity securities .....................

5,058

Gain on sale of loans ............................................

563

Trust fees ..............................................................

5,910

(82)

(318.3) %
100.0 %
6.0 %

(3,819)
—
531

(1.4) %

5,992

BOLI .....................................................................

5,823

3,176

120.0 %

2,647

Brokerage services ...............................................

Other noninterest income .....................................

3,305

5,654

(30)

(0.9) %

3,335

(674)

(10.7) %

6,328

(7,681)

(198.9) %

—

(1,110)

(67.6) %

3,862
—
1,641

(48)

823

0.6 %

5,959

1.1 %

2,618

(1.4) %

3,383

15.0 %

5,505

Total noninterest income ................................. $ 35,834 $ (5,023)

(12.3) % $ 40,857 $ (8,479)

(17.2) % $ 49,336

The 12.3% decrease in noninterest income for the year ended December 31, 2023, when compared to the same period in
2022, was due to an increase in net loss on sale of securities AFS and a decrease in other noninterest income, partially offset by
a net gain on sale of equity securities and an increase in BOLI income.

During the years ended December 31, 2023 and December 31, 2022, we sold MBS, U.S. Treasury securities and

municipal securities that resulted in net losses on sale of AFS securities of $16.0 million and $3.8 million, respectively.

During the year ended December 31, 2023, we sold equity securities that resulted in a net gain of $5.1 million.

The increase in BOLI income for the year ended December 31, 2023, when compared to the same period in 2022, was

primarily due to death benefits of $3.0 million realized during the year ended December 31, 2023 for former covered officers.

Other noninterest income decreased for the year ended December 31, 2023, when compared to the same period in 2022,
primarily due to decreases in investment income, mortgage servicing fee income, merchant services income and mortgage
derivative income, partially offset by a gain recognized on the repurchase of $5.0 million of our subordinated notes and an
increase in equity investment income.

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 for the years ended December 31, 2023, 2022 and 2021
(dollars in thousands):

2023

Increase
(Decrease)

2022

Increase
(Decrease)

2021

Salaries and employee benefits ...................... $ 85,625 $

2,992

3.6 % $ 82,633 $

2,741

3.4 % $ 79,892

Net occupancy ...............................................

14,694

(436)

(2.9) %

15,130

891

6.3 %

14,239

Advertising, travel & entertainment ..............

ATM expense .................................................

Professional fees ............................................

Software and data processing ........................

Communications ............................................

FDIC insurance ..............................................

Amortization of intangibles ...........................

4,093

1,351

5,351

9,395

1,469

3,558

1,697

Loss on redemption of subordinated notes ....
Other noninterest expense ..............................

—
13,345

663

392

19.3 %

2.8 %

7.9 %

2,548

37.2 %

(427)

(22.5) %

1,613

82.9 %

(576)

(25.3) %

—
3,446

—

34.8 %

3,430

1,314

4,959

6,847

1,896

1,945

2,273

—
9,899

1,063

44.9 %

148

944

12.7 %

23.5 %

1,172

20.7 %

(337)

(15.1) %

138

7.6 %

(576)

(20.2) %

(1,118)
230

(100.0) %
2.4 %

2,367

1,166

4,015

5,675

2,233

1,807

2,849

1,118
9,669

Total noninterest expense ......................... $ 140,578 $ 10,252

7.9 % $ 130,326 $

5,296

4.2 % $ 125,030

The increase in noninterest expense for the year ended December 31, 2023, when compared to the same period in 2022,
was primarily due to increases in other noninterest expense, salaries and employee benefits, software and data processing
expense, FDIC insurance and advertising, travel and entertainment.

Salaries and employee benefits expense increased during the year ended December 31, 2023, compared to the same
period in 2022, due to an increase in direct salary expense, partially offset by decreases in retirement expense and health
insurance expense.

Direct salary expense increased $3.9 million, or 5.5%, for the year ended December 31, 2023, compared to the same
period in 2022, primarily due to normal salary increases effective in the first quarter of 2023 and new employees hired during
the year.

Retirement expense, included in salaries and employee benefits, decreased $487,000, or 14.5%, for the year ended
December 31, 2023, compared to the same period in 2022. This decrease was primarily due to decreases in our split dollar
expense, deferred compensation expense, post-retirement benefits expense, partially offset by an increase in our 401(k)
matching expense.

Health and life insurance expense, included in salaries and employee benefits, decreased $373,000, or 4.3%, for the year
ended December 31, 2023, compared to the same period in 2022, primarily due to a decrease in health claims expense. We
have a self-insured health plan which is supplemented with a stop loss policy.

Advertising, travel and entertainment expense increased during the year ended December 31, 2023, compared to the
same period in 2022, primarily due to increases in media and other advertising expense, travel related expenses, conference
registrations fees and donations.

Software and data processing expense increased for the year ended December 31, 2023, compared to the same period in

2022, due to new software contracts and increases in existing contract renewal costs.

Communications expense decreased for the year ended December 31, 2023, when compared to the same period in 2022,

driven by a decrease in phone and internet costs due to a change in vendors.

FDIC insurance increased for the year ended December 31, 2023, when compared to the same period in 2022, 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 year ended December 31, 2023, compared to the same period in 2022, 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 primary increase in other noninterest expense for the year ended December 31, 2023, when compared to the same
period in 2022, was in non-service cost retirement expense related to the Retirement Plan. Several additional expenses

increased during the year ended December 31, 2023, including advantage check card losses, online banking expense, security
expense, dues and assessments, subscriptions and other losses.

INCOME TAXES

Pre-tax income for the year ended December 31, 2023 was $101.1 million, compared to $119.6 million for the year

ended December 31, 2022.

Income tax expense was $14.4 million for the year ended December 31, 2023 and represented a decrease of $0.2 million,
or 1.2%, from $14.6 million for the year ended December 31, 2022. The ETR as a percentage of pre-tax income was 14.3% in
2023 and 12.2% in 2022. The increase in the ETR for the year ended December 31, 2023, compared to the same period in
2022, was mainly due to a decrease in tax-exempt income as a percentage of pre-tax income. The decrease in the income tax
expense for the year ended December 31, 2023 is primarily due to the decrease in pre-tax income in 2023 offset by an increase
in the ETR as compared to the same period in 2022.

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 $30.4 million at December 31, 2023, as compared to $34.7
million in 2022. The decrease in the net deferred tax asset is primarily the result of a decrease in unrealized losses in the AFS
securities portfolio. See “Note 15 – Income Taxes” to our consolidated financial statements included in this report. No
valuation allowance was recorded at December 31, 2023 or December 31, 2022, as management believes it is more likely than
not that all of the deferred tax asset items will be realized in future years.

LENDING ACTIVITIES

One of our main objectives is to seek attractive lending opportunities in Texas, primarily in the market areas in which we
operate. 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.

Total loans as of December 31, 2023 increased $376.8 million, or 9.1%, and the average loan balance outstanding for the

year increased $381.9 million, or 9.7%, compared to 2022.

From December 31, 2022 to December 31, 2023, construction loans increased $230.1 million, commercial real estate
loans increased $180.7 million and 1-4 family residential loans increased $33.2 million. The increases were partially offset by
decreases of $45.2 million in commercial loans, $13.1 million in loans to individuals and $8.9 million in municipal loans.
Loans held for sale increased $10.2 million, or 1,533.3%, to $10.9 million at December 31, 2023 from $667,000 at
December 31, 2022, due to the transfer of an $8.1 million commercial real estate loan relationship to loans held for sale that
included a write down of $788,000 to fair value.

Our greatest concentration of loans is in our real estate portfolio. Management does not consider there to be a

concentration of risk in any one industry type. See “Item 1. Business – Market Area.”

The aggregate amount of loans that we are permitted to make under applicable bank regulations to any one borrower,
including non-affiliate related entities is 25% of Tier 1 capital. Our legal lending limit at December 31, 2023, was
approximately $209.1 million. Our largest loan relationship at December 31, 2023 was approximately $133.3 million.

The average yield on loans for the year ended December 31, 2023 increased to 5.75%, compared to 4.42% for the year

ended December 31, 2022. This increase was due to the higher interest rate environment during 2023.

LOAN PORTFOLIO COMPOSITION AND ASSOCIATED RISK

For purposes of this discussion, our loans are divided into real estate loans, commercial loans, municipal loans and loans

to individuals.

REAL ESTATE LOANS

Our real estate loan portfolio consists of construction, 1-4 family residential and commercial real estate loans, and
represents our greatest concentration of loans. We attempt to mitigate the amount of risk associated with this group of loans
through the type of loans originated and geographic distribution. At December 31, 2023, the majority of our real estate loans
were collateralized by properties located in our market areas. Of the $3.65 billion in real estate loans, $696.7 million, or 19.1%,
represent loans collateralized by residential dwellings that are primarily owner occupied. Historically, the amount of losses
suffered on this type of loan has been significantly less than those on other properties. Prior to funding any real estate loan, our
loan policy requires an appraisal or evaluation of the property and also outlines the requirements for appraisals on renewals
based on the size and complexity of the transaction.

We pursue an aggressive policy of reappraisal on any real estate loan that is in the process of foreclosure and potential
exposures are recognized and reserved for or charged off as soon as they are identified. Our ability to liquidate certain types of
properties that may be obtained through foreclosure could adversely affect the volume of our nonperforming real estate loans.

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. Historically, we have originated a
portion of our residential loans for sale into the secondary market. These loans are reflected on the balance sheet as loans held
for sale. Secondary market investors, other than Fannie Mae, typically pay us a service release premium in addition to a
predetermined price based on the interest rate of the loan originated. We retain liabilities related to early prepayments, defaults,
failure to adhere to origination and processing guidelines and other issues. We have internal controls in place to mitigate many
of these liabilities and historically our realized liability has been extremely low. In addition, many of the retained liabilities
expire one year from the date a loan is sold. We warehouse these loans until they are transferred to the secondary market
investor, which usually occurs within 45 days.

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.

We also make home equity loans, which are included as part of the 1-4 family residential loans, and at December 31,
2023, these loans totaled $98.5 million. Under Texas law, these loans, when combined with all other mortgage indebtedness for
the property, are capped at 80% of appraised value.

Commercial Real Estate Loans

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. Management does not consider there to be a concentration of risk in any one industry type. 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. Most of our fixed rate commercial real estate loans adjust at least every five
years. At December 31, 2023, commercial real estate loans consisted of $1.79 billion of owner and non-owner occupied real
estate loans, $347.5 million of loans secured by multi-family properties and $28.6 million of loans secured by farmland.

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. Management does not
consider there to be a concentration of risk in any one industry type. 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. Commercial loans decreased $45.2 million, or 11.0%, to
$366.9 million as of December 31, 2023, when compared to 2022.

MUNICIPAL LOANS

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 municipalities and school
districts decreased $8.9 million, or 2.0%, to $441.2 million as of December 31, 2023, when compared to 2022. Currently, we
are not originating municipal loans due to the tight credit spreads and low overall yields. Until municipal loan pricing improves,
we do not anticipate originating municipal loans and as a result, expect this portfolio will decline as maturities and scheduled
payments occur.

LOANS TO INDIVIDUALS

Substantially all originations of our loans to individuals are made to consumers in our market areas. At December 31,
2023, loans collateralized by titled equipment, which are primarily automobiles, accounted for approximately $35.0 million, or
56.8%, of total loans to individuals.

Home equity loans, which are included in 1-4 family residential loans, have replaced some of the traditional loans to
individuals. In addition, we make loans for a full range of other consumer purposes, which may be secured or unsecured
depending on the credit quality and purpose of the loan.

Consumer 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.

LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES

The following tables represent loan maturities and sensitivity to changes in interest rates for our loans (dollars in
thousands). The amounts of these loans outstanding at December 31, 2023, which, based on maturity, are due in (1) one year or
less, (2) after one but within five years, (3) after five years but within 15 years, and (4) after 15 years, are shown in the
following table. The amounts due after one year are classified according to the sensitivity to changes in interest rates:

Due in One
Year or Less

After One but
Within Five
Years

After Five
Years Within
15 Years

After 15 Years

Total

Real estate loans:

Construction .................................................. $

114,989 $

541,552 $

50,840 $

82,363 $

1-4 family residential ....................................

Commercial ...................................................

Commercial loans ............................................

Municipal loans ................................................

3,787

64,172

166,718

3,766

40,324

1,432,778

169,143

69,910

140,929

619,464

30,774

229,946

511,698

52,037

258

137,546

789,744

696,738

2,168,451

366,893

441,168

Loans to individuals .........................................
Total loans ........................................................ $

10,379
363,811 $

40,905
2,294,612 $

10,026
1,081,979 $

206
784,108 $

61,516
4,524,510

Loans with maturities after one year for which:
Real estate loans:

Interest Rates are Fixed or
Predetermined

Interest Rates are Floating or
Adjustable

Construction ................................................................................. $
1-4 family residential ....................................................................
Commercial ..................................................................................
Commercial loans ............................................................................
Municipal loans ...............................................................................
Loans to individuals ........................................................................
Total loans ....................................................................................... $

132,822
575,729
1,027,369
156,902
417,958
50,843
2,361,623

541,933
117,222
1,076,910
43,273
19,444
294
1,799,076

LOANS TO AFFILIATED PARTIES

In the normal course of business, we make loans to certain of our own executive officers and directors and their related
interests. These loans totaled $13.7 million and $14.2 million and represented 1.8% and 1.9% of shareholders’ equity as of
December 31, 2023 and 2022, respectively.

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.

Total nonperforming assets at December 31, 2023 were $4.0 million, representing a decrease of $6.9 million, or 63.2%,
from $10.9 million at December 31, 2022. The decrease in nonperforming assets was primarily due to the adoption of ASU
2022-02 on January 1, 2023, which allowed for the prospective exclusion of loan modifications that are performing but would
have previously required disclosure as troubled debt restructures in nonperforming assets. From December 31, 2022 to
December 31, 2023, nonaccrual loans increased $1.0 million, or 36.6%, to $3.9 million with increases in nonaccrual 1-4 family
residential loans and commercial loans, partially offset by decreases in nonaccrual construction loans, commercial real estate
loans and loans to individuals during the year. Restructured loans decreased $7.8 million, or 99.8%, to $13,000. There was
$99,000 in OREO and no repossessed assets as of December 31, 2023. As of December 31, 2022, there was $93,000 in OREO
and $74,000 in repossessed assets.

The following table sets forth nonperforming assets and selected asset quality ratios for the periods presented (dollars in

thousands):

December 31,

2023

2022

Change (%)

..................................................................... $

Nonaccrual loans (1)
Accruing loans past due more than 90 days ...............................
Restructured loans (2)
OREO ..........................................................................................

...................................................................

Repossessed assets ......................................................................

3,889 $

—

Total nonperforming assets ......................................................... $

4,001 $

Total loans ......................................................................................... $

4,524,510 $

Allowance for loan losses at end of period .................................

42,674

36.6 %

—

(99.8) %

6.5 %

(100.0) %

(63.2) %

2,846

—

7,849

10,862

4,147,691

36,515

Ratio of nonaccruing loans to:

Total loans .........................................................................................................

0.09 %

0.07 %

Ratio of nonperforming assets to:

Total assets ........................................................................................................
Total loans .........................................................................................................
Total loans and OREO ......................................................................................

Ratio of allowance for loan losses to:

Nonaccruing loans ...................................................................................................

Nonperforming assets ..............................................................................................

Total loans ................................................................................................................

0.05 %
0.09 %
0.09 %

1,097.30 %

1,066.58 %

0.94 %

0.14 %
0.26 %
0.26 %

1,283.03 %

336.17 %
0.88 %

(1) Includes $506,000 and $897,000 of restructured loans as of December 31, 2023 and December 31, 2022, respectively.

(2) Pursuant to our adoption of ASU 2022-02, effective January 1, 2023, we prospectively discontinued the recognition and
measurement guidance previously required on troubled debt restructures. As a result, “restructured” loans as of
December 31, 2023 exclude any loan modifications that are performing but would have previously required disclosure as
troubled debt restructures.

Nonperforming assets hinder our ability to earn interest income. Decreases in earnings can result from both the loss of
interest income and the costs associated with maintaining the OREO, for taxes, insurance and other operating expenses. We
actively market all OREO properties and do not hold them for investment purposes.

We reversed $89,000 of interest income on nonaccrual loans during the year ended December 31, 2023. We had $1.0

million of loans on nonaccrual for which there was no related allowance for credit losses as of December 31, 2023.

ALLOWANCE FOR CREDIT LOSSES – LOANS

The following table presents information regarding changes in the allowance for loan losses for the periods presented (in

thousands):

Balance of allowance for loan losses at beginning of period ................................... $
Total loan charge-offs ..............................................................................................

Total recovery of loans previously charged-off .......................................................

Net loan charge-offs .................................................................................................

Provision for (reversal of) loan losses ......................................................................

Years Ended December 31,

2023
36,515

(4,204)

1,454

(2,750)

8,909

2022
35,273

(2,584)

1,888

(696)

1,938

2021
$ 49,006
(2,751)

(1,980)

(771)

(12,962)

Allowance for loan losses at end of period .............................................................. $

42,674

36,515

35,273

Our allowance for loan losses was $42.7 million at December 31, 2023, or 0.94% of loans, an increase of $6.2 million, or
16.9%, compared to $36.5 million at December 31, 2022. The increase was primarily due to increased economic and repricing
concerns forecasted in our CECL model when compared to December 31, 2022.

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 concerns forecasted in our CECL model as of
December 31, 2023.

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, 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.

Our lenders have the primary responsibility for identifying problem loans based on customer financial stress and
underlying collateral. These recommendations are reviewed by a senior credit officer, the special assets department and the
loan review department on a monthly basis. The loan review department independently reviews the portfolio on an annual basis
in compliance with the board-approved annual loan review scope. The loan review scope encompasses a number of
considerations including the size of the loan, the type of credit extended, the seasoning of the loan and the performance of the
loan. The loan review scope, as it relates to size, focuses more on larger dollar loan relationships, typically aggregate debt of
$500,000 or greater.

At each review, a subjective analysis methodology is used to grade the respective loan. Categories of grading vary in
severity from loans that do not appear to have a significant probability of loss at the time of review to loans that indicate a
probability that the entire balance of the loan will be uncollectible. If at the time of the review we determine it is probable we
will not collect the principal and interest cash flows contractually due on the loan, estimates of future expected cash flows or
appraisals of the collateral securing the debt are used to determine the necessary allowance. The internal loan review
department maintains a list of all loans or loan relationships that are graded as having more than the normal degree of risk

associated with them. In addition, a list of specifically reserved loans or loan relationships of $150,000 or more is updated on a
quarterly basis in order to properly determine necessary allowances and keep management informed on the status of attempts to
correct the deficiencies noted with respect to the loans.

As of December 31, 2023, our review of the loan portfolio indicated that an allowance for loan losses of $42.7 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.

Industry and our own experience indicate that a portion of our loans will become delinquent and a portion of our loans
will require partial or full charge-off. Regardless of the underwriting criteria utilized, losses may occur as a result of various
factors beyond our control, including, among other things, changes in market conditions affecting the value of properties used
as collateral for loans and problems affecting the credit worthiness of the borrower and the ability of the borrower to make
payments on the loan. Our determination of the appropriateness of the allowance for loan losses is based on various
considerations, including an analysis of the risk characteristics of various classifications of loans, previous loan loss experience,
specific loans which have loan loss potential, delinquency trends, estimated fair value of the underlying collateral, current
economic conditions and geographic and industry loan concentration.

The following table presents the allocation of allowance for loan losses for the years presented (dollars in thousands):

December 31,

2023

2022

Percent
of Loans
To Total
Loans

Amount

Percent
of Loans
To Total
Loans

Amount

Real estate loans:

Construction ..................................................................................
1-4 family residential .....................................................................

Commercial ...................................................................................

Commercial loans .............................................................................

Municipal loans ................................................................................

Loans to individuals .........................................................................

5,287

2,840

32,266

2,086

176

17.5 % $

15.4 %

47.9 %

8.1 %

9.7 %

1.4 %

3,164

2,173

28,701

2,235

197

13.5 %

16.0 %

47.9 %

9.9 %

10.9 %

1.8 %

Ending balance .................................................................................

42,674

100.0 % $

36,515

100.0 %

The following table presents information regarding the net charge-offs to average amount of loans outstanding by

portfolio segment (dollars in thousands):

December 31, 2023

Net Loans
(Charged-
off)
Recovered

Average
Loans
Outstanding

Net (Charge-
offs)
Recoveries
to Average
Loans
Outstanding

Years Ended
December 31, 2022

Net Loans
(Charged-
off)
Recovered

Average
Loans
Outstanding

Net (Charge-
offs)
Recoveries
to Average
Loans
Outstanding

December 31, 2021

Net Loans
(Charged-
off)
Recovered

Average
Loans
Outstanding

Net (Charge-
offs)
Recoveries
to Average
Loans
Outstanding

Real estate loans:

Construction .......... $
1-4 family
residential ..............
Commercial ...........
Commercial loans .....
Municipal loans ........
Loans to individuals .
Total ........................ $

(90) $ 696,204

(0.01) % $

2 $ 517,570

—

2 $ 529,914

—

(9)
(787)
(985)
—
(879)

677,485
2,042,462
384,421
432,740
66,826
(2,750) $ 4,300,138

—
(0.04) %
(0.26) %
—
(1.32) %
(0.06) % $

650,785
38
1,802,971
81
410,566
(199)
454,841
—
(618)
81,516
(696) $ 3,918,249

0.01 %

—
(0.05) %
—
(0.76) %
(0.02) % $

681,332
(61)
1,445,579
87
499,295
(330)
421,761
—
(469)
90,268
(771) $ 3,668,149

(0.01) %
0.01 %
(0.07) %
—
(0.52) %
(0.02) %

For the year ended December 31, 2023, net loan charge-offs increased $2.1 million, or 295.1%, to $2.8 million, compared

to $696,000 for the same period in 2022.

See “Note 5 – Loans and Allowance for Loan Losses” in our consolidated financial statements included in this report.

ALLOWANCE FOR CREDIT LOSSES – OFF-BALANCE-SHEET CREDIT EXPOSURES

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

Years Ended December 31,

2023

2022

2021

Balance at beginning of period ............................................................................. $
Provision for (reversal of) off-balance-sheet credit exposures .............................
Balance at end of period ........................................................................................ $

3,687 $
245
3,932 $

2,384 $
1,303
3,687 $

6,386
(4,002)
2,384

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 the year ended December 31, 2023, we recorded a provision for credit losses for off-
balance-sheet exposures of $245,000, compared to $1.3 million for the year ended December 31, 2022. The decrease for the
year ended December 31, 2023 was primarily due to a decrease in the commitments compared to 2022. For additional
information regarding our methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures,
see “Note 17 – Off-Balance-Sheet Arrangements, Commitments and Contingencies” to our consolidated financial statements
included in this report.

SECURITIES ACTIVITY

Our securities portfolio plays a primary role in the management of our interest rate sensitivity and liquidity and,
therefore, is managed in the context of the overall balance sheet. The securities portfolio generates a substantial percentage of
our interest income and serves as a necessary source of liquidity.

Refer to “Note 1 – Summary of Significant Accounting and Reporting Policies” and “Note 4 – Securities” to our
consolidated financial statements included in this report for a detailed description of our accounting related to our debt and
equity securities.

Management attempts to deploy investable funds into instruments that are expected to provide a reasonable overall return
on the portfolio given the current assessment of economic and financial conditions, while maintaining acceptable levels of
capital, interest rate and liquidity risk. At December 31, 2023, the combined investment securities, MBS, FHLB stock and
other investments as a percentage of total assets was 31.7% compared to loans, which were 54.7% of total assets. For a
discussion of our strategy in relation to the securities portfolio, see “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Balance Sheet Strategy.”

Our MBS are all insured or guaranteed by U.S. government agencies and corporations. Our MBS include CMOs, which
were developed in response to investor concerns regarding the uncertainty of cash flows associated with the prepayment option
of the underlying mortgages. MBS generally may be prepaid at any time without penalty and can result in significantly
increased price and yield volatility. Most of our MBS were purchased at a premium and should they prepay at a faster rate, our
yield on these securities will decrease. Conversely, as prepayments slow, the yield on these MBS will increase. The total net
unamortized premium for our MBS increased to $9.5 million at December 31, 2023 compared to $1.3 million at December 31,
2022.

Our investment securities consist primarily of state and political subdivision (municipal bonds) and to a lesser extent,
U.S. Treasury Bills and corporate bonds. Most of our municipal bonds were issued by the State of Texas or political
subdivisions or agencies within the State of Texas and are highly rated. Our corporate bonds consist of investment grade bonds,
private placement bonds and two bonds totaling approximately $6.4 million, rated one grade below investment grade.

During 2023, we sold municipal securities, mortgage related securities and U.S. Treasury Bills that resulted in an overall
loss of $16.0 million, which included a net gain of $6.5 million recorded on the unwind of fair value municipal security hedges
in the AFS securities portfolio. The loss on AFS securities was primarily driven by fourth quarter sales of AFS securities with a
net loss of $10.4 million for the three months ended December 31, 2023. The fourth quarter sales of AFS securities were due to
strategic opportunities related to a drop in treasury rates and reinvestment of the proceeds primarily into higher yielding
securities and to a lesser extent, into loans. During 2022, the sale of AFS securities resulted in an overall net loss of $3.8
million.

The combined investment securities, MBS, FHLB stock and other investments decreased to $2.62 billion at
December 31, 2023, compared to $2.65 billion at December 31, 2022, a decrease of $21.1 million, or 0.8%. The decrease is a
result of a decrease in our investment securities portfolio of $254.9 million, or 11.8%, partially offset by an increase in our
MBS of $232.6 million, or 50.3%, when compared to December 31, 2022.

The combined fair value of the AFS and HTM securities portfolio at December 31, 2023 was $2.46 billion, which
represented a net unrealized loss as of that date of $177.1 million. The net unrealized loss was comprised of $191.3 million of
unrealized losses and $14.2 million in unrealized gains. The fair value of the AFS securities portfolio at December 31, 2023
was $1.30 billion, which included a net unrealized loss of $36.2 million. The net unrealized loss was comprised of $39.8
million of unrealized losses and $3.7 million of unrealized gains. The majority of the $39.8 million of unrealized losses is
reflected in our state and political subdivisions. Net unrealized gains and losses on AFS securities, which is also a component
of shareholders’ equity on the consolidated balance sheet, can fluctuate significantly as a result of changes in interest rates and
is monitored through the use of shock tests on the AFS securities portfolio using an array of interest rate assumptions.

From time to time, we transfer securities from AFS to HTM due to overall balance sheet strategies. 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 transferred with losses included in AOCI
continue to be included in management’s assessment for impairment for each individual security. During the year ended
December 31, 2023, we did not transfer any securities from AFS to HTM. There were $1.25 billion securities transferred from
AFS to HTM during the year ended December 31, 2022. 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. There were no sales from the HTM
portfolio during the years ended December 31, 2023 or 2022. There were $1.31 billion and $1.33 billion of securities classified
as HTM at December 31, 2023 and 2022, respectively.

The maturities classified according to the sensitivity to changes in interest rates of the December 31, 2023 AFS and
HTM investment securities and MBS portfolio and the weighted yields are presented below (dollars in thousands). Tax-exempt
obligations are shown on a taxable-equivalent basis which is a non-GAAP measure. See “Non-GAAP Financial Measures” for
more information and a reconciliation to GAAP. MBS are included in maturity categories based on their stated maturity
date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay
obligations.

Available for Sale:

Investment securities:

Within 1 Year

After 1 But
Within 5 Years

Amount

Yield

Amount

Yield

After 5 But
Within 10 Years
Amount

Yield

After 10 Years

Amount

Yield

MATURING

U.S. Treasury ............................... $ 139,725
State and political subdivisions ....
210
Corporate bonds and other ...........
—

5.33 % $
7.26 %

—

MBS:

Residential ....................................
Commercial ..................................

43
—
Total ........................................ $ 139,978

5.24 %

—

5.33 % $

—
4,242
—

1,343
—
5,585

—

4.39 %

—

—
7,596
14,093

—

4.75 %
6.59 %

—
556,697
—

4.65 %

—

4.45 % $

5,833
4,748
32,270

561,764
5.58 %
2.72 %
—
5.40 % $ 1,118,461

—
3.29 %
—

6.17 %
—
4.74 %

Within 1 Year

After 1 But
Within 5 Years

Amount

Yield

Amount

Yield

After 5 But
Within 10 Years
Amount

Yield

After 10 Years

Amount

Yield

MATURING

Held to Maturity:

Investment securities:

State and political subdivisions .... $
Corporate bonds and other ...........

130
15,839

2.77 % $
4.86 %

909
3,959

3.87 % $
4.65 %

13,860
126,914

3.79 % $ 1,024,541
3.87 %
—

3.07 %
—

MBS:

Residential ....................................
Commercial ..................................

Total ........................................ $

—
—
15,969

—
—

4.84 % $

12
21,078
25,958

1,516
5.81 %
2.92 %
9,204
3.22 % $ 151,494

89,091
3.77 %
2.75 %
—
3.79 % $ 1,113,632

2.93 %
—
3.06 %

At December 31, 2023, there were no holdings of any one issuer, other than the U.S. government, its agencies and its

GSEs, in an amount greater than 10% of our shareholders’ equity.

DEPOSITS AND BORROWED FUNDS

We utilize deposits and primarily borrowings from FHLB, FRDW and BTFP to assist with our funding needs. Deposits
provide us with our primary source of funds and the following table sets forth average deposits and rates paid by category
(dollars in thousands):

Years Ended December 31,

2023

2022

2021

Average
Balance

Average
Rate

Average
Balance

Average
Rate

Average
Balance

Average
Rate

Interest bearing demand accounts (1)
Savings accounts ..................................

CDs .......................................................

.... $ 3,122,319

2.29 % $ 3,139,628

0.69 % $ 2,464,670

636,603

862,211

0.88 %

671,402

0.27 %

578,245

3.58 %

579,223

0.98 %

663,789

Total interest bearing deposits ..............

4,621,133

2.34 % 4,390,253

0.66 % 3,706,704

Noninterest bearing demand deposits ...

1,485,896

N/A 1,712,849

N/A 1,516,682

0.20 %

0.16 %

0.55 %

0.25 %

N/A

Total deposits ..................................... $ 6,107,029

1.77 % $ 6,103,102

0.48 % $ 5,223,386

0.18 %

(1) For the years ended December 31, 2023 and 2022, the average rate on interest bearing demand accounts includes the effect

of interest rate swaps.

The table below sets forth the maturity distribution of CDs greater than $250,000 (in thousands):

December 31,
2023

December 31,
2022

Time deposits otherwise uninsured with a maturity of:

Three months or less ............................................................................................................................ $

105,702 $

Over three to six months ......................................................................................................................

Over six to twelve months ...................................................................................................................

Over twelve months .............................................................................................................................

96,996

124,530

44,559

15,056

35,158

97,869

71,614

Total CDs greater than $250,000 ...................................................................................................... $

371,787 $

219,697

Estimated amount of uninsured deposits, including related accrued interest were $2.45 billion and $2.59 billion at

December 31, 2023 and 2022, respectively.

Brokered deposits may consist of CDs and non-maturity deposits. At December 31, 2023, we had no brokered CDs.
Brokered non-maturity deposits were $828.0 million at December 31, 2023 with a weighted average cost of 323 basis points.
As of December 31, 2022, we had $220.9 million in brokered CDs and $438.4 million in brokered non-maturity deposits. Our
current policy allows for maximum brokered deposits of the lesser of $1.20 billion, or 20% of total deposits. The potential
higher interest costs and lack of customer loyalty are risks associated with the use of brokered deposits.

Borrowing arrangements, consisting of FHLB borrowings, repurchase agreements and borrowings from the FRDW and
BTFP, increased $348.0 million, or 92.9%, during 2023 compared to 2022, due to a $117.7 million increase in borrowings from
the BTFP, a $112.0 million increase in borrowings from the FRDW, a $59.3 million increase in FHLB borrowings and a $59.0
million increase in repurchase agreements.

Borrowing arrangements are summarized as follows (dollars in thousands):

Years Ended December 31,

2023

2022

2021

Other borrowings:

Balance at end of period ...................................................................................... $
Average amount outstanding during the period (1)
Maximum amount outstanding during the period (2)
Weighted average interest rate during the period (3)
Interest rate at end of period (4)

509,820
436,676
1,030,421

4.9 %
5.0 %

FHLB borrowings:

212,648
276,584
533,242

2.5 %
1.2 %

221,153
77,845
316,563

$ 23,219
22,257
24,549

2.4 %
4.1 %

0.2 %
0.2 %

153,358
135,926
423,645

$ 344,038
665,384
723,584

2.4 %
0.7 %

1.1 %
1.3 %

(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 by the average
balance 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.

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, TIB – The Independent Bankers Bank and Comerica Bank for $40.0 million, $15.0 million
and $7.5 million, respectively. There were no federal funds purchased at December 31, 2023 or December 31, 2022. To
provide more liquidity in response to economic conditions in recent years, the Federal Reserve has encouraged broader use of
the discount window. At December 31, 2023, the amount of additional funding the Bank could obtain from the FRDW,
collateralized by securities, was approximately $213.1 million. There were $300.0 million in borrowings from the FRDW at
December 31, 2023, and $188.0 million at December 31, 2022. 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. At December 31,
2023, the amount of additional funding the Bank could obtain from the BTFP, collateralized by securities, was approximately
$8,000. There were $117.7 million in borrowings from the BTFP at December 31, 2023, with a remaining maturity under three
months. Southside Bank has a $5.0 million line of credit with Frost Bank to be used to issue letters of credit, and at
December 31, 2023, 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 $92.1
million at December 31, 2023 and $33.2 million at December 31, 2022, and had maturities of less than two years. Repurchase
agreements are secured by investment and MBS securities and are stated at the amount of cash received in connection with the
transaction.

FHLB borrowings represent borrowings with fixed interest rates ranging from 0.57% to 4.80% and with remaining
maturities of 22 days to 4.5 years at December 31, 2023. FHLB borrowings may be collateralized by FHLB stock, nonspecified
loans and/or securities. At December 31, 2023, the amount of additional funding Southside Bank could obtain from FHLB,
collateralized by securities, FHLB stock and nonspecified loans and securities, was approximately $1.95 billion, net of FHLB
stock purchases required.

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 December 31, 2023 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 December 31, 2023.

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 December 31, 2023. 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 $4.1 million has been added back to CET1 as of December 31, 2023,
representing 50% of the $8.2 million transitional amount at December 31, 2022.

The FDIA requires bank regulatory agencies to take “prompt corrective action” with respect to FDIC-insured depository
institutions that do not meet minimum capital requirements. A depository institution’s treatment for purposes of the prompt
corrective action provisions will depend on how its capital levels compare to various capital measures and certain other factors,
as established by regulation. Prompt corrective action and other discretionary actions could have a direct material effect on our
financial statements.

Management believes that, as of December 31, 2023, 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.

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

Amount

Ratio

For Capital
Adequacy Purposes
Ratio
Amount

To Be Well Capitalized
Under Prompt
Corrective Action
Provisions

Amount

Ratio

December 31, 2023

Common Equity Tier 1 (to Risk Weighted Assets)

Consolidated ............................................................... $ 690,296

12.28 % $ 252,954

4.50 %

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

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

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

Bank Only ................................................................... $ 836,228

10.49 % $ 318,814

4.00 % $ 398,517

5.00 %

December 31, 2022

Common Equity Tier 1 (to Risk Weighted Assets)

Consolidated ............................................................... $ 687,686

12.63 % $ 245,107

4.50 %

N/A

Bank Only ................................................................... $ 823,323

15.12 % $ 245,085

4.50 % $ 354,012

6.50 %

Tier 1 Capital (to Risk Weighted Assets)

Consolidated ............................................................... $ 746,140

13.70 % $ 326,809

6.00 %

N/A

Bank Only ................................................................... $ 823,323

15.12 % $ 326,780

6.00 % $ 435,707

8.00 %

Total Capital (to Risk Weighted Assets)

Consolidated ............................................................... $ 877,281

16.11 % $ 435,746

8.00 %

N/A

Bank Only ................................................................... $ 855,790

15.71 % $ 435,707

8.00 % $ 544,633

10.00 %

Tier 1 Capital (to Average Assets) (1)

Consolidated ............................................................... $ 746,140

9.96 % $ 299,511

4.00 %

N/A

Bank Only ................................................................... $ 823,323

11.00 % $ 299,410

4.00 % $ 374,263

5.00 %

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

As of December 31, 2023, 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. See the section captioned “Supervision and
Regulation” in “Item 1. Business” included in this report.

The table below summarizes our key equity ratios:

Return on average assets ......................................................................................................

Return on average shareholders’ equity ...............................................................................

Dividend payout ratio – Basic ..............................................................................................

Dividend payout ratio – Diluted ..........................................................................................

Average shareholders’ equity to average total assets ..........................................................

EFFECTS OF INFLATION

Years Ended December 31,

2023

2022

2021

1.11 %

11.50 %

50.35 %

9.63 %

1.43 %

13.42 %

42.81 %

42.94 %

10.65 %

1.59 %

12.77 %

39.37 %

39.48 %

12.47 %

Our consolidated financial statements and their related notes have been prepared in accordance with GAAP which
requires the measurement of financial position and operating results in terms of historical dollars, without considering the
change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the
increased cost of our operations. Unlike many industrial companies, nearly all of our assets and liabilities are monetary. As a
result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the price of goods and services. Inflation can affect the
amount of money customers have for deposits, as well as their ability to repay loans.

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 December 31, 2023, these investments were 8.9% of total assets, as
compared with 2.4% for December 31, 2022. The increase to 8.9% at December 31, 2023 as compared to December 31, 2022,
is reflective of increases in interest earning deposits and the short-term investment portfolio, partially offset by the increase in
total assets. 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, TIB – The Independent Bankers Bank and Comerica Bank for $40.0 million, $15.0 million
and $7.5 million, respectively. There were no federal funds purchased at December 31, 2023 or 2022. To provide more
liquidity in response to economic conditions in recent years, the Federal Reserve has encouraged broader use of the discount
window. At December 31, 2023, the amount of additional funding the Bank could obtain from the FRDW, collateralized by
securities, was approximately $213.1 million. There were $300.0 million in borrowings from the FRDW at December 31, 2023
and $188.0 million at December 31, 2022. 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. At December 31, 2023, the amount of
additional funding the Bank could obtain from the BTFP, collateralized by securities, was approximately $8,000. There were
$117.7 million in borrowings from the BTFP at December 31, 2023. At December 31, 2023, the amount of additional funding
Southside Bank could obtain from FHLB, collateralized by securities, FHLB stock and nonspecified loans and securities, was
approximately $1.95 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 December 31, 2023, 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.

In the ordinary course of business we have entered into contractual obligations and have made certain other
commitments to make future cash payments. Please refer to the accompanying notes to these consolidated financial statements
for the expected timing of such cash payments as of December 31, 2023. These include payments related to (i) borrowings
presented in “Note 8 - Borrowing Arrangements” and “Note 9 – Long-Term Debt,” (ii) operating leases presented in “Note 16 -
Leases,” (iii) time deposits with stated maturity dates presented in “Note 7 – Deposits” and (iv) commitments to extend credit
and standby letters of credit as presented in “Note 17 - Off-Balance-Sheet Arrangements, Commitments and Contingencies.”

Management continually evaluates our liquidity position and currently believes the Company has adequate funding to

meet our financial needs.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 additional rate changes during 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.

Rate projections:

Increase:

Anticipated impact over the
next 12 months

December 31,

2023

2022

100 basis points ............................................................................................................

200 basis points ............................................................................................................

2.49 %

5.49 %

7.92 %

12.90 %

Decrease:

50 basis points ..............................................................................................................

100 basis points ............................................................................................................

200 basis points ............................................................................................................

(0.80) %

(1.82) %

(3.85) %

(2.96) %

(6.16) %

(12.34) %

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 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
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.

(This page has been left blank intentionally.)

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm (U.S. PCAOB Auditor Firm ID: 42)

INDEX

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021

Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2023, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Southside Bancshares, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Southside Bancshares, Inc. and subsidiaries (the
Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income,
changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and
the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023
and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework), and our report dated February 27, 2024, expressed an unqualified opinion
thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion
on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

Description of the
Matter

How We
Addressed the
Matter in Our
Audit

Allowance for Loan Losses
The Company’s loan portfolio totaled $4.5 billion as of December 31, 2023, and the allowance for
loan losses (ALL) was $42.7 million. As discussed in Note 1 and Note 5 to the consolidated
financial statements, the ALL is an amount which represents management’s estimate of credit
losses over the expected life of the loans. The ALL is estimated based on historical and expected
credit loss patterns within reasonable and supportable forecast periods. Management applies
judgement in the assignment of probabilities to economic scenarios included within the modeled
forecast periods to estimate the ALL.

Auditing management’s estimate of the ALL involved a high degree of subjectivity due to the
judgement involved in management’s determination of the probabilities assigned to the economic
scenarios utilized within the reasonable and supportable forecast periods to estimate the future
credit losses within the loan portfolio. Management’s evaluation of the future economic conditions
could have a significant impact on the ALL.

Our considerations and procedures performed were reflective of the ALL process for the year and
included, but not limited to, the evaluation of the process utilized by management to challenge the
model results and determine the best estimate of the ALL as of the balance sheet date. We obtained
an understanding of the Company’s process for establishing the ALL, including determination of
the probabilities assigned to the economic scenarios utilized within the reasonable and supportable
forecast periods. We evaluated the design and tested the operating effectiveness of the controls
associated with the ALL process, including controls over the reliability and accuracy of data used in
the model, management’s review and approval of the probabilities assigned to the economic
scenarios utilized within the reasonable and supportable forecast periods, the governance of the
credit loss methodology, and management’s review and approval of the ALL.

We tested the completeness and accuracy of data used by the Company within the model to
estimate the ALL and involved an internal specialist to assess the conceptual soundness of the
model. We tested the probabilities assigned to the economic scenarios utilized within the model for
the reasonable and supportable forecast periods. Within the testing performed, we assessed the
impact of the probabilities assigned to the economic scenarios by comparison of key assumptions to
external sources. In addition, we evaluated the Company’s estimate of the overall ALL, considering
the Company’s loan portfolio and macroeconomic trends, compared such information to
comparable financial institutions and considered whether new or contrary information existed.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2012.

Dallas, Texas
February 27, 2024

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

December 31,
2023

December 31,
2022

ASSETS

Cash and due from banks ..................................................................................................................... $
Interest earning deposits .......................................................................................................................
Federal funds sold ................................................................................................................................
Total cash and cash equivalents ...................................................................................................
Securities: .............................................................................................................................................

122,021 $
391,719
46,770

560,510

106,143
9,276
83,833

199,252

Securities AFS, at estimated fair value (amortized cost of $1,332,467 and $1,387,874,
respectively) ......................................................................................................................................
Securities HTM (estimated fair value of $1,166,162 and $1,149,156, respectively) .......................
FHLB stock, at cost ..............................................................................................................................
Equity investments ...............................................................................................................................
Loans held for sale ...............................................................................................................................
Loans:

Loans .................................................................................................................................................
Less: Allowance for loan losses .......................................................................................................
Net loans .......................................................................................................................................
Premises and equipment, net ................................................................................................................
Operating lease ROU assets .................................................................................................................
Goodwill ...............................................................................................................................................
Other intangible assets, net ..................................................................................................................
Interest receivable ................................................................................................................................
Deferred tax asset, net ..........................................................................................................................
BOLI ....................................................................................................................................................
Other assets ..........................................................................................................................................

1,296,294

1,307,053
11,936
9,691
10,894

1,299,014

1,326,729
9,190
11,181
667

4,524,510

(42,674)

4,147,691
(36,515)

4,481,836
138,950
14,837
201,116
2,925
50,489
30,426
136,330
31,627

4,111,176
141,256
15,314
201,116
4,622
49,350
34,695
133,911
21,163

Total assets ................................................................................................................................... $

8,284,914 $

7,558,636

Deposits:

LIABILITIES AND SHAREHOLDERS’ EQUITY

Noninterest bearing ........................................................................................................................... $
Interest bearing ..................................................................................................................................
Total deposits ................................................................................................................................
Other borrowings .................................................................................................................................
FHLB borrowings ................................................................................................................................
Subordinated notes, net of unamortized debt issuance costs ...............................................................
Trust preferred subordinated debentures, net of unamortized debt issuance costs ..............................
Operating lease liabilities .....................................................................................................................
Other liabilities .....................................................................................................................................
Total liabilities ..............................................................................................................................

1,390,407 $
5,159,274

6,549,681
509,820
212,648
93,877
60,270
16,704
68,626
7,511,626

1,671,562
4,526,457

6,198,019
221,153
153,358
98,674
60,265
17,070
64,100
6,812,639

Off-balance-sheet arrangements, commitments and contingencies (Note 17)

Shareholders’ equity:

Treasury stock: (shares at cost, 7,790,276 at December 31, 2023 and 6,454,192 at December 31,
2022) ..................................................................................................................................................
AOCI .................................................................................................................................................
Total shareholders’ equity ............................................................................................................

47,550
788,840
282,355

47,501
784,545
239,610

(231,995)
(113,462)
773,288

(188,203)
(137,456)
745,997

Total liabilities and shareholders’ equity ..................................................................................... $

8,284,914 $

7,558,636

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

Years Ended December 31,
2022

2021

2023

244,803 $

170,410 $

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)

Interest income:

Loans ............................................................................................................................. $
Taxable investment securities .......................................................................................
Tax-exempt investment securities .................................................................................
MBS ..............................................................................................................................
FHLB stock and equity investments .............................................................................
Other interest earning assets ..........................................................................................
Total interest income ................................................................................................

Interest expense:

Deposits .........................................................................................................................
FHLB borrowings .........................................................................................................
Subordinated notes ........................................................................................................
Trust preferred subordinated debentures .......................................................................
Other borrowings ...........................................................................................................
Total interest expense ...............................................................................................
Net interest income ..........................................................................................................
Provision for (reversal of) credit losses ...........................................................................
Net interest income after provision for credit losses ........................................................
Noninterest income:

Deposit services .............................................................................................................
Net gain (loss) on sale of securities AFS ......................................................................
Net gain on sale of equity securities ..............................................................................
Gain on sale of loans .....................................................................................................
Trust fees .......................................................................................................................
BOLI ..............................................................................................................................
Brokerage services ........................................................................................................
Other ..............................................................................................................................
Total noninterest income ..........................................................................................

Noninterest expense:

31,186
54,629
19,450
1,185
8,488
359,741

108,157
6,777
3,920
4,504
21,356
144,714
215,027
9,154
205,873

25,497
(15,976)
5,058
563
5,910
5,823
3,305
5,654
35,834

Salaries and employee benefits .....................................................................................
Net occupancy ...............................................................................................................
Advertising, travel & entertainment ..............................................................................
ATM expense ................................................................................................................
Professional fees ............................................................................................................
Software and data processing ........................................................................................
Communications ............................................................................................................
FDIC insurance .............................................................................................................
Amortization of intangibles ...........................................................................................
Loss on redemption of subordinated notes ....................................................................
Other ..............................................................................................................................
Total noninterest expense .........................................................................................
Income before income tax expense ..................................................................................
Income tax expense ..........................................................................................................
Net income ....................................................................................................................... $

85,625
14,694
4,093
1,351
5,351
9,395
1,469
3,558
1,697
—
13,345
140,578
101,129
14,437
86,692 $

18,940
45,001
16,639
503
1,488
252,981

29,075
3,291
4,015
2,397
1,862
40,640
212,341
3,241
209,100

25,843
(3,819)
—
531
5,992
2,647
3,335
6,328
40,857

82,633
15,130
3,430
1,314
4,959
6,847
1,896
1,945
2,273
—
9,899
130,326
119,631
14,611
105,020 $

144,803
13,312
37,730
19,534
530
78
215,987

9,404
7,348
8,246
1,390
42
26,430
189,557
(16,964)
206,521

26,368
3,862
—
1,641
5,959
2,618
3,383
5,505
49,336

79,892
14,239
2,367
1,166
4,015
5,675
2,233
1,807
2,849
1,118
9,669
125,030
130,827
17,426
113,401

Earnings per common share – basic ................................................................................. $
Earnings per common share – diluted .............................................................................. $
Cash dividends paid per common share ........................................................................... $

2.82 $
2.82 $
1.42 $

3.27 $
3.26 $
1.40 $

3.48
3.47
1.37

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

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

Years Ended December 31,

2023

2022

2021

Net income ................................................................................................................... $

86,692 $

105,020 $

113,401

Other comprehensive income (loss):

Securities AFS and transferred securities:

Change in unrealized holding gain (loss) on AFS securities during the period

28,782

(179,684)

(37,199)

Change in net unrealized loss on securities transferred from AFS to HTM ......

—

(125,175)

—

Reclassification adjustment for amortization related to AFS and HTM debt
securities ............................................................................................................

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

8,004

15,976

4,968

3,819

1,363

(3,862)

Derivatives:

Change in net unrealized gain (loss) on effective cash flow hedge interest
rate swap derivatives ..........................................................................................

Reclassification adjustment of net (gain) loss related to derivatives
designated as cash flow hedges ..........................................................................

1,222

44,757

13,648

(24,544)

(3,638)

6,395

Retirement plans:

Amortization of net actuarial loss, included in net periodic benefit cost...........

Effect of settlement recognition .........................................................................

Change in net actuarial gain (loss) .....................................................................

756

(16)

192

895

—

4,487

1,264

—

6,524

Other comprehensive income (loss), before tax ........................................................

30,372

(249,571)

(11,867)

Income tax (expense) benefit related to items of other comprehensive income
(loss) ..........................................................................................................................
Other comprehensive income (loss), net of tax ............................................................

(6,378)

23,994

52,410

(197,161)

2,492

(9,375)

Comprehensive income (loss) ...................................................................................... $

110,686 $

(92,141) $

104,026

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

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands, except share amounts)

Balance at December 31, 2020 ........................ $ 47,419 $ 771,511 $ 111,208 $ (123,921) $

69,080 $

875,297

Common
Stock

Paid In
Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Income (Loss)

Total
Shareholders’
Equity

Net income .......................................................

Other comprehensive income (loss) .................
Issuance of common stock for dividend
reinvestment plan (34,150 shares) ...................
Purchase of common stock (938,484 shares) ...

Stock compensation expense ...........................
Net issuance of common stock under
employee stock plans (305,212 shares) ...........

Cash dividends paid on common stock ($1.37
per share) ..........................................................

Balance at December 31, 2021 ........................
Net income .......................................................

Other comprehensive income (loss) .................

Issuance of common stock for dividend
reinvestment plan (31,853 shares) ...................
Purchase of common stock (923,775 shares) ...

Stock compensation expense ...........................

Net issuance of common stock under
employee stock plans (86,500 shares) .............

Cash dividends paid on common stock ($1.40
per share) ..........................................................
Balance at December 31, 2022 ........................

Net income .......................................................

Other comprehensive income (loss) .................

Issuance of common stock for dividend
reinvestment plan (38,884 shares) ...................

Purchase of common stock (1,435,193 shares)
Stock compensation expense ...........................
Net issuance of common stock under
employee stock plans (99,109 shares) .............

Cash dividends paid on common stock ($1.42
per share) ..........................................................

—

1,311

—

3,020

113,401

—

(34,148)

—

4,659

(227)

2,761

—

(44,569)

—

47,461

780,501

179,813

(155,308)

—

1,193

—

3,221

105,020

—

(33,841)

—

(370)

(287)

946

—

(44,936)

—

47,501

784,545

239,610

(188,203)

(137,456)

—

1,175

—

3,552

86,692

—

(45,074)

—

(432)

(365)

1,282

—

(43,582)

—

23,994

—

(9,375)

—

59,705

—

113,401

(9,375)

1,353

(34,148)

3,020

7,193

(44,569)

912,172

105,020

(197,161)

—

1,233

(33,841)

3,221

289

(44,936)

745,997

86,692

23,994

1,224

(45,074)

3,552

485

(43,582)

Balance at December 31, 2023 ........................ $ 47,550 $ 788,840 $ 282,355 $ (231,995) $

(113,462) $

773,288

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

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Years Ended December 31,
2022

2021

2023

OPERATING ACTIVITIES:

Net income .................................................................................................................... $
Adjustments to reconcile net income to net cash provided by operations:

86,692 $

105,020 $

113,401

Depreciation and net amortization ............................................................................
Securities premium amortization (discount accretion), net ......................................
Loan (discount accretion) premium amortization, net .............................................
Provision for (reversal of) credit losses ....................................................................
Stock compensation expense ....................................................................................
Deferred tax expense (benefit) .................................................................................
Net (gain) loss on sale of AFS securities ..................................................................
Net gain on sale of equity securities .........................................................................
Loss on impairment of investments ..........................................................................
Net loss on premises and equipment ........................................................................
Gross proceeds from sales of loans held for sale .....................................................
Gross originations of loans held for sale ..................................................................
Net (gain) loss on OREO ..........................................................................................
(Gain on purchase) loss on redemption of subordinated notes .................................
Net change in:

Interest receivable .............................................................................................
Other assets .......................................................................................................
Interest payable .................................................................................................
Other liabilities ..................................................................................................
Net cash provided by (used in) operating activities ...............................................

10,577
4,523
400
9,154
3,552
(2,110)
15,976
(5,058)

—

342
17,161
(19,295)

(61)
(587)

(1,139)
37,874
7,422
(85,559)
79,864

11,105
18,261
(52)
3,241
3,221
(89)
3,819
—
38
576
23,774
(22,757)
(40)
—

(10,205)
(5,447)
1,378
94,674
226,517

INVESTING ACTIVITIES:

Securities AFS:

Purchases ...........................................................................................................
Sales ..................................................................................................................
Maturities, calls and principal repayments .......................................................

(2,046,010)
1,125,414
960,614

(708,307)
460,765
107,787

Securities HTM:

Purchases ...........................................................................................................
Maturities, calls and principal repayments .......................................................
Proceeds from sales of equity securities ...................................................................

Proceeds from redemption of FHLB stock and equity investments .........................
Purchases of FHLB stock and equity investments ...................................................
Net loan paydowns (originations) ............................................................................
Purchases of premises and equipment ......................................................................
Proceeds from (purchases of) BOLI
Proceeds from sales of premises and equipment ......................................................
Net proceeds from sales of OREO ...........................................................................
Proceeds from sales of repossessed assets ................................................................
Net cash provided by (used in) investing activities ...............................................

—
22,563

6,679

36,919
(39,796)
(388,304)
(6,904)
951
430
203
168
(327,073)

(1,632)
12,002

—

46,812
(40,967)
(503,647)
(9,301)
—
1,365
220
124
(634,779)

(continued)

11,421
22,770
(829)
(16,964)
3,020
4,752
(3,862)
—
—
324
45,803
(43,792)
(174)
1,118

(437)
(2,672)
(2,257)
24,482
156,104

(692,675)
160,498
315,455

—
18,304

—

32,174
(21,221)
11,891
(8,365)
(13,000)
1,861
816
254
(194,008)

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)

FINANCING ACTIVITIES:

Net change in deposits ...................................................................................................
Net change in other borrowings ....................................................................................
Proceeds from FHLB borrowings .................................................................................
Repayment of FHLB borrowings ..................................................................................
Net proceeds from issuance of subordinated notes .......................................................
Purchase/redemption of subordinated notes ..................................................................
Proceeds from stock option exercises ...........................................................................
Cash paid to tax authority related to tax withholding on share-based awards ..............
Purchase of common stock ............................................................................................
Proceeds from the issuance of common stock for dividend reinvestment plan ............
Cash dividends paid ......................................................................................................
Net cash provided by (used in) financing activities .................................................

Years Ended December 31,
2022

2021

2023

789,968
475,629
351,551
47
197,934
288,667
2,019,000
14,998,118
3,321,000
(1,959,710) (3,511,680) (15,486,607)
(95)
(100,011)
7,672
(479)
(34,148)
1,353
(44,569)
131,249

—
(4,365)
1,082
(597)
(44,803)
1,224
(43,582)
608,467

—
—
790
(501)
(33,708)
1,233
(44,936)
405,761

Net increase (decrease) in cash and cash equivalents ...................................................
Cash and cash equivalents at beginning of period ........................................................
Cash and cash equivalents at end of period ................................................................... $

361,258
199,252
560,510 $

(2,501)
201,753
199,252 $

93,345
108,408
201,753

SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:

Interest paid ................................................................................................................... $
Income taxes paid .......................................................................................................... $

137,292 $
15,750 $

39,262 $
11,950 $

28,687
10,750

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:

Loans transferred to other repossessed assets and real estate through foreclosure ....... $
Loans transferred from held for investment to held for sale ......................................... $
Transfer of AFS to HTM securities ............................................................................... $
Unsettled trades to purchase securities .......................................................................... $
Unsettled trades to repurchase common stock .............................................................. $

226 $
8,093 $

465 $
— $
— $ 1,369,639 $
— $
— $
(133) $
— $

740
—
—
(18,995)
—

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Southside Bancshares, Inc. and Subsidiaries

1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

Organization. Southside Bancshares, Inc., incorporated in Texas in 1982, is a bank holding company for Southside Bank, a
Texas state bank headquartered in Tyler, Texas that was formed in 1960. We operate through 55 branches, 13 of which are
located in grocery stores. We consider our primary market areas to be East Texas, Southeast Texas, as well as the greater
Dallas-Fort Worth, Austin and Houston, Texas areas. We are a community-focused financial institution that offers a full range
of financial services to individuals, businesses, municipal entities and nonprofit organizations in the communities that we
serve. These services include consumer and commercial loans, deposit accounts, wealth management and trust services,
brokerage services and safe deposit services.

Basis of Presentation and Consolidation. The consolidated financial statements are prepared in conformity with U.S. GAAP
and include the accounts of Southside Bancshares, Inc., and its wholly-owned subsidiary, Southside Bank and the nonbank
subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

We determine if we have a controlling financial interest in an entity by first evaluating whether the entity is a voting interest
entity or a VIE under GAAP. Voting interest entities are entities in which the total equity investment at risk is sufficient to
enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to
receive residual returns and the right to make decisions about the entity’s activities. We consolidate voting interest entities in
which we have all, or at least a majority of, the voting interest. As defined in applicable accounting standards, VIEs are entities
that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in a VIE is present when
an enterprise has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic
performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE.

Accounting Changes and Reclassifications. Certain prior period amounts may be reclassified to conform to current period
presentation.

Current Expected Credit Losses – Troubled Debt Restructurings and Vintage Disclosures

We adopted ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage
Disclosures” on January 1, 2023, the effective date of the guidance, on a prospective basis. ASU 2022-02 eliminated the
accounting guidance for TDRs, while enhancing disclosure requirements for certain loan refinancings and restructurings by
creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and
measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance to determine whether a
modification results in a new loan or a continuation of an existing loan. Additionally, ASU 2022-02 requires an entity to
disclose current-period gross write-offs by year of origination for financing receivables within the scope of Subtopic 326-20,
“Financial Instruments—Credit Losses—Measured at Amortized Cost.” ASU 2022-02 did not have a material impact on our
consolidated financial statements.

Use of Estimates. In preparing consolidated financial statements in conformity with GAAP, management is required to make
estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and
reported amounts of revenues and expenses during the reporting period. These estimates are subjective in nature and involve
matters of judgment. Actual results could differ from these estimates. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the allowance for credit losses. The status of contingencies are
particularly subject to change.

Segment Information. Operating segments are components of a business about which separate financial information is
available and that are evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and
assess performance. Our chief operating decision-maker uses consolidated results to make operating and strategic decisions.
Therefore, we have determined that our business is conducted in one reportable segment.

Cash Equivalents. Cash equivalents, for purposes of reporting cash flow, include cash, amounts due from banks and federal
funds sold that have an initial maturity of less than 90 days. We maintain deposits with other institutions in amounts that
exceed federal deposit insurance coverage. Management regularly evaluates the credit risk associated with the counterparties to
these transactions and believes that we are not exposed to any significant credit risks on cash and cash equivalents.

Basic and Diluted Earnings per Common Share. Basic earnings per common share is based on net income divided by the
weighted-average number of common shares outstanding during the period. Diluted earnings per common share include the
dilutive effect of stock awards granted using the treasury stock method. A reconciliation of the weighted-average shares used in
calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per
common share for the reported periods is provided in “Note 2 – Earnings Per Share.”

Comprehensive Income. Comprehensive income includes all changes in shareholders’ equity during a period, except those
resulting from transactions with shareholders. Besides net income, other components of comprehensive income include the
after tax effect of changes in the fair value of AFS securities, changes in the net unrealized loss on securities transferred to/from
HTM, changes in the accumulated gain or loss on effective cash flow hedging instruments and changes in the funded status of
defined benefit retirement plans. Comprehensive income is reported in the accompanying consolidated statements of
comprehensive income and in “Note 3 – Accumulated Other Comprehensive Income (Loss).”

Loans. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are
reported at amortized cost. Amortized cost consists of the outstanding principal balance adjusted for any charge-offs and any
unamortized origination fees and unamortized premiums or discounts on purchased loans. Loan origination fees, net of certain
direct origination costs, are deferred and recognized in interest income over the life of the loan. A loan is considered impaired,
based on current information and events, if it is probable that we will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the loan agreement. Substantially all of our individually evaluated
loans are collateral-dependent, and as such, are measured for expected credit losses based on the fair value of the collateral.

Loans Held For Sale. Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost
or fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements. Net
unrealized losses are recognized through a valuation allowance by charges to income. Gains or losses on sales of mortgage
loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.

From time to time, certain commercial real estate loans are held for sale which are carried at the lower of cost or fair value.

Loan Fees. We treat loan fees, net of direct costs, as an adjustment to the yield of the related loan over its term.

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 concerns, as based on known and knowable
information as of December 31, 2023.

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,
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.

When assessing for credit losses from period to period, the change may be indicative of changes in the estimates of timing or
the amount of future cash flows, based on the probability of economic forecast scenarios applied, as well as the passage of time.
We have elected to report the entire change in present value as provision for credit losses.

When using the discounted cash flow method to determine the allowance for credit losses, management does not adjust the
effective interest rate used to discount expected cash flows to incorporate expected prepayments, but rather applies separate
prepayment factors.

Accrued Interest. Accrued interest for our loans and debt securities, included in interest receivable on our consolidated balance
sheets, is excluded from the estimate of allowance for credit losses.

Nonaccrual Assets and Loan Charge-offs. Nonaccrual assets include financial assets 90 days or more delinquent and full
collection of both principal and interest is not expected. Financial instruments 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 or interest.
When an asset is categorized as nonaccrual, the accrual of interest is discontinued and any accrued balance is reversed for
financial statement purposes. Payments received on nonaccrual assets are applied to the outstanding principal balance.
Payments of contractual interest are recognized as income only to the extent that full recovery of the principal balance is
reasonably certain. Assets are returned to accrual status when all payments contractually due are brought current and future
payments are reasonably assured.

Industry and our own experience indicate that a portion of our loans will become delinquent and a portion of our loans will
require partial or full charge-off. Regardless of the underwriting criteria utilized, losses may occur as a result of various factors
beyond our control, including, among other things, changes in market conditions affecting the value of properties used as
collateral for loans and problems affecting the credit worthiness of the borrower and the ability of the borrower to make
payments on the loan. We charge-off loans when deemed uncollectible. Our policy is to charge-off or partially charge-off a
retail credit after it is 120 days past due. Charge-offs on commercial credits are determined on a case-by-case basis when a
credit loss has been determined.

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.

OREO and Foreclosed Assets. OREO includes real estate acquired in full or partial settlement of loan obligations. OREO is
initially carried at the fair value of the collateral net of estimated selling costs. Prior to foreclosure, the recorded amount of the
loan is written down, if necessary, to the appraised fair value of the real estate to be acquired, less selling costs, by charging the
allowance for loan losses. Any subsequent reduction in fair value net of estimated selling costs is charged to noninterest
expense. Costs of maintaining and operating foreclosed properties are expensed as incurred and included in other expense in
our income statement. Expenditures to complete or improve foreclosed properties are capitalized only if expected to be
recovered; otherwise, they are expensed.

Other foreclosed assets are held for sale and are initially recorded at fair value less estimated selling costs at the date of
foreclosure, by charging the allowance for loan losses. Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount or fair value less costs to sell. Foreclosed assets are
included in other assets in the accompanying consolidated balance sheets. Expenses from operations and changes in the
valuation allowance are included in noninterest expense.

Securities. AFS. Debt securities that will be held for indefinite periods of time, including securities that may be sold in
response to changes in market interest or prepayment rates, needs for liquidity or changes in the availability of and the yield on
alternative investments are classified as AFS. These assets are carried at fair value with unrealized gains and losses, not related
to credit losses, reported as a separate component of AOCI, net of tax. Fair value is determined using quoted market prices as
of the close of business on the balance sheet date. If quoted market prices are not available, fair values are based on quoted
market prices for similar securities or estimates from independent pricing services. AFS securities hedged with qualifying
derivatives are carried at fair value with the change in the fair value on both the hedged instrument and the securities recorded
in interest income in the consolidated statements of income.

Gains and losses on the sale of securities are recorded in the month of the trade date and are determined using the specific
identification method.

HTM. Debt securities that management has the positive intent and ability to hold until maturity are classified as HTM and are
carried at their amortized cost which includes the remaining unpaid principal balance, net of unamortized premiums or
unaccreted discounts. Our HTM securities are presented on the consolidated balance sheets net of allowance for credit losses, if
any. As of December 31, 2023, there was no allowance for credit losses on our HTM securities portfolio.

Premiums and Discounts. Premiums and discounts on debt securities are generally amortized over the contractual life of the
security, except for MBS where prepayments are anticipated and for callable debt securities whose premiums are amortized to
the earliest call date in accordance with ASC 310. The amortization of purchased premium or discount is included in interest
income on our consolidated statements of income. Gains and losses on the sale of securities are recorded in the month of the
trade date and are determined using the specific identification method. Premiums on debt securities are amortized to the earliest
call date.

Allowance for Credit Losses – AFS Securities. In accordance with ASC 326, for AFS debt securities in an unrealized loss
position where management (i) 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 losses or other factors. Management assesses the financial condition and near-term prospects of the issuer,
industry and/or geographic conditions, credit ratings as well as other indicators at the individual security level. If a credit loss is
determined to exist, the present value of discounted cash flows expected to be collected from the security are compared to the
amortized cost basis of the security. If the present value of discounted cash flows expected to be collected is less than the
amortized cost basis, a credit loss exists and an allowance for credit loss is recorded, limited by the amount that the fair value is
less than the amortized cost. Any impairment that is not recorded through an allowance for credit losses is recognized in other
comprehensive income. Any future changes in the allowance for credit losses is recorded as provision for (reversal of) credit
losses.

Allowance for Credit Losses – HTM Securities. In accordance with ASC 326, expected credit losses on HTM securities are
measured on a collective basis by major security type, when similar risk characteristics exist. Risk characteristics for
segmenting HTM debt securities include issuer, maturity, coupon rate, yield, payment frequency, source of repayment, bond
payment structure, and embedded options. Upon assignment of the risk characteristics to the major security types, management
may further evaluate the qualitative factors associated with these securities to determine the expectation of credit losses, if any.

The major security types within our HTM portfolio include residential and commercial MBS, state and political subdivisions
and corporate securities.

Our state and political subdivisions include highly-rated municipal securities with a long history of no credit losses. Our
investment policy prohibits bond purchases with a rating less than BAA and limits our entity concentration. We utilize term
structures and due to no prior loss exposure on our state and political subdivision securities, we apply third-party average data
to model our securities to represent the portion of the asset that would be lost if the issuer were to default. These third-party
estimates of recoveries and defaults, adjusted for constant probability over the securities expected life, are used to evaluate the
expected loss of the securities. Due to the limited number and the nature of the HTM state and political subdivisions we hold,
we do not model these securities as a pool, but on the specific identification method in conjunction with the application of our
third-party fair value measurement.

Our residential and commercial MBS are issued and/or guaranteed by U.S. government agencies or GSEs and are collateralized
by pools of single- or multi-family mortgages. Our MBS are highly rated securities with a long history of no credit losses
which are either explicitly or implicitly backed by the U.S. government agencies, which guarantee the payment of principal and
interest to investors. Management has collectively evaluated the characteristics of these securities and has assumed an
expectation of zero credit loss.

Our corporate bonds and other investment securities consist of investment grade bonds, private placement bonds with a long
history of no credit losses, and two bonds totaling approximately $6.4 million rated one grade below investment grade.

We reevaluate the characteristics of our major security types at every reporting period and reassess the considerations to
continue to support our expectation of credit loss.

Equity Investments. Equity investments with readily determinable fair values are stated at fair value with the unrealized gains
and losses reported in other noninterest income in the consolidated statements of income. Equity investments without readily
determinable fair values are recorded at cost less impairment, if any.

Securities with Limited Marketability. Securities with limited marketability, such as stock in the FHLB, are carried at cost,
which is a reasonable estimate of the fair value of those assets and are assessed for other-than-temporary impairment.

Premises and Equipment. Land is carried at cost. Bank premises and equipment are stated at cost, net of accumulated
depreciation. Depreciation is computed on a straight line basis over the estimated useful lives of the related assets. Useful lives
are estimated to be 15 to 40 years for premises and 3 to 10 years for equipment. Leasehold improvements are generally
depreciated over the lesser of the term of the respective leases or the estimated useful lives of the improvements. Maintenance
and repairs are charged to expense as incurred while major improvements and replacements are capitalized.

Leases. We evaluate our contracts at inception to determine if an arrangement is or contains a lease. Operating leases are
included in operating lease ROU assets and operating lease liabilities in our consolidated balance sheets. Our operating leases
relate primarily to bank branches and office space. The Company has no finance leases. Short-term leases, leases with an
initial term of 12 months or less and do not contain a purchase option that is likely to be exercised, are not recorded on the
balance sheet.

ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to
make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date

based on the present value of the future lease payments over the lease term. Our leases do not provide an implicit rate, so we
use our incremental borrowing rate based on the information available at commencement date in determining the present value
of lease payments. The incremental borrowing rate is reevaluated upon lease modification. The operating lease ROU asset also
includes any initial direct costs and prepaid lease payments made less any lease incentives. Our lease terms may include options
to extend or terminate the lease when it is reasonably certain that we will exercise that option.

BOLI. The Company has purchased life insurance policies on certain key executives and officers. BOLI is recorded at the
amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for
other charges or other amounts due that are probable at settlement. Changes in the net cash surrender value of the policies, as
well as insurance proceeds received are reflected in noninterest income on the consolidated statements of income and are not
subject to income taxes.

Goodwill and Other Intangibles. Other intangible assets consist primarily of core deposits and trust relationship intangibles.
Intangible assets with definite useful lives are amortized on an accelerated basis over their estimated life. Goodwill and
intangible assets that have indefinite useful lives are subject to at least an annual impairment test and more frequently if a
triggering event occurs. If any such impairment is determined, a write-down is recorded.

We have selected October 1 of each year as the measurement date on which we will complete our annual goodwill impairment
assessment. We may elect to perform a quantitative impairment analysis or first conduct a qualitative analysis to determine if a
quantitative analysis is necessary. We performed a qualitative assessment to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount. The qualitative factors considered include, but are not limited
to, macroeconomic and State of Texas economic conditions, industry and market conditions and trends, the Company’s
financial performance, market capitalization, stock price, and any Company-specific events relevant to the assessment. If the
assessment of qualitative factors indicates that it is not more likely than not that an impairment exists, no further testing is
required; otherwise an impairment test is performed. For the year ended December 31, 2023, the Company’s goodwill
impairment evaluation, based on its qualitative assessment, indicated there was no impairment. As a result, we did not record
any goodwill impairment for the years ended December 31, 2023 or 2022, and we had no cumulative goodwill impairment.

At December 31, 2023, core deposit intangible and trust relationship intangible was $1.4 million and $1.5 million, respectively.
For the years ended December 31, 2023, 2022 and 2021, amortization expense related to our core deposit intangible and trust
relationship intangible was $1.7 million, $2.3 million and $2.8 million, respectively.

Repurchase Agreements. We sell certain securities under agreements to repurchase. The agreements are treated as
collateralized financing transactions and the obligations to repurchase securities sold are reflected as a liability in the
accompanying consolidated balance sheets. The dollar amount of the securities underlying the agreements remains in the asset
account. We determine the type of debt securities to pledge which may include investment securities and U.S. agency MBS.

Derivative Financial Instruments and Hedging Activities. Derivative financial instruments are carried on the consolidated
balance sheets as other assets or other liabilities, as applicable, at estimated fair value. The accounting for changes in the fair
value (i.e., gains or losses) of a derivative financial instrument is determined by whether it has been designated and qualifies as
part of a hedging relationship and, further, by the type of hedging relationship. We present derivative financial instruments at
fair value in the consolidated balance sheets on a net basis when a right of offset exists, based on transactions with a single
counterparty and any cash collateral paid to and/or received from that counterparty for derivative contracts that are subject to
legally enforceable master netting arrangements.

For derivative instruments that are designated and qualify as cash flow hedges (i.e., hedging the exposure to variability in
expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative
instrument is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the
hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change
in the present value of future cash flows of the hedged item (i.e., the ineffective portion), if any, is recognized in current
earnings during the period of change. Gains and losses on derivative instruments designated as fair value hedges, as well as the
change in the fair value on the hedged item, are recorded in interest income in the consolidated statements of income. Gains
and losses due to changes in the fair value of the interest rate swap agreements completely offset changes in the fair value of the
hedged portion of the hedged item. For derivative instruments not designated as hedging instruments, the gain or loss is
recognized in current earnings during the period of change.

During the year ended December 31, 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. 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.

For derivatives designated as hedging instruments at inception, statistical regression analysis is used at inception and for each
reporting period thereafter to assess whether the derivative used has been and is expected to be highly effective in offsetting
changes in the fair value or cash flows of the hedged item. All components of each derivative instrument’s gain or loss are
included in the assessment of hedge effectiveness. Net hedge ineffectiveness is recorded in other noninterest income on the
consolidated statements of income.

Terminated Derivative Financial Instruments. 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 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 will not occur, any related gains or losses recorded in AOCI are immediately recognized in earnings.

Further information on our derivative instruments and hedging activities is included in “Note 11 – Derivative Financial
Instruments and Hedging Activities.”

Allowance for Credit Losses – Off-Balance-Sheet Credit Exposures. 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. In accordance with Topic 326, credit
losses are not recognized for those credit exposures that are unconditionally cancellable by the Company.

The allowance for credit losses for these off-balance-sheet credit exposures is included in other liabilities on our consolidated
balance sheets and is adjusted with a corresponding adjustment to provision for credit losses on our consolidated statements of
income.

Revenue Recognition. Our revenue consists of net interest income on financial assets and financial liabilities and noninterest
income. The classifications of our revenue are presented in the consolidated statements of income.

In accordance with ASC Topic 606, revenue is recognized when obligations under the terms of a contract with our customer are
satisfied; generally this occurs with the transfer of control of goods or services. We recognize revenue equal to the amounts for
which we have a right to invoice, revenue is measured as the amount of consideration we expect to receive in exchange for the
transfer of those goods or services. We generally expense sales commissions when incurred because the amortization period is
within one year or less. These costs are recorded within salaries and employee benefits on the consolidated statements of
income.

The following summarizes our revenue recognition policies as they relate to revenue from contracts with customers:

•

Deposit services. Service charges on deposit accounts include fees for banking services provided, overdrafts and non-
sufficient funds. Revenue is generally recognized in accordance with published deposit account agreements for retail
accounts or contractual agreements for commercial accounts. Our deposit services also include our ATM and debit
card interchange revenue that is presented net of the associated costs. Interchange revenue is generated by our deposit
customers’ usage and volume of activity. Interchange rates are not controlled by the Company, which effectively acts
as processor that collects and remits payments associated with customer debit card transactions.

Trust income. Trust income includes fees and commissions from investment management, administrative and advisory
services primarily for individuals, and to a lesser extent, partnerships and corporations. Revenue is recognized on an
accrual basis at the time the services are performed and when we have a right to invoice and are based on either the
market value of the assets managed or the services provided.

Brokerage services. Brokerage services income includes fees and commissions charged when we arrange for another
party to transfer brokerage services to a customer. The fees and commissions under this agent relationship are based
upon stated fee schedules based upon the type of transaction, volume and value of the services provided.

Other noninterest income. Other noninterest income includes among other things, merchant services income.
Merchant services revenue is derived from third-party vendors that process credit card transactions on behalf of our
merchant customers. Merchant services revenue is primarily comprised of residual fee income based on the referred
merchant’s processing volumes and/or margin.

Income Taxes. We file a consolidated federal income tax return. Income tax expense represents the taxes expected to be paid
or returned for current year taxes adjusted for the change in deferred tax assets and liabilities. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in income in the period the change

occurs. Uncertain tax positions arise when it is more likely than not that the tax position taken will be sustained upon
examination by the appropriate tax authority. Any income tax benefit as well as penalties and interest related to income tax
expense are recorded as a component of income tax expense. Unrecognized tax benefits were not material as of December 31,
2023 or 2022.

Fair Value of Financial Instruments. Fair values of financial instruments are estimated using relevant market information and
other assumptions. Fair value estimates involve uncertainties and matters of significant judgment. 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.

Retirement Plan. Defined benefit pension obligations and the annual pension costs are determined by independent actuaries and
through the use of a number of assumptions that are reviewed by management. These assumptions include a compensation rate
increase, a discount rate used to determine the current benefit obligation and a long-term expected rate of return on plan assets.
Net periodic defined benefit pension expense includes service cost, interest cost based on the assumed discount rate, an
expected return on plan assets, amortization of prior service cost and amortization of net actuarial gains or losses. Prior service
costs include the impact of plan amendments on the liabilities and are amortized over the future service periods of active
employees expected to receive benefits under the retirement plan. Actuarial gains and losses result from experience different
from that assumed and from changes in assumptions. Amortization of actuarial gains and losses is included as a component of
net periodic defined benefit pension cost. Prior to the freeze of all future benefit accruals and accrual of benefit service as of
December 31, 2020, the service cost component was recorded on our consolidated income statement as salaries and employee
benefits in noninterest expense. All other components other than service cost are recorded in other noninterest expense.

The retirement plan obligations, related assets and net periodic benefit costs of our defined benefit pension plan are presented in
“Note 10 – Employee Benefits.”

Share-Based Awards. Compensation expense for NQSOs and RSUs is based on the fair value on the date of the grant and is
recorded over the grant’s vesting period. Compensation expense for PSUs is based on the fair value on the date of the grant and
is recorded over the service period of the award based upon the probable number of units expected to vest. Share-based
compensation for employees is recognized as compensation cost in the consolidated statements of income. Share-based
compensation for non-employee directors is recognized as other noninterest expense in the consolidated statements of income.

Loss Contingencies. Loss contingencies, including claims and legal actions arising in the ordinary course of business are
recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Wealth Management and Trust Assets. Our wealth management and trust assets, other than cash on deposit at Southside Bank,
are not included in the accompanying financial statements, because they are not our assets.

Accounting Pronouncements.

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity
Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 clarifies that a contractual restriction on the sale of an
equity security should not be considered in measuring fair value. It also requires the following disclosures for equity securities
subject to the contractual sale restrictions: 1) the fair value of equity securities subject to contractual sale restrictions reflected in
the balance sheet; 2) the nature and remaining duration of the restriction(s); and 3) the circumstances that could cause a lapse in
the restriction(s). ASU 2022-03 is effective for the fiscal years and interim periods within those fiscal years, beginning after
December 15, 2023. Early adoption is permitted. The guidance should be applied prospectively. We adopted ASU 2022-03 on
January 1, 2024. ASU 2022-04 is not expected to have a material impact on our consolidated financial statements.

In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements – Codification Amendments in Response to the
SEC’s Disclosure Update and Simplification Initiative.” ASU 2023-06 amends the ASC to incorporate certain disclosure
requirements from SEC Release No. 33-10532 – Disclosure Update and Simplification that was issued in 2018. The effective
date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or
Regulation S-K becomes effective, with early adoption prohibited. ASU 2023-06 is not expected to have a material impact on
our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment
Disclosures.” ASU 2023-07 requires disclosures of significant segment expenses and other segment items on an annual and
interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are
currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all
the disclosures required under ASC 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and
interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance should be
applied retrospectively to all periods presented in the financial statements, unless it is impracticable. We are currently
evaluating the potential impact of the pending adoption of ASU 2023-07 on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.
ASU 2023-09 enhances the transparency of decision-usefulness of income tax disclosures, particularly in the rate reconciliation
table and disclosures about income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024.
Early adoption is permitted. The guidance should be applied prospectively with an option to apply it retrospectively for each
period presented. We are currently evaluating the potential impact of the pending adoption of ASU 2023-09 on our
consolidated financial statements.

2. EARNINGS PER SHARE

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

Years Ended December 31,

2023

2022

2021

Basic and Diluted Earnings:

Net income .................................................................................................................... $

86,692 $

105,020 $

113,401

Basic weighted-average shares outstanding .....................................................................

30,704

Add: Stock awards ........................................................................................................

Diluted weighted-average shares outstanding ...............................................................

30,759

32,120

131

32,251

32,558

134

32,692

Basic earnings per share:

Net income ................................................................................................................... $

2.82 $

3.27 $

3.48

Diluted earnings per share:

Net income .................................................................................................................... $

2.82 $

3.26 $

3.47

For the year ended December 31, 2023, there were approximately 570,000 anti-dilutive shares. For the years ended December
31, 2022 and 2021 there were approximately 14,000 and 9,000 anti-dilutive shares, respectively.

3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

Year Ended December 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 .......................
Reclassification adjustments included in net income ...................................
Income tax (expense) benefit ........................................................................
Net current-period other comprehensive income (loss), net of tax .................
Ending balance, net of tax ............................................................................... $ (107,499) $

28,782
23,980
(11,080)
41,682

1,222
176
30,180
(24,544)
756
192
4,898
(196)
(6,378)
23,994
736
(18,424)
12,803 $ (18,766) $ (113,462)

Year Ended December 31, 2022

Unrealized
Gains
(Losses) on
Securities

Unrealized
Gains
(Losses) on
Derivatives

Retirement
Plans

Total

Beginning balance, net of tax .......................................................................... $

84,716 $

(1,257) $ (23,754) $ 59,705

Other comprehensive income (loss):

Other comprehensive income (loss) before reclassifications .......................
Reclassification adjustments included in net income ...................................
Income tax (expense) benefit ........................................................................

(304,859)

44,757

4,487

(255,615)

8,787
62,175

(3,638)
(8,635)

895
(1,130)

6,044
52,410

Net current-period other comprehensive income (loss), net of tax .................

(233,897)

32,484

4,252

(197,161)

Ending balance, net of tax ............................................................................... $ (149,181) $

31,227 $ (19,502) $ (137,456)

Year Ended December 31, 2021

Unrealized
Gains
(Losses) on
Securities

Unrealized
Gains
(Losses) on
Derivatives

Retirement
Plans

Total

Beginning balance, net of tax .......................................................................... $ 116,078 $

(17,091) $ (29,907) $ 69,080

Other comprehensive income (loss):

Other comprehensive income (loss) before reclassifications .......................
Reclassification adjustments included in net income ...................................

(37,199)
(2,499)

13,648
6,395

6,524
1,264

(17,027)
5,160

Income tax (expense) benefit ........................................................................

8,336

(4,209)

(1,635)

2,492

Net current-period other comprehensive income (loss), net of tax .................

(31,362)

15,834

6,153

(9,375)

Ending balance, net of tax ............................................................................... $

84,716 $

(1,257) $ (23,754) $ 59,705

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

Years Ended December 31,

2023

2022

2021

Unrealized gains and losses on securities transferred:
Amortization of unrealized gains and losses (1)
Tax benefit .................................................................................................................

......................................................... $

(8,004) $

(4,968) $

(1,363)

1,681

1,043

286

Net of tax ................................................................................................................... $

(6,323) $

(3,925) $

(1,077)

Unrealized gains and losses on AFS securities:

Realized net gain (loss) on sale of securities (2)
Tax (expense) benefit .................................................................................................

......................................................... $

(15,976) $

(3,819) $

3,862

3,355

802

(811)

Net of tax ................................................................................................................... $

(12,621) $

(3,017) $

3,051

Derivatives:

Realized net gain (loss) on interest rate swap derivatives (3)
Tax (expense) benefit .................................................................................................

...................................... $

24,544 $

3,638 $

(6,395)

(5,154)

(764)

1,343

Net of tax ................................................................................................................... $

19,390 $

2,874 $

(5,052)

Amortization of retirement plans:

Net actuarial loss (4)
Tax benefit .................................................................................................................

.................................................................................................... $

(756) $

(895) $

(1,264)

159

188

265

(999)

Net of tax ................................................................................................................... $

(597) $

(707) $

Total reclassifications for the period, net of tax ............................................................. $

(151) $

(4,775) $

(4,077)

(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 10 –

Employee Benefits.”

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 December 31, 2023 and 2022 are reflected in the tables below (in thousands):

AVAILABLE FOR SALE

Investment securities:

December 31, 2023
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair Value

Amortized
Cost

U.S. Treasury .............................................................................................. $ 139,706 $
State and political subdivisions ..................................................................

603,913

Corporate bonds and other ........................................................................

14,569

MBS: (1)

Residential ..................................................................................................

569,039

Commercial ................................................................................................

5,240

19 $

— $ 139,725

362

3,202

35,530

568,745

507

14,093

3,258

536

568,983

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 ..................................................................................................

Commercial ................................................................................................

90,619

30,282

—

7,263

2,228

83,369

28,054

Total ............................................................................................................. $ 1,307,053 $

10,571 $ 151,462 $ 1,166,162

AVAILABLE FOR SALE

Investment securities:

December 31, 2022
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair Value

Amortized
Cost

State and political subdivisions .................................................................. $ 1,039,453 $

956 $

75,557 $ 964,852

Corporate bonds and other ........................................................................

8,692

8,704

MBS: (1)

Residential ..................................................................................................

Commercial ................................................................................................

328,400

11,329

250

13,623

315,027

948

10,431

Total .............................................................................................................. $ 1,387,874 $

1,282 $

90,142 $ 1,299,014

HELD TO MATURITY

Investment securities:

State and political subdivisions .................................................................. $ 1,037,556 $

3,969 $ 163,283 $ 878,242

Corporate bonds and other .........................................................................

152,552

575

7,993

145,134

MBS: (1)

Residential ..................................................................................................

Commercial ................................................................................................

93,796

42,825

—

8,343

2,519

85,474

40,306

Total .............................................................................................................. $ 1,326,729 $

4,565 $ 182,138 $ 1,149,156

(1) All MBS 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 year ended December 31, 2023. We transferred securities from AFS to HTM with an
estimated fair value of $1.25 billion during the year ended December 31, 2022. The remaining net unamortized, unrealized loss
on the transferred securities included in AOCI in the accompanying balance sheets totaled $113.5 million ($89.7 million, net of
tax) at December 31, 2023 and $121.5 million ($96.0 million, net of tax) at December 31, 2022. 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 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 $2.28 billion and $1.82 billion were pledged as of December 31, 2023
and December 31, 2022, 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
December 31, 2023 and December 31, 2022, the amount of excess collateral at the FRDW was $213.1 million and $339.6
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 December 31, 2023 or 2022, segregated by
major security type and length of time in a continuous loss position (in thousands):

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

Commercial ..............................................

—

549

—

36,864

2,484

2,709

536

187,729

2,484

3,258

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 ................................................

Commercial ..............................................

—

82,747

28,054

7,263

2,228

82,747

28,054

7,263

2,228

Total ............................................................. $

26,505 $

1,258 $ 939,087 $ 150,204 $ 965,592 $ 151,462

December 31, 2022

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 ................ $ 859,270 $

68,683 $

26,620 $

6,874 $ 885,890 $

75,557

Corporate bonds and other ........................

3,678

—

3,678

MBS:

Residential ................................................

306,294

Commercial ..............................................

5,613

13,623

318

—

2,545

—

630

306,294

8,158

13,623

948

Total ............................................................. $ 1,174,855 $

82,638 $

29,165 $

7,504 $ 1,204,020 $

90,142

HELD TO MATURITY

Investment securities:

State and political subdivisions ................ $ 426,382 $

66,898 $ 323,385 $

96,385 $ 749,767 $ 163,283

Corporate bonds and other ........................

125,250

6,660

12,738

1,333

137,988

7,993

MBS:

Residential ................................................

Commercial ..............................................

80,801

40,306

7,799

2,519

3,932

—

544

—

84,733

40,306

8,343

2,519

Total ............................................................ $ 672,739 $

83,876 $ 340,055 $

98,262 $ 1,012,794 $ 182,138

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 December 31, 2023 and December 31, 2022, 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. At December 31, 2023,
we had 373 AFS debt securities in an unrealized loss position. 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 AFS 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.
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 investment grade corporates, private placement bonds with a long
history of no credit losses, and two bonds rated one grade below investment grade, no credit loss should be recognized for these
securities for the year ended December 31, 2023 or 2022.

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 December 31, 2023, accrued interest receivable on AFS and HTM debt
securities totaled $15.4 million and $13.7 million, respectively. As of December 31, 2022, accrued interest receivable on AFS
and HTM debt securities totaled $16.9 million and $13.6 million, respectively. No HTM debt securities were past-due or on
nonaccrual status as of December 31, 2023 or 2022.

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

Years Ended December 31,
2022

2021

2023

U.S. Treasury .................................................................................................................... $

11,331 $

271 $

State and political subdivisions.........................................................................................

Corporate bonds and other ................................................................................................

MBS ..................................................................................................................................

67,355

7,129

19,450

57,663

6,007

16,639

Total interest income on securities ...................................................................................... $

105,265 $

80,580 $

615

46,296

4,131

19,534

70,576

There was a $16.0 million net realized loss as a result of sales from the AFS securities portfolio for the year ended
December 31, 2023, which consisted of $24.5 million in realized losses on sales of AFS securities and $2.0 million in realized
gains on sales of AFS securities, offset by a net gain of $6.5 million on the unwind of fair value municipal security hedges in
the AFS securities portfolio. There was a $3.8 million net realized loss as a result of sales from the AFS securities portfolio for
the year ended December 31, 2022, which consisted of $4.4 million in realized losses and $584,000 in realized gains. There
was a $3.9 million net realized gain from the AFS securities portfolio for the year ended December 31, 2021, which consisted
of $4.1 million in realized gains and $218,000 in realized losses. There were no sales from the HTM portfolio during the year
ended December 31, 2023, 2022 or 2021. 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.

The amortized cost and estimated fair value of AFS and HTM securities at December 31, 2023, are presented below by
contractual maturity (in thousands):

December 31, 2023

Amortized Cost

Fair Value

AVAILABLE FOR SALE

Investment securities:

Due in one year or less .................................................................................................................... $

139,916 $

139,935

Due after one year through five years .............................................................................................

Due after five years through ten years ............................................................................................

Due after ten years ..........................................................................................................................

MBS: ..................................................................................................................................................

4,260

22,203

591,809

758,188

574,279

4,242

21,689

556,697

722,563

573,731

Total ................................................................................................................................................ $

1,332,467 $

1,296,294

December 31, 2023

Amortized Cost

Fair Value

HELD TO MATURITY

Investment securities:

Due in one year or less .................................................................................................................... $

15,969 $

Due after one year through five years .............................................................................................

Due after five years through ten years ............................................................................................

Due after ten years ..........................................................................................................................

4,868

140,774

1,024,541

1,186,152

MBS: ..................................................................................................................................................

120,901

15,092

4,739

126,474

908,434

1,054,739

111,423

Total ................................................................................................................................................ $

1,307,053 $

1,166,162

Equity Investments

Equity investments on our consolidated balance sheets include CRA funds with a readily determinable fair value as well as
equity investments without readily determinable fair values. At December 31, 2023 and 2022, we had equity investments
recorded in our consolidated balance sheets of $9.7 million and $11.2 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 year ended December 31, 2023, there was a net
gain on the sale of equity securities of $5.1 million.

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):

Net gains (losses) recognized during the period on equity investments ............
Less: Net gains recognized during the period on equity investments sold
during the period ................................................................................................
Unrealized gains (losses) recognized during the reporting period on equity
investments still held at the reporting date ........................................................

Years Ended December 31,
2022

2021

2023

5,131 $

(685) $

(174)

5,058

—

73 $

(685) $

(174)

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 December 31, 2023.

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 December 31, 2023, our FHLB stock was not impaired and thus was not
considered to be other-than-temporarily impaired.

5. LOANS AND ALLOWANCE FOR LOAN LOSSES

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

December 31, 2023

December 31, 2022

Real estate loans:

Construction ................................................................................................................ $
1-4 family residential ..................................................................................................
Commercial ................................................................................................................
Commercial loans ..........................................................................................................
Municipal loans .............................................................................................................
Loans to individuals .......................................................................................................

Total loans .....................................................................................................................
Less: Allowance for loan losses .................................................................................
Net loans ........................................................................................................................ $

789,744 $
696,738
2,168,451
366,893
441,168
61,516

4,524,510
42,674
4,481,836 $

559,681
663,519
1,987,707
412,064
450,067
74,653

4,147,691
36,515
4,111,176

Loans to Affiliated Parties

In the normal course of business, we make loans to certain of our executive officers and directors and their related interests. As
of December 31, 2023 and 2022, these loans totaled $13.7 million and $14.2 million, respectively. These loans represented
1.8% and 1.9% of shareholders’ equity as of December 31, 2023 and 2022, respectively.

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

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 December 31, 2023 consisted of $1.79 billion of owner and non-owner occupied real estate,
$347.5 million of loans secured by multi-family properties and $28.6 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

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.

758,472
7,798
23,327
147
—
789,744
92

690,967
32
75
5,110
554
696,738
119

1,803 $
—
—
74
—
1,877 $
— $

16,493 $
—
—
—
—
16,493 $
— $

2,046,533
60,495
52,221
9,137
65
2,168,451
788

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

December 31, 2023

Term Loans Amortized Cost Basis by Origination Year

2023

2022

2021

2020

2019

Prior

Construction real estate:

Revolving
Loans
Amortized
Cost Basis

Total

Pass ........................................................ $ 132,838 $ 236,573 $ 196,311 $
Pass watch .............................................
Special mention .....................................
Substandard ...........................................
Doubtful .................................................

—
13,166
36
—

7,798
9,456
—
—

—
698
68
—

Total construction real estate ...................... $ 146,040 $ 253,827 $ 197,077 $
— $

Current period gross charge-offs ........... $

— $

92 $

37,997 $
—
—
—
—
37,997 $
— $

3,938 $
—
7
—
—
3,945 $
— $

6,457 $
—
—
43
—
6,500 $
— $

144,358 $
—
—
—
—
144,358 $
— $

1-4 family residential real estate:

Pass ........................................................ $
Pass watch .............................................
Special mention .....................................
Substandard ...........................................
Doubtful .................................................
Total 1-4 family residential real estate ........ $
Current period gross charge-offs ........... $

Commercial real estate:

41,520 $ 126,981 $ 145,671 $ 114,631 $

63,710 $ 196,651 $

—
—
325
—

—
—
—
—

—
—
73
—

32
75
1,379
163

41,845 $ 126,981 $ 145,744 $ 116,280 $
— $

— $

—
—
—
—

—
—
3,259
391

63,710 $ 200,301 $
118 $

1 $

91,085 $ 189,021 $

333
9,746
1,565
65

146
25,072
6,346
—

Pass ........................................................ $ 469,844 $ 641,577 $ 495,363 $ 143,150 $
Pass watch .............................................
24,300
Special mention .....................................
17,403
Substandard ...........................................
—
Doubtful .................................................
—

34,424
—
862
—

1,037
—
269
—

255
—
95
—

Total commercial real estate ....................... $ 511,547 $ 676,863 $ 495,713 $ 144,456 $ 102,794 $ 220,585 $
— $

Current period gross charge-offs ........... $

788 $

— $

Commercial loans:

Pass ........................................................ $
Pass watch .............................................
Special mention .....................................
Substandard ...........................................
Doubtful .................................................
Total commercial loans ............................... $
Current period gross charge-offs ........... $

78,090 $
—
191
14
238
78,533 $
745 $

62,192 $
128
174
2,357
267
65,118 $
440 $

42,114 $
117
—
73
133
42,437 $
44 $

10,708 $
—
16
—
—
10,724 $
26 $

4,356 $
—
—
65
64
4,485 $
23 $

3,310 $
18
162
12
120
3,622 $
5 $

161,153 $
—
—
821
—
161,974 $
— $

Municipal loans:

Pass ........................................................ $
Pass watch .............................................
Special mention .....................................
Substandard ...........................................
Doubtful .................................................
Total municipal loans .................................. $
Current period gross charge-offs ........... $

39,028 $
—
—
—
—
39,028 $
— $

61,429 $
—
—
—
—
61,429 $
— $

68,979 $
—
—
—
—
68,979 $
— $

49,746 $
—
—
—
—
49,746 $
— $

39,949 $ 182,037 $

—
—
—
—

39,949 $ 182,037 $
— $

— $

— $
—
—
—
—
— $
— $

Loans to individuals:

Pass ........................................................ $
Pass watch .............................................
Special mention .....................................
Substandard ...........................................
Doubtful .................................................
Total loans to individuals ............................ $
....... $

Current period gross charge-offs (1)

22,788 $
—
—
—
4
22,792 $
1,682 $

15,503 $
—
—
—
17
15,520 $
54 $

11,588 $
—
—
—
—
11,588 $
61 $

6,256 $
—
—
—
10
6,266 $
20 $

2,180 $
—
—
13
—
2,193 $
6 $

941 $

—
—
—
—
941 $
99 $

2,216 $
—
—
—
—
2,216 $
— $

361,923
263
543
3,342
822
366,893
1,283

441,168
—
—
—
—
441,168
—

61,472
—
—
13
31
61,516
1,922

Total loans ................................................... $ 839,785 $ 1,199,738 $ 961,538 $ 365,469 $ 217,076 $ 613,986 $
Total current period gross charge-offs (1)
222 $

2,427 $

586 $

105 $

818 $

46 $

.... $

326,918 $
— $

4,524,510
4,204

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

December 31, 2022

Term Loans Amortized Cost Basis by Origination Year

2022

2021

2020

2019

2018

Prior

Construction real estate:

Revolving
Loans
Amortized
Cost Basis

Total

Pass ...................................................... $ 169,652 $ 184,501 $ 34,537 $

7,091 $

1,844 $

6,434 $ 152,530 $

556,589

Pass watch ............................................

Special mention....................................

Substandard ..........................................

Doubtful ...............................................

299

1,858

—

290

—

355

—

194

—

299

2,148

246

399

Total construction real estate ..................... $ 171,809 $ 184,835 $ 34,537 $

7,456 $

1,886 $

6,628 $ 152,530 $

559,681

1-4 family residential real estate:

Pass ...................................................... $ 82,847 $ 144,424 $ 128,666 $ 70,142 $ 36,710 $ 194,490 $

2,160 $

659,439

Pass watch ............................................

Special mention....................................

Substandard ..........................................

Doubtful ...............................................

—

217

—

1,397

173

—

1,942

140

—

1,476

2,291

313

Total 1-4 family residential real estate ...... $ 82,850 $ 144,424 $ 128,962 $ 70,196 $ 38,312 $ 196,572 $

2,203 $

663,519

Commercial real estate:

Pass ...................................................... $ 798,653 $ 546,938 $ 168,607 $ 136,440 $ 55,480 $ 233,509 $

12,315 $ 1,951,942

Pass watch ............................................

Special mention....................................

Substandard ..........................................

Doubtful ...............................................

—

9,219

—

1,832

281

—

330

14,603

—

115

260

—

1,849

6,992

208

—

9,219

4,126

22,136

284

Total commercial real estate ...................... $ 798,653 $ 556,157 $ 170,720 $ 151,449 $ 55,855 $ 242,558 $

12,315 $ 1,987,707

Commercial loans:

Pass ...................................................... $ 113,678 $ 68,509 $ 17,852 $

8,249 $

4,820 $

3,313 $ 178,951 $

395,372

Pass watch ............................................

Special mention....................................

Substandard ..........................................

Doubtful ...............................................

208

—

220

5,109

116

100

—

110

—

288

210

—

9,986

—

277

15,414

537

464

Total commercial loans ............................. $ 114,174 $ 73,847 $ 18,009 $

8,445 $

5,330 $

3,322 $ 188,937 $

412,064

Municipal loans:

Pass ...................................................... $ 65,258 $ 74,617 $ 57,147 $ 47,636 $ 24,576 $ 173,919 $

— $

443,153

Pass watch ............................................

Special mention....................................

Substandard ..........................................

Doubtful ...............................................

—

508

—

403

6,003

—

6,914

—

Total municipal loans ................................ $ 65,258 $ 74,617 $ 57,147 $ 48,144 $ 24,979 $ 179,922 $

— $

450,067

Loans to individuals:

Pass ...................................................... $ 29,579 $ 21,480 $ 12,651 $

5,261 $

1,665 $

1,005 $

2,935 $

74,576

Pass watch ............................................

Special mention....................................

Substandard ..........................................

Doubtful ...............................................

—

Total loans to individuals .......................... $ 29,586 $ 21,481 $ 12,651 $

5,285 $

1,705 $

1,010 $

2,935 $

74,653

Total loans ................................................. $ 1,262,330 $ 1,055,361 $ 422,026 $ 290,975 $ 128,067 $ 630,012 $ 358,920 $ 4,147,691

Watch List loans reported as 2023 originations as of December 31, 2023 and Watch List loans reported as 2022 originations as
of December 31, 2022 were, for the majority, first originated in various years prior to 2023 and 2022, respectively, but were
renewed in the respective year.

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

30-59 Days
Past Due

60-89 Days
Past Due

December 31, 2023

Greater than
90 Days
Past Due

Total Past
Due

Current

Total

Real estate loans:

Construction ...................................... $
1-4 family residential ........................

Commercial .......................................

Commercial loans ................................

Municipal loans ....................................

Loans to individuals .............................

474 $

— $

29 $

503 $

789,241 $

789,744

4,638

621

1,693

107

774

347

—

1,700

7,112

689,626

696,738

127

—

695

2,167,756

2,168,451

2,167

118

364,726

441,141

61,398

366,893

441,168

61,516

Total ..................................................... $

7,560 $

1,156 $

1,906 $

10,622 $ 4,513,888 $ 4,524,510

30-59 Days
Past Due

60-89 Days
Past Due

December 31, 2022

Greater than
90 Days
Past Due

Total Past
Due

Current

Total

Real estate loans:

Construction ...................................... $
1-4 family residential ........................

Commercial .......................................

Commercial loans ................................

Municipal loans ....................................

Loans to individuals .............................

43 $

21 $

— $

64 $

559,617 $

559,681

3,529

105

515

—

203

368

153

277

—

214

415

247

—

4,111

659,408

663,519

673

1,987,034

1,987,707

1,039

—

246

411,025

450,067

74,407

412,064

450,067

74,653

Total ..................................................... $

4,395 $

822 $

916 $

6,133 $ 4,141,558 $ 4,147,691

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

December 31, 2023 December 31, 2022

Nonaccrual loans:

Real estate loans:

Construction ............................................................................................................ $

29 $

1-4 family residential ..............................................................................................

Commercial .............................................................................................................

Commercial loans ......................................................................................................

Loans to individuals ...................................................................................................

Total nonaccrual loans (1)

........................................................................................

Accruing loans past due more than 90 days ...............................................................
Restructured loans (2) .................................................................................................
OREO .........................................................................................................................

Repossessed assets .....................................................................................................

2,093

528

1,208

3,889

—

Total nonperforming assets ........................................................................................ $

4,001 $

405

848

762

757

2,846

—

7,849

10,862

(1) Includes $506,000 and $897,000 of restructured loans as of December 31, 2023 and December 31, 2022, respectively.

We reversed $89,000 and $36,000 of interest income on nonaccrual loans during the years ended December 31, 2023 and 2022,
respectively. We had $1.0 million and $1.6 million of loans on nonaccrual for which there was no related allowance for credit
losses as of December 31, 2023 and 2022, 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
December 31, 2023 and 2022, we had $7.5 million and $8.1 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 $1.0
million loans secured by 1-4 family residential properties for which formal foreclosure proceedings were in process as of
December 31, 2023. There were no loans secured by 1-4 family residential properties for which formal foreclosure proceedings
were in process as of December 31, 2022.

Restructured Loans

Pursuant to our adoption of ASU 2022-02 effective January 1, 2023, we prospectively discontinued the recognition and
measurement of TDRs. This guidance eliminated TDR accounting for loans in which the borrower was experiencing financial
difficulty and the creditor granted a concession. See “Note 1 - Summary of Significant Accounting and Reporting Policies” to
our consolidated financial statements included in this report.

A loan is now 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 year ended December 31, 2023 were not significant.

The following table sets forth the recorded balance of restructured loans and type of modification by class of loans during the
periods presented (dollars in thousands):

Year Ended December 31, 2023

Amortization
Period
Extension

Interest Rate
Reduction

Combination

Total
Modifications

Number of
Loans

Percent of
Total Class

Commercial loans ........ $

Total ............................. $

603 $

— $

64 $

667

0.18 %

There were three restructured loans totaling $506,000 included in our nonaccrual loans in nonperforming assets as of
December 31, 2023.

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. As of December 31, 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 December 31, 2023, there were no commitments to lend additional funds to borrowers whose loans
had been restructured.

Allowance for Loan Losses

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

Year Ended December 31, 2023

Real Estate
1-4 Family
Residential Commercial

Construction

Commercial
Loans

Municipal
Loans

Loans to
Individuals

Total

Balance at beginning of
period ............................. $

...

Loans charged-off (1)
Recoveries of loans
charged-off ..................
Net loans (charged-
off) recovered ..........
Provision for (reversal
of) loan losses .............

3,164
(92)

2,173 $
(119)

28,701 $
(788)

2,235 $
(1,283)

45 $
—

197 $ 36,515
(4,204)

(1,922)

(90)

110

298

(9)

(787)

(985)

—

1,043

1,454

(879)

(2,750)

2,213

676

4,352

836

(26)

858

8,909

Balance at end of period $

5,287

2,840 $

32,266 $

2,086 $

19 $

176 $ 42,674

Year Ended December 31, 2022

Real Estate
1-4 Family
Residential Commercial

Construction

Commercial
Loans

Municipal
Loans

Loans to
Individuals

Total

Balance at beginning of
period ............................. $
Loans charged-off .......
Recoveries of loans
charged-off ..................
Net loans (charged-
off) recovered ..........
Provision for (reversal
of) loan losses ..............

3,787
—

1,866 $
(69)

26,980 $
—

2,397 $
(792)

47 $
—

196 $ 35,273
(2,584)

(1,723)

(625)

107

269

593

(199)

—

1,105

1,888

(618)

(696)

1,640

(2)

619

1,938

Balance at end of period $

3,164

2,173 $

28,701 $

2,235 $

45 $

197 $ 36,515

Year Ended December 31, 2021

Real Estate
1-4 Family
Residential Commercial

Construction

Commercial
Loans

Municipal
Loans

Loans to
Individuals

Total

6,490
—

2,270 $
(136)

35,709 $
—

4,107 $
(1,004)

46 $
—

384 $ 49,006
(2,751)

(1,611)

(61)

674

(330)

(2,705)

(343)

(8,816)

(1,380)

—

1,142

1,980

(469)

(771)

281

(12,962)

Balance at end of period $

3,787

1,866 $

26,980 $

2,397 $

47 $

196 $ 35,273

(1) Included in charge-offs for the year ended December 31, 2023 is a $788,000 write down to fair value an $8.1 million

commercial real estate loan relationship transferred to held for sale.

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 December 31, 2023 and December 31, 2022, the accrued
interest on our loan portfolio was $21.3 million and $18.8 million, respectively.

6. PREMISES AND EQUIPMENT

Premises and equipment at December 31, 2023 and 2022 are summarized as follows (in thousands):

December 31,

2023

2022

Premises .............................................................................................................................................. $

189,643 $

185,588

Furniture and equipment .....................................................................................................................

Less: Accumulated depreciation .........................................................................................................

44,719

234,362

95,412

44,126

229,714

88,458

Total ................................................................................................................................................. $

138,950 $

141,256

Assets with accumulated depreciation of $1.5 million and $1.9 million were written off for the years ended December 31, 2023
and 2022, respectively.

Depreciation expense was $8.4 million, $8.6 million and $8.2 million for the years ended December 31, 2023, 2022 and 2021,
respectively.

7. DEPOSITS

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

Noninterest bearing demand deposits:

Private accounts .............................................................................................................. $
Public accounts ...............................................................................................................
Total noninterest bearing demand deposits ...............................................................

1,322,793 $
67,614
1,390,407

1,607,952
63,610
1,671,562

December 31, 2023 December 31, 2022

Interest bearing deposits:

Private accounts:

Savings accounts ........................................................................................................
Money market demand accounts ...............................................................................
Platinum money market accounts ..............................................................................
Interest bearing checking accounts ............................................................................
NOW demand accounts .............................................................................................
CDs of $250,000 or more ..........................................................................................
CDs under $250,000 ..................................................................................................
Total private accounts .............................................................................................

Public accounts:

Savings accounts ........................................................................................................
Money market demand accounts ...............................................................................
Platinum money market accounts ..............................................................................
Interest bearing checking accounts ............................................................................
NOW demand accounts .............................................................................................
CDs of $250,000 or more ..........................................................................................
CDs under $250,000 ..................................................................................................
Total public accounts ..............................................................................................

Total interest bearing deposits ...................................................................................

602,050
356,506
421,505
1,897,017
14,507
232,343
489,584
4,013,512

2,000
31,808
498,079
75,573
370,752
161,194
6,356
1,145,762

5,159,274

Total deposits .................................................................................................................... $

6,549,681 $

672,676
424,676
421,826
1,496,784
13,601
120,387
532,409
3,682,359

1,949
33,871
365,720
89,320
234,027
113,810
5,401
844,098

4,526,457

6,198,019

For the years ended December 31, 2023, 2022 and 2021, interest expense on CDs of $250,000 or more was $13.0 million, $2.1
million and $1.4 million, respectively.

At December 31, 2023, the scheduled maturities of CDs, including public accounts, were as follows (in thousands):

2024 ............................... $
2025 ...............................
2026 ...............................
2027 ...............................
2028 ...............................
2029 and thereafter ........

758,980
113,907
6,256
3,627
6,707
—
889,477

Brokered deposits may consist of CDs and non-maturity deposits. At December 31, 2023, we had no brokered CDs. Brokered
non-maturity deposits were $828.0 million at December 31, 2023 with a weighted average cost of 323 basis points. As of
December 31, 2022, we had $220.9 million in brokered CDs and $438.4 million in brokered non-maturity deposits. Our current
policy allows for maximum brokered deposits of the lesser of $1.20 billion or 20% of total deposits.

At December 31, 2023 and 2022, we had approximately $9.8 million and $11.0 million, respectively, in deposits from related
parties, including directors and named executive officers.

The aggregate amount of demand deposit overdrafts that have been reclassified as loans were $1.3 million and $1.2 million at
December 31, 2023 and 2022, respectively.

8. BORROWING ARRANGEMENTS

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

Other borrowings:

December 31, 2023

December 31, 2022

Balance at end of period ................................................................................................ $
Average amount outstanding during the period (1)
Maximum amount outstanding during the period (2)
Weighted average interest rate during the period (3)
Interest rate at end of period (4)

......................................................................................

........................................................

......................................................

.....................................................

FHLB borrowings:

......................................................
......................................................................................

........................................................

.....................................................

509,820

436,676

1,030,421

4.9 %

5.0 %

212,648

276,584

533,242

2.5 %
1.2 %

221,153

77,845

316,563

2.4 %

4.1 %

153,358

135,926

423,645

2.4 %
0.7 %

(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 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 December 31,
2023 are as follows (in thousands):

Less than
1 Year

1-2 Years

2-3 Years

3-4 Years

4-5 Years

Thereafter

Total

Payments Due by Period

Other borrowings .......................... $ 503,387 $
FHLB borrowings .........................

210,740

6,433 $

— $

— $ 509,820

772

484

406

246

—

212,648

Total obligations ........................... $ 714,127 $

7,205 $

484 $

406 $

246 $

— $ 722,468

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, TIB – The Independent Bankers Bank and Comerica Bank for $40.0 million, $15.0 million
and $7.5 million, respectively. There were no federal funds purchased at December 31, 2023 or 2022. To provide more
liquidity in response to economic conditions in recent years, the Federal Reserve has encouraged broader use of the discount
window. At December 31, 2023, the amount of additional funding the Bank could obtain from the FRDW, collateralized by
securities, was approximately $213.1 million. There were $300.0 million in borrowings from the FRDW at December 31,
2023, and $188.0 million at December 31, 2022. 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. At December 31, 2023, the
amount of additional funding the Bank could obtain from the BTFP, collateralized by securities, was approximately $8,000.
There were $117.7 million in borrowings from the BTFP at December 31, 2023, with a remaining maturity under three months.
Southside Bank has a $5.0 million line of credit with Frost Bank to be used to issue letters of credit, and at December 31, 2023,
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.

agreements are secured by investment and MBS securities and are stated at the amount of cash received in connection with the
transaction.

FHLB borrowings represent borrowings with fixed interest rates ranging from 0.57% to 4.80% and with remaining maturities of
22 days to 4.5 years at December 31, 2023. FHLB borrowings may be collateralized by FHLB stock, nonspecified loans and/or
securities. At December 31, 2023, the amount of additional funding Southside Bank could obtain from FHLB, collateralized by
securities, FHLB stock and nonspecified loans and securities, was approximately $1.95 billion, net of FHLB stock purchases
required.

9. LONG-TERM DEBT

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

December 31, 2023 December 31, 2022

Subordinated notes: (1)

3.875% Subordinated notes, net of unamortized debt issuance costs (2)

........................... $

Total Subordinated notes ......................................................................................................
Trust preferred subordinated debentures: (3)

Southside Statutory Trust III, net of unamortized debt issuance costs (4)
Southside Statutory Trust IV .............................................................................................

.........................

Southside Statutory Trust V ..............................................................................................

Magnolia Trust Company I ...............................................................................................

Total Trust preferred subordinated debentures ....................................................................

93,877 $

93,877

20,578

23,196

12,887

3,609

60,270

98,674

20,573

23,196

12,887

3,609

60,265

Total Long-term debt ........................................................................................................... $

154,147 $

158,939

(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 December 31, 2023 and $1.3 million at December 31, 2022.

(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 $41,000 at December 31, 2023 and $46,000 at December 31, 2022.

As of December 31, 2023, 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)

...........

Southside Statutory Trust III (2)

..........

Southside Statutory Trust IV (2)

..........

Southside Statutory Trust V (2)

...........

November 6,
2020

September 4,
2003

August 8,
2007

August 10,
2007

100,000

Fixed-to-
Floating

3.875%

November 15,
2030

20,619

Floating

3 month SOFR
+ 3.20%

September 4,
2033

23,196

Floating

3 month SOFR
+ 1.56%

October 30,
2037

12,887

Floating

3 month SOFR
+ 2.51%

September 15,
2037

Magnolia Trust Company I (2)(3)

......... 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 $100.0 million fixed-to-floating rate subordinated notes that

mature on November 15, 2030.

(2) Effective July 1, 2023, the Comany began utilizing SOFR to reset rates on our floating rate trust preferred debentures, due to

the fact that LIBOR ceased to be published as of June 30, 2023.

(3) 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.

10. EMPLOYEE BENEFITS

Deferred Compensation Agreements

Southside Bank has deferred compensation agreements with 33 of its executive officers, which generally provide for payment
of an aggregate amount of $10.1 million over a maximum period of 15 years after retirement or death. Of the 33 executives
included in the agreements, payments have commenced to 11 former executives and/or their beneficiaries. Deferred
compensation expense was $86,000, $310,000 and $457,000 for the years ended December 31, 2023, 2022 and 2021,
respectively. At December 31, 2023 and 2022, the deferred compensation plan liability totaled $3.2 million and $3.5 million,
respectively.

Health Insurance

We provide accident and health insurance for substantially all employees through a self-funded insurance program. The cost of
health care benefits was $8.1 million, $8.4 million and $8.6 million for the years ended December 31, 2023, 2022 and 2021,
respectively. Our healthcare plan provides health insurance coverage for any retiree having 50 years of service with the
Company. In addition, the eligible retiree must have Medicare coverage, including part A, part B and part D. There was one
retiree participating in the health insurance plan as of December 31, 2023, 2022 and 2021.

Employee Stock Ownership Plan

We have an ESOP which covers substantially all employees. Contributions to the ESOP are at the sole discretion of the board
of directors. We contributed $1.0 million to the ESOP for the years ended December 31, 2023, 2022 and 2021. At
December 31, 2023 and 2022, the ESOP owned 366,791 and 345,847 shares of common stock, respectively. These shares are
treated as externally held shares for dividend and earnings per share calculations.

Long-term Disability

We have an officer’s long-term disability income policy which provides coverage in the event they become disabled as defined
under its terms. Individuals are automatically covered under the policy if they (a) have been elected as an officer, (b) have been
an employee of Southside Bank for three years and (c) receive earnings of $50,000 or more on an annual basis. The policy
provides, among other things, that should a covered individual become totally disabled he would receive two-thirds of his

current salary, not to exceed $15,000 per month. The benefits paid out of the policy are limited by the benefits paid to the
individual under the terms of our other Company-sponsored benefit plans.

Split Dollar Agreements

We originally entered into split dollar agreements with eight of our executive officers. The agreements provide we will be the
beneficiary of BOLI insuring the executives’ lives. The agreements provide the executives the right to designate the
beneficiaries of the death benefits guaranteed in each agreement. The agreements originally provided for death benefits of an
initial aggregate amount of $4.5 million. Prior to an executive’s retirement, their individual amount is increased annually on the
anniversary date of the agreement by inflation adjustment factors of either 3% or 5%. As of December 31, 2023, three of the
executives remained actively employed with us. Death benefits under this agreement were paid during 2018 for one retired
covered officer and during 2013 for one active covered officer. As of December 31, 2023, the estimated death benefits for the
seven executives totaled $5.8 million. The agreements also state that after the executive’s retirement, we shall also pay an
annual gross-up bonus to the executive in an amount sufficient to enable the executive to pay federal income tax on both the
economic benefit and on the gross-up bonus. A credit to expense of $95,000 was required to record the post retirement liability
associated with the split dollar post retirement bonus for the year ended December 31, 2023. For the years ended December 31,
2022 and 2021 the expense was $27,000 and $87,000, respectively. For the years ended December 31, 2023 and 2022, the split
dollar liability totaled $1.6 million and $1.9 million, respectively.

401(k) Plan

We have a 401(k) Plan covering substantially all employees that permits each participant to make before- or after-tax
contributions subject to certain limits imposed by the Internal Revenue Code. Beginning January 1, 2017, eligible employees
may participate in the 401(k) Plan after they have worked at least 30 days with the Company. For the years ended
December 31, 2023, 2022 and 2021, expense attributable to the 401(k) Plan totaled $2.2 million, $2.0 million and $2.2 million,
respectively.

Retirement Plans

We have a defined benefit pension plan pursuant to which participants are entitled to benefits based on final average monthly
compensation and years of credited service determined in accordance with plan provisions.

We have a nonfunded supplemental retirement plan for our employees whose benefits under the principal retirement plan are
reduced because of compensation deferral elections or limitations under federal tax laws.

Entrance into the Retirement Plan by new employees was frozen effective December 31, 2005. Employees hired after
December 31, 2005 are not eligible to participate in the Retirement Plan. All remaining participants in the Retirement Plan are
fully vested. Benefits are payable monthly commencing on the later of age 65 or the participant’s date of retirement. Eligible
participants may retire at reduced benefit levels after reaching age 55. We contribute amounts to the pension fund sufficient to
satisfy funding requirements of the Employee Retirement Income Security Act. Effective December 31, 2020, all future benefit
accruals and accrual of benefit service, including consideration of compensation increases, were frozen. No further benefits
have been or will be earned by employees since that date.

Retirement Plan assets included 240,666 shares of our stock at December 31, 2023 and December 31, 2022. Our stock included
in the Retirement Plan assets was purchased at fair value. During 2023, our funded status improved, and at December 31, 2023,
we had a funded status of $8.4 million compared to a funded status of $6.9 million at December 31, 2022. The improvement in
the funded status was a result of a greater than expected return on the fair value of plan assets since December 31, 2022,
partially offset by a decrease in the discount rate to better reflect the current market conditions at December 31, 2023 compared
to December 31, 2022.

In connection with the acquisition of Omni, we acquired the OmniAmerican Bank Defined Benefit Plan which was remeasured
at fair value. The Acquired Retirement Plan originally called for benefits to be paid to eligible employees at retirement based
primarily upon years of service and the compensation levels at retirement. As of December 31, 2006, the benefits under the
Acquired Retirement Plan were frozen by Omni. No further benefits have been or will be earned by employees since that date.
In addition, no new participants may be added to the Acquired Retirement Plan after December 31, 2006. During 2023, our
funded status improved and at December 31, 2023, we had a funded status of $839,000 compared to a funded status of
$749,000 at December 31, 2022. The improvement in the funded status was a result of a greater than expected return on the
fair value of plan assets since December 31, 2022, partially offset by a decrease in the discount rate to better reflect the current
market conditions at December 31, 2023 compared to December 31, 2022.

We use a measurement date of December 31 for our plans.

100

Actuarial (gain)
loss .......................
Benefits paid ........

Expenses paid ......

Settlements ..........
Benefit obligation
at end of year .......

Change in Plan
Assets:

Fair value of plan
assets at end of
prior year .............
Actual return ........

Employer
contributions ........
Benefits paid ........

Expenses paid ......

Activity in our defined benefit pension plans and restoration plan were as follows (in thousands):

Years Ended December 31,

2023

Acquired
Retirement
Plan

Retirement
Plan

Restoration
Plan

Retirement
Plan

2022

Acquired
Retirement
Plan

Restoration
Plan

Retirement
Plan

2021

Acquired
Retirement
Plan

Restoration
Plan

(in thousands)

Change in
Projected Benefit
Obligation:

Benefit obligation
at end of prior
year ...................... $ 69,869 $ 2,379 $ 15,463 $ 94,170 $ 3,483 $ 19,321 $ 96,848 $ 3,704 $
Interest cost .........

2,570

3,771

2,741

831

126

578

102

3,856

(4,218)

(113)

—

201

(61)

(88)

(311)

555

(22,997)

(1,076)

(3,763)

(1,381)

(155)

(673)

(3,950)

—

(95)

—

(60)

(70)

—

(673)

(3,734)

—

(133)

—

(59)

(99)

—

73,165

2,246

16,176

69,869

2,379

15,463

94,170

3,483

19,321

76,735

9,147

3,128

417

—

97,439

(16,659)

3,871

(613)

—

90,419

10,887

3,613

416

—

(4,218)

(113)

—

(61)

(88)

673

(673)

—

(3,950)

(95)

—

(60)

(70)

673

(673)

—

(3,734)

(133)

—

(59)

(99)

—

(311)

3,085

81,551

Settlements ..........
Fair value of plan
assets at end of
year ......................
(Un)Funded
status at end of
year ......................
Accrued benefit
(liability) asset
recognized ........... $ 8,386 $
Accumulated
benefit obligation
at end of year ....... $ 73,165 $ 2,246 $ 16,176 $ 69,869 $ 2,379 $ 15,463 $ 94,170 $ 3,483 $

749 $ (15,463) $ 3,269 $

839 $ (16,176) $ 6,866 $

76,735

97,439

(16,176)

(15,463)

388 $

6,866

3,269

8,386

3,128

3,871

388

749

839

—

101

18,789

520

684

(672)

—

672

(672)

—

(19,321)

19,321

Amounts related to our defined benefit pension plans and restoration plan recognized as a component of other comprehensive
income (loss) were as follows (in thousands):

2023
Acquired
Retirement
Plan

Restoration
Plan

Retirement
Plan

Years Ended December 31,
2022
Acquired
Retirement
Plan

Restoration
Plan

Retirement
Plan

2021
Acquired
Retirement
Plan

Restoration
Plan

Retirement
Plan

Recognition
of net loss ..... $
Recognition
of gain due to
settlement .....
Net gain
(loss)
occurring
during the
year ...............

Deferred tax
(expense)
benefit ...........
Other
comprehensi
ve income
(loss), net of
tax ................. $

726 $

— $

30 $

640 $

— $

255 $

1,002 $

6 $

256

—

(16)

—

718

1,444

(555)

(525)

493

1,133

231

3,763

4,018

6,848

7,850

361

367

(685)

(429)

(303)

(3)

110

(238)

(48)

(844)

(1,648)

(77)

1,141 $

10 $

(415) $

895 $

183 $

3,174 $

6,202 $

290 $

(339)

The noncash adjustment to the employee benefit plan assets and/or liabilities, consisting of changes in net loss, was $948,000
and $5.4 million for the years ended December 31, 2023 and 2022, respectively.

Net amounts recognized in net periodic benefit cost and other comprehensive income (loss) were as follows (in thousands):

December 31, 2023
Acquired
Retirement
Plan

Retirement
Plan

Restoration
Plan

December 31, 2022
Acquired
Retirement
Plan

Retirement
Plan

Restoration
Plan

Net loss ....................................................... $
Deferred tax expense ..................................
Accumulated other comprehensive income
(loss), net of tax .......................................... $

726 $

(153)

— $

—

30 $

(6)

640 $

— $

(134)

—

255

(54)

573 $

— $

24 $

506 $

— $

201

102

Amounts recognized as a component of accumulated other comprehensive income (loss) were as follows (in thousands):

December 31, 2023
Acquired
Retirement
Plan

Restoration
Plan

December 31, 2022
Acquired
Retirement
Plan

Restoration
Plan

Retirement
Plan
(22,800) $

Retirement
Plan
(21,356) $

4,485

Net gain (loss) ............................................ $
Deferred tax (expense) benefit ...................

113 $

(24)

(2,511) $

100 $

(1,986)

527

4,788

(21)

417

Accumulated other comprehensive
income (loss), net of tax ............................. $

(16,871) $

89 $

(1,984) $

(18,012) $

79 $

(1,569)

Net periodic pension cost and postretirement benefit cost included the following components (in thousands):

Years Ended December 31,

2023

2022

2021

Retirement Plan:

Interest cost ...................................................................................................................... $

3,771 $

2,741 $

2,570

Expected return on assets .................................................................................................
Net loss amortization ........................................................................................................

(4,573)
726

(5,845)
640

Net periodic benefit cost (income) ................................................................................... $

(76) $

(2,464) $

Acquired Retirement Plan:

Interest cost ...................................................................................................................... $

126 $

102 $

Expected return on assets .................................................................................................

Net loss amortization ........................................................................................................

Gain recognized due to settlement ...................................................................................

(187)

—

(16)

(232)

—

(5,420)
1,002

(1,848)

(211)

—

Net periodic benefit cost (income) ................................................................................... $

(77) $

(130) $

(113)

Restoration Plan:

Interest cost ...................................................................................................................... $
Net loss amortization ........................................................................................................

831 $

578 $

255

Net periodic benefit cost .................................................................................................. $

861 $

833 $

520

256

776

The Retirement Plan and Acquired Retirement Plan assets, which consist primarily of marketable equity and debt instruments,
are valued using market quotations in active markets for identical assets, market quotations for similar assets in active or non-
active markets or the net asset value provided by the plan administrator. The Retirement Plans’ obligations and the annual
pension expense are determined by independent actuaries and through the use of a number of assumptions. Key assumptions in
measuring the Retirement Plans’ obligations include the discount rate and the estimated future return on plan assets.

In determining the discount rate, we utilized a cash flow matching analysis to determine a range of appropriate discount rates
for the defined benefit pension plans and restoration plan. In developing the cash flow matching analysis, we had our actuaries
construct a portfolio of high quality noncallable bonds to match as closely as possible the timing of future benefit payments of
the Retirement Plans at December 31, 2023. We utilized a bond selection-settlement approach that selects a portfolio of bonds
from a universe of high quality corporate bonds rated AA by at least half of the rating agencies available. Based on the results
of this cash flow matching analysis, we were able to determine an appropriate discount rate.

The expected long-term rate of return assumption reflects the average return expected based on the investment strategies and
asset allocation of the assets invested to provide for the Retirement Plans’ liabilities. We considered broad equity and bond
indices, long-term return projections and actual long-term historical Plan performance when evaluating the expected long-term
rate of return assumption.

103

The assumptions used to determine the benefit obligation were as follows:

December 31, 2023
Acquired
Retirement
Plan

Retirement
Plan

Restoration
Plan

December 31, 2022
Acquired
Retirement
Plan

Restoration
Plan

Retirement
Plan

Discount rate ...........................................

5.13 %

5.46 %

The assumptions used to determine net periodic pension cost and postretirement benefit cost were as follows:

Retirement Plan:

Discount rate .....................................................................................................................

Expected long-term rate of return on plan assets ..............................................................

Acquired Retirement Plan:

Discount rate .....................................................................................................................

Expected long-term rate of return on plan assets ..............................................................

Restoration Plan:

Years Ended December 31,

2023

2022

2021

5.46 %

6.13 %

5.46 %

6.13 %

2.95 %

6.13 %

2.95 %

6.13 %

2.65 %

6.13 %

2.65 %

6.13 %

Discount rate .....................................................................................................................

5.46 %

2.95 %

2.65 %

During the three months ended June 30, 2021, we updated our expected long-term rate of return on plan assets for the
Retirement Plan and the Acquired Retirement Plan from 6.50% to 6.125%.

Material changes in pension benefit costs may occur in the future due to changes in these assumptions. Future annual amounts
could be impacted by changes in the number of Plan participants, changes in the level of benefits provided, changes in the
discount rates, changes in the expected long-term rate of return, changes in the level of contributions to the Retirement Plan and
other factors.

104

The major categories of assets in the Plan and the Acquired Retirement Plan are presented in the following table (in
thousands). Assets are segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic
820 “Fair Value Measurements and Disclosures,” utilized to measure fair value (see “Note 12 – Fair Value
Measurement”). Our Restoration Plan is unfunded.

December 31, 2023

December 31, 2022

Retirement
Plan

Acquired
Retirement
Plan

Retirement
Plan

Acquired
Retirement
Plan

Level 1:

Cash ................................................................................................................. $
Equity securities:

U.S. large cap (1)
U.S. mid cap (2)
U.S. small cap (3)
International developed (4)
International emerging (2)
International (5)

..........................................................................................
............................................................................................
..........................................................................................
...........................................................................
............................................................................
............................................................................................

Fixed income securities:
Corporate bonds (6)
U.S. government treasuries (6)
Real estate (7)

......................................................................................

.....................................................................

...............................................................................................

Level 2:

Cash Equivalents .............................................................................................
Fixed income securities:
Corporate bonds (6)
U.S. government agencies (6)
Municipal bonds (6)
U.S. agency MBS (8)

1,428 $

— $

605 $

—

28,506
4,323
11,907
9,317
1,964
—

—

148

—

5,957

1,893
4,871
11,119
118

1,055
125
64
—
—
540

1,078

—

223

—

—
—
—
—

23,032
3,594
12,447
8,161
1,841
—

—

233

—

8,543

1,979
4,380
11,774
146

1,103
135
66
—
—
547

1,027

—

250

—

—
—
—
—

Total fair value of plan assets ............................................................................. $

81,551 $

3,085 $

76,735 $

3,128

(1) For the Retirement Plan, this category is comprised of broadly diversified “passive” and “active” mutual funds. The
Acquired Retirement Plan assets in this category consist of pooled separate accounts invested in mutual funds and domestic
stocks.

(2) For the Retirement Plan, this category is comprised of broadly diversified “active” mutual funds. The Acquired Retirement

Plan assets in this category consist of pooled separate accounts invested in mutual funds.

(3) For the Retirement Plan, this category is comprised of broadly diversified “passive” and “active” mutual funds and shares of
Southside Bancshares stock. The Acquired Retirement Plan assets in this category consist of pooled separate accounts
invested in mutual funds.

(4) This category is comprised of a broadly diversified “passive” and “active” mutual funds.
(5) This category is comprised of pooled separate accounts invested in mutual funds and international stocks.
(6) For the Retirement Plan, this category is comprised of individual investment grade securities that are generally HTM. The
Acquired Retirement Plan assets in this category consist of pooled separate accounts invested in mutual funds, bonds and
fixed income securities.

(7) This category is comprised of a pooled separate account invested in commercial real estate and includes mortgage loans

which are backed by the associated properties.

(8) This category is comprised of individual securities that are generally not HTM.

We did not have any plan assets with Level 3 input fair value measurements at December 31, 2023 or 2022.

Our overall investment strategy is to realize long-term growth of the Retirement Plan within acceptable risk parameters, while
funding benefit payments from dividend and interest income, to the extent possible. The target allocations for plan assets are
64.0% equities, 35.0% fixed income and 1.0% cash equivalents. Equity securities are diversified among U.S. and international
(both developed and emerging), large, mid and small caps, value and growth securities and REITs. The investment objective of
equity funds is long-term capital appreciation with current income. Fixed income securities include government agencies, CDs,
corporate bonds, municipal bonds and MBS. The investment objective of fixed income funds is to maximize investment return
while preserving investment principal. Mutual funds are primarily used for equity and REITs because of the superior

105

diversification they provide. Subsequent to December 31, 2023, we began the liquidation and reinvestment of the assets in the
Retirement Plan using a liability-driven investment strategy.

As of December 31, 2023, expected future benefit payments related to the Retirement Plan, the Acquired Retirement Plan and
the Restoration Plan were as follows (in thousands):

Retirement Plan

Acquired
Retirement Plan

Restoration
Plan

2024 ........................................................... $
2025 ...........................................................
2026 ...........................................................
2027 ...........................................................
2028 ...........................................................
2029 through 2033 ....................................

4,415 $
4,616
4,930
5,115
5,210
26,495
50,781 $

85 $
92
92
128
373
564
1,334 $

694
818
1,156
1,406
1,420
7,137
12,631

We expect to contribute $725,000 to our Restoration Plan in 2024. We do not expect to make additional contributions to the
Retirement Plan or the Acquired Retirement Plan in 2024.

Share-based Incentive Plans

2017 Incentive Plan

On May 10, 2017, our shareholders approved the 2017 Incentive Plan, which is a stock-based incentive compensation plan. A
total of 2,460,000 shares of our common stock were reserved and available for issuance pursuant to awards granted under the
2017 Incentive Plan. This amount includes a number of additional shares (not to exceed 410,000) underlying awards
outstanding as of May 10, 2017 under the Company’s 2009 Incentive Plan that thereafter terminate or expire unexercised, or are
cancelled, forfeited or lapse for any reason. Under the 2017 Incentive Plan, we are authorized to grant stock options, stock
appreciation rights, restricted stock, restricted stock units, performance awards and qualified performance-based awards or any
combination thereof to selected employees, officers, directors and consultants of the Company and its affiliates. As of
December 31, 2023, there were 1,033,423 shares remaining available for grant for future awards.

All share data has been adjusted to give retroactive recognition to stock dividends, where applicable. Reference to incentive
plans refers to the 2017 Incentive Plan and predecessor incentive plans.

As of December 31, 2023, 2022 and 2021, there were 201,315, 277,600 and 368,447 unvested awards outstanding,
respectively. For the years ended December 31, 2023, 2022 and 2021, there was $3.2 million, $2.9 million and $2.7 million of
share-based compensation expense for employees related to the incentive plans, respectively, and $671,000, $605,000 and
$570,000 of income tax benefit related to the stock compensation expense, respectively. Director stock compensation expense
was $359,000, $342,000, and $306,000 for the years ended December 31, 2023, 2022 and 2021 respectively, and $75,000,
$72,000 and $64,000 of income tax benefit related to the director stock compensation expense, respectively.

As of December 31, 2023, 2022 and 2021, there was $5.7 million, $7.4 million and $6.2 million of unrecognized compensation
cost related to the incentive plans, respectively. The remaining cost at December 31, 2023 is expected to be recognized over a
weighted-average period of 2.3 years.

The fair value of each NQSO is estimated on the date of grant using a Black-Scholes option pricing model. There were no
NQSO grants during the years ended December 31, 2023, 2022 or 2021. The NQSOs have contractual terms of 10 years and
vest in equal annual installments over either a three- or four-year period.

The fair value of each RSU is the ending stock price on the date of grant. RSUs granted to employees vest in equal annual
installments over a period of between three and four years. Director RSUs vest after a period of one year. Directors may elect
to defer the receipt of shares and instead receive them on a specified anniversary of grant date or upon the termination of their
service on the Board.

The fair value of each PSU is the ending stock price on the date of grant. PSUs granted to executive officers will cliff vest on
the third anniversary of the grant date, subject to the grantee’s continued service on such date, and will be earned based on the
Company’s ROATCE related to ROATCE of the KBW Nasdaq Regional Bank Index (NASDAQ: KRX), over a 3 year
performance period. The PSUs may be earned between a minimum payout of 50%, based on a ROATCE performance threshold
of 25th percentile of the Peer Group, a target payout of 100%, based on a ROATCE performance threshold of 50th percentile,
and a maximum payout of 150%, based on a performance threshold of 75th percentile or greater. Share payout for performance
between the minimum threshold, target and maximum is calculated on a straight line basis, and performance below the
minimum threshold results in no share payout.

106

Each award is evidenced by an award agreement that specifies the option price, if applicable, the duration of the award, the
number of shares to which the award pertains and such other provisions as the board of directors determines. Historically,
shares issued in connection with stock compensation awards have been issued from available authorized shares. Beginning in
the second quarter of 2017, shares were issued from available treasury shares.

Shares issued in connection with stock compensation awards along with other related information are presented in the following
table (in thousands, except share amounts):

New shares issued from available treasury shares ......................................................

Proceeds from stock option exercises ......................................................................... $

Intrinsic value of stock options exercised ................................................................... $

Years Ended December 31,

2023

2022

2021

99,109

1,082

229

86,500

305,212

790

421

7,672

3,005

A combined summary of activity in our share-based plans as of December 31, 2023 is presented below. Performance stock units
outstanding are presented assuming attainment of the maximum payout rate as set forth by the performance criteria:

Restricted Stock Units
Outstanding

Stock Options
Outstanding

Service Based

Performance Based

Weighted-
Average
Grant-Date
Fair
Value

Number
of Shares

225,928 $

57,966

—

(74,698)

(11,253)

—

36.60

30.14

—

36.57

36.30

—

Balance, January 1, 2023 ............
Granted ....................................

Stock options exercised ...........

Stock awards vested ................

Forfeited ...................................

Canceled/expired .....................

Weighted-
Average
Grant-Date
Fair
Value

Weighted-
Average
Exercise
Price

Weighted-
Average
Grant-Date
Fair
Value

Number
of Shares

13,514 $

15,140

41.74

38.89

—

673,011 $

33.45 $

—

(38,556)

—

(3,682)

(10,267)

—

28.03

—

34.83

34.12

6.49

—

6.77

—

5.89

6.37

6.47

Balance, December 31, 2023 ......

197,943 $

34.76

28,654 $

40.18

620,506 $

33.76 $

Other information regarding options outstanding and exercisable as of December 31, 2023 is as follows:

Range of Exercise Prices

Number
of Shares

Options Outstanding

Options Exercisable

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Life in Years

Number
of Shares

Weighted-
Average
Exercise
Price

23.66
25.01
30.01
35.01

- $
-
-
-

25.00
30.00
35.00
37.28
Total

6,153 $

86,226
451,962
76,165
620,506 $

23.66
26.61
34.67
37.28
33.76

1.02
1.48
5.06
2.87
4.25

6,153 $

86,226
451,962
76,165
620,506 $

23.66
26.61
34.67
37.28
33.76

The total intrinsic value of outstanding in-the-money stock options and outstanding in-the-money exercisable stock options was
$453,000 for both at December 31, 2023. The weighted-average remaining contractual life of options exercisable at
December 31, 2023 was 4.3 years.

107

11. 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 $1.01 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 December 31, 2023, hedged securities with a carrying amount of $460.4 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.

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

Amortized cost of hedged assets - Securities AFS .......................................................... $
Cumulative amount of fair value hedging adjustments included in the carrying
amount of the hedged items

December 31, 2023
487,486

December 31, 2022
804,224
$

13,642

21,562

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
fixed rate loan. The changes in the fair value of the underlying derivative contracts primarily offset each other and do not

108

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 December 31, 2023 and 2022, net derivative assets included $46.8 million and $82.1 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):

Derivatives designated as hedging instruments

December 31, 2023

Estimated Fair Value

December 31, 2022

Estimated Fair Value

Notional
Amount (1)

Asset
Derivative

Liability
Derivative

Notional
Amount (1)

Asset
Derivative

Liability
Derivative

Interest rate contracts:
Swaps-Cash Flow Hedge-Financial institution
counterparties ..................................................... $ 1,010,000 $ 24,223 $
Swaps-Fair Value Hedge-Financial institution
counterparties .....................................................

453,440

13,658

6,910 $

575,000 $ 39,527 $

—

742,675

21,733

171

Derivatives designated as non-hedging instruments

Interest rate contracts:

Swaps-Financial institution counterparties ........

Swaps-Customer counterparties .........................

248,073

Gross derivatives ....................................................

Offsetting derivative assets/liabilities .....................

Cash collateral received/posted ..............................
Net derivatives included in the consolidated
balance sheets (2)

.....................................................

18,249

509

56,639

509

18,249

25,684

(7,435)

(46,760)

—

223,124

21,046

—

82,306

(171)

(82,135)

—

21,046

21,217

(171)

—

2,444 $ 18,249

— $ 21,046

(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 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. At December 31, 2022, we had no credit exposure related to interest rate swaps with financial institutions and
none 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.

109

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
presented below (dollars in thousands). Variable rates received on fixed pay swaps are based on one-month or three-month
LIBOR or overnight SOFR rates in effect at December 31, 2023 and December 31, 2022:

December 31, 2023

Weighted Average

December 31, 2022

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 . $ 1,010,000

Swaps-Fair Value hedge

Financial institution counterparties .

453,440

Swaps-Non-hedging

Financial institution counterparties .
Customer counterparties .................

248,073
248,073

2.3

5.4

7.4
7.4

5.44 % 2.65 % $ 575,000

5.37 % 3.13 % 742,675

5.84 % 2.88 % 223,124
2.88 % 5.84 % 223,124

2.3

6.3

9.0
9.0

4.44 % 1.13 %

3.42 % 3.21 %

4.83 % 2.69 %
2.69 % 4.83 %

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

Years Ended December 31,
2022

2021

2023

Derivatives designated as hedging instruments

Swaps-Cash Flow hedge

Gain (loss) included in interest expense on deposits...................................................... $

15,225 $

2,917 $

Gain (loss) included in interest expense on FHLB borrowings .....................................

Gain (loss) included in interest expense on other borrowings .......................................

8,432

887

24,544

721

—

3,638

(103)

(6,292)

—

(6,395)

Swaps-Fair Value hedge

Gain (loss) included in interest income on tax-exempt investment securities ...............

12,834

422

—

Derivatives designated as non-hedging instruments

Swaps-Non-hedging

Other noninterest income ...............................................................................................

352

472

813

12. 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

110

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.

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 December 31, 2023 and 2022.

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 December 31, 2023 and 2022, 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.

111

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):

December 31, 2023

Fair Value Measurements at the End of the
Reporting Period Using

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

Carrying
Amount

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Recurring fair value measurements

Investment securities:

U.S. Treasury ................................................................................. $

139,725 $

— $

State and political subdivisions ......................................................

Corporate bonds and other .............................................................

568,745

14,093

MBS: (1)

Residential ......................................................................................

568,983

Commercial ....................................................................................

4,748

Equity investments:

—

568,745

14,093

568,983

4,748

Equity investments .........................................................................

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 $

Total liability recurring fair value measurements ............................. $

25,684 $

— $

25,684 $

—

Nonrecurring fair value measurements

Foreclosed assets ............................................................................... $
Collateral-dependent loans (2)

...........................................................

99 $

7,000

Total asset nonrecurring fair value measurements ........................... $

7,099 $

— $

—

— $

—

— $

7,000

7,099

112

December 31, 2022

Fair Value Measurements at the End of the
Reporting Period Using

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

Carrying
Amount

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Recurring fair value measurements

Investment securities:

State and political subdivisions ............................................................... $ 964,852 $

— $ 964,852 $

Corporate bonds and other .......................................................................

8,704

MBS: (1)

Residential ...............................................................................................

315,027

Commercial .............................................................................................

10,431

Equity investments:

—

8,704

315,027

10,431

Equity investments ..................................................................................

5,235

—

Derivative assets:

Interest rate swaps ...................................................................................

82,306

—

82,306

Total asset recurring fair value measurements ........................................... $ 1,386,555 $

5,235 $ 1,381,320 $

Derivative liabilities:

Interest rate swaps ................................................................................... $

21,217 $

— $

21,217 $

Total liability recurring fair value measurements ...................................... $

21,217 $

— $

21,217 $

Nonrecurring fair value measurements

Foreclosed assets ........................................................................................ $
Collateral-dependent loans (2)

.....................................................................

167 $

— $

7,815

—

Total asset nonrecurring fair value measurements ..................................... $

7,982 $

— $

—

167

7,815

7,982

(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.

113

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.

114

—

—
—

—

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):

December 31, 2023
Financial Assets:

Carrying
Amount

Total

Level 1

Level 2

Level 3

Estimated Fair Value

Cash and cash equivalents .................................................. $ 560,510 $ 560,510 $ 560,510 $
Investment securities:
HTM, at carrying value ....................................................
MBS:
HTM, at carrying value ....................................................
FHLB stock, at cost ...........................................................
Equity investments .............................................................
Loans, net of allowance for loan losses ..............................
Loans held for sale .............................................................

120,901
11,936
4,383
4,481,836

111,423
11,936
4,383
4,198,879

—
—
—
—

1,186,152

1,054,739

10,894

—

— $

1,054,739

—
—
—
4,198,879

111,423
11,936
4,383
—

10,894

Financial Liabilities:

Deposits .............................................................................. $ 6,549,681 $ 6,534,929 $

— $ 6,534,929 $

Other borrowings ................................................................
FHLB borrowings ..............................................................
Subordinated notes, net of unamortized debt issuance
costs ....................................................................................

509,820
212,648

510,242
202,750

93,877

86,285

Trust preferred subordinated debentures, net of
unamortized debt issuance costs ........................................

60,270

57,480

—
—

—

510,242
202,750

86,285

57,480

Estimated Fair Value

December 31, 2022
Financial assets:

Carrying
Amount

Total

Level 1

Level 2

Level 3

Cash and cash equivalents .................................................. $ 199,252 $ 199,252 $ 199,252 $
Investment securities:
HTM, at carrying value ....................................................
MBS:
HTM, at carrying value ....................................................
FHLB stock, at cost ...........................................................
Equity investments .............................................................
Loans, net of allowance for loan losses ..............................
Loans held for sale .............................................................

136,621
9,190
5,946
4,111,176
667

125,780
9,190
5,946
3,880,664
667

—
—
—
—
—

1,190,108

1,023,376

—

— $

1,023,376

125,780
9,190
5,946
—
667

—
—
—
3,880,664
—

— $ 6,158,517 $

—
—

—

221,153
140,976

91,357

60,594

—

—
—

—

Financial liabilities:

Deposits .............................................................................. $ 6,198,019 $ 6,158,517 $
Other borrowings ................................................................
FHLB borrowings ..............................................................

221,153
153,358

221,153
140,976

Subordinated notes, net of unamortized debt issuance
costs ....................................................................................

Trust preferred subordinated debentures, net of
unamortized debt issuance costs ........................................

98,674

91,357

60,265

60,594

115

13. SHAREHOLDERS’ EQUITY

Cash dividends declared and paid were $1.42, $1.40 and $1.37 per share for the years ended December 31, 2023, 2022 and
2021, respectively. Future dividends will depend on our earnings, financial condition and other factors which the board of
directors considers to be relevant. Our dividend policy requires that any cash dividend payments made may not exceed
consolidated earnings for that year.

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

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios
(set forth in the table below) of Common Equity Tier 1, Tier 1 and Total Capital (as defined in the regulations) to risk-weighted
assets (as defined) and of Tier 1 Capital (as defined) to average assets (as defined). At December 31, 2023, we exceeded all
regulatory minimum capital requirements.

116

As of December 31, 2023, the most recent notification from the FDIC categorized us as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized we must maintain minimum Common Equity
Tier 1 risk-based, Tier 1 risk-based, Total risk-based and Tier 1 leverage ratios as set forth in the following table (dollars in
thousands). There are no conditions or events since that notification that management believes have changed our category.

Actual

Amount

Ratio

For Capital
Adequacy Purposes
Ratio
Amount

To Be Well Capitalized
Under Prompt
Corrective Action
Provisions

Amount

Ratio

December 31, 2023

Common Equity Tier 1 (to Risk Weighted
Assets)

Consolidated ............................................... $

690,296

12.28 % $

252,954

4.50 %

N/A

Bank Only ................................................... $

836,228

14.88 % $

252,865

4.50 % $

365,249

Tier 1 Capital (to Risk Weighted Assets)

Consolidated ............................................... $

748,755

13.32 % $

337,273

6.00 %

N/A

Bank Only ................................................... $

836,228

14.88 % $

337,153

6.00 % $

449,537

N/A

6.50 %

N/A

8.00 %

Total Capital (to Risk Weighted Assets)

Consolidated ............................................... $

884,095

15.73 % $

449,697

8.00 %

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

Bank Only ................................................... $

836,228

10.49 % $

318,814

4.00 % $

398,517

December 31, 2022
Common Equity Tier 1 (to Risk Weighted
Assets)

Consolidated ............................................... $
Bank Only ................................................... $

687,686

823,323

12.63 % $

245,107

4.50 %

N/A

15.12 % $

245,085

4.50 % $

354,012

Tier 1 Capital (to Risk Weighted Assets)

Consolidated ............................................... $

746,140

13.70 % $

326,809

6.00 %

N/A

Bank Only ................................................... $

823,323

15.12 % $

326,780

6.00 % $

435,707

N/A

5.00 %

N/A

6.50 %

N/A

8.00 %

Total Capital (to Risk Weighted Assets)

Consolidated ............................................... $

877,281

16.11 % $

435,746

8.00 %

N/A

Bank Only ................................................... $

855,790

15.71 % $

435,707

8.00 % $

544,633

10.00 %

Tier 1 Capital (to Average Assets) (1)

Consolidated ............................................... $

746,140

9.96 % $

299,511

4.00 %

N/A

Bank Only ................................................... $

823,323

11.00 % $

299,410

4.00 % $

374,263

N/A

5.00 %

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

Our payment of dividends is limited under regulation. The amount that can be paid in any calendar year without prior approval
of our regulatory agencies cannot exceed the lesser of net profits (as defined) for that year plus the net profits for the preceding
two calendar years or retained earnings.

117

14. DIVIDEND REINVESTMENT AND COMMON STOCK REPURCHASE PLAN

We have in effect a DRIP which allows enrolled shareholders to reinvest dividends paid to them by the Company into new
shares of our stock. The DRIP is funded by stock authorized but not yet issued. For the year ended December 31, 2023, 38,884
shares were issued under this plan at an average price per share of $31.48, reflective of other trades at the time of each sale. For
the years ended December 31, 2022 and December 31, 2021, 31,853 and 34,150 shares, respectively, were issued under this
plan at an average price per share of $38.70 and $39.64, respectively, reflective of other trades at the time of each sale.

We repurchased 1,435,193 shares of our common stock at a cost of $45.1 million during the year ended December 31, 2023,
923,775 shares of common stock at a cost of $33.8 million during the year ended December 31, 2022, and 938,484 shares of
common stock at a cost of $34.1 million during the year ended December 31, 2021. Repurchased shares are designated as
treasury shares and are available for general corporate purposes, which may include possible use in connection with our share-
based incentive plans and other distributions. Our board of directors continually evaluates the Company's capital needs and
those of the Bank and may, at its discretion, initiate, modify or discontinue an authorized repurchase plan without notice.

15. INCOME TAXES

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

Years Ended December 31,
2022

2021

2023

Current income tax expense ........................................................................................................... $ 16,547 $ 14,700 $ 12,674
Deferred income tax expense (benefit) ..........................................................................................
4,752
Income tax expense ........................................................................................................................ $ 14,437 $ 14,611 $ 17,426

(2,110)

(89)

118

The components of the net deferred tax asset/liability as of December 31, 2023 and 2022 are summarized below (in thousands):

Allowance for loan losses .......................................................................................................................... $
Retirement and other benefit plans ............................................................................................................
Premises and equipment ............................................................................................................................
Operating lease liabilities ..........................................................................................................................
Operating lease ROU assets ......................................................................................................................
Core deposit intangible ..............................................................................................................................
Unrealized losses on securities AFS ..........................................................................................................
Effective hedging derivatives ....................................................................................................................
Fair value adjustment on loans ..................................................................................................................
Unfunded status of defined benefit plan ....................................................................................................
State business tax credit .............................................................................................................................
Stock-based compensation ........................................................................................................................
Other ..........................................................................................................................................................
Gross deferred tax assets/liabilities ........................................................................................................

Net deferred tax asset at December 31, 2023 .................................................................................... $

Net deferred tax asset at December 31, 2022 .................................................................................... $

A reconciliation of tax at statutory rates and total tax expense is as follows (dollars in thousands):

Assets

Liabilities

8,962 $

2,529
8,852

3,116
292

6,268

21,057

2,435
9,269

3,216
548

12,829

28,297

3,508

31,820

436
4,988
181
1,294
294
51,483
30,426

7,668 $

3,585

44,299

500
5,184
242
1,177
337
62,992
34,695

2023

Years Ended December 31,
2022

Percent of
Pre-Tax
Income

Amount

Percent of
Pre-Tax
Income

Amount

2021

Percent of
Pre-Tax
Income

Statutory tax expense ........................................... $
Increase (decrease) in taxes from:
Tax exempt interest ..............................................
BOLI ....................................................................
Share-based compensation ...................................
State business tax .................................................
Other, net .............................................................
Income tax expense .............................................. $

21,237

21.0 % $ 25,123

21.0 % $ 27,474

21.0 %

(6,107)
(1,222)
89
353
87
14,437

(10,345)
(6.0) %
(555)
(1.2) %
(93)
0.1 %
312
0.3 %
0.1 %
169
14.3 % $ 14,611

(9,636)
(8.6) %
(549)
(0.5) %
(392)
(0.1) %
366
0.3 %
0.1 %
163
12.2 % $ 17,426

(7.4) %
(0.4) %
(0.3) %
0.3 %
0.1 %
13.3 %

We file income tax returns in the U.S. federal jurisdiction 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. No valuation allowance was recorded at December 31, 2023 or 2022 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
December 31, 2023 or 2022.

119

16. LEASES

We lease certain retail- and full-service branch locations, ATM locations and certain equipment. Short-term leases, leases with
an initial term of 12 months or less and do not contain a purchase option that is likely to be exercised, are not recorded on the
balance sheet. Operating lease cost, which is comprised of the amortization of the ROU asset and the implicit interest accreted
on the operating lease liability, is recognized on a straight-line basis over the lease term and is included in net occupancy
expense on our consolidated statements of income. We evaluate the lease term by assuming the exercise of options to extend
that are reasonably assured and those option periods covered by an option to terminate the lease, if deemed not reasonably
certain to be exercised. The lease term is used to determine the straight-line expense and limits the depreciable life of any
related leasehold improvements. Certain leases require us to pay real estate taxes, insurance, maintenance and other operating
expenses associated with the leased premises. These expenses are classified in net occupancy expense on our consolidated
statements of income, consistent with similar costs for owned locations, but is not included in operating lease cost below.

Our leases have remaining lease terms ranging from 1 month to 16.7 years, some of which include options to extend for up to
10 years, and some of which include options to terminate within 90 days. We calculate the lease liability using a discount rate
that represents our incremental borrowing rate at the lease commencement date.

Balance sheet information related to leases was as follows (in thousands):

Operating leases:

Operating lease ROU assets ............................................................................................. $
Operating lease liabilities ................................................................................................. $

14,837 $
16,704 $

15,314
17,070

December 31, 2023 December 31, 2022

The components of lease cost were as follows (in thousands):

Operating lease cost .................................................................................................

1,802

1,773 $

1,811

Years Ended December 31,

2023

2022

2021

Supplemental cash flow information related to leases was as follows (in thousands):

Years Ended December 31,
2022

2021

2023

Cash paid for amounts included in the measurement of the lease liabilities:

Operating cash flows for operating leases .....................................................................
..........................

ROU assets obtained in exchange for new operating lease liabilities (1)

1,716

809

$
$

1,644
1,531

$
$

2,016
1,330

(1) For the year ended December 31, 2021, the ROU assets obtained were primarily due to one lease that commenced in January

2021 with an initial ROU asset of $1.1 million.

Additional information related to leases was as follows:

Weighted average remaining lease term (in years) ..........................................................
Weighted average discount rate .......................................................................................

December 31, 2023
13.0
3.27 %

December 31, 2022
13.8
2.98 %

120

Future minimum rental commitments due under non-cancelable operating leases at December 31, 2023 were as follows (in
thousands):

Year ending December 31,

2024 ............................................................................................................................................... $
2025 ...............................................................................................................................................
2026 ...............................................................................................................................................
2027 ...............................................................................................................................................
2028 ...............................................................................................................................................
2029 and thereafter ........................................................................................................................

Total lease payments (1)
Less: Interest
Present value of lease liabilities

1,607
1,754
1,737
1,616
1,581
12,281
20,576
(3,872)
16,704

(1) Excludes $422,000 of lease payments for a lease executed but not yet commenced. Lease will commence in 2024 with a

lease term of 5.4 years.

We also lease certain of our owned facilities or portions thereof to third parties. Our primary leased facility is a 202,000
square-foot office building in Fort Worth, Texas that is used for a branch location and certain bank operations. We occupy
approximately 39,000 square feet of the building and lease the remaining space to various tenants. Some of these leases contain
options to extend and options to terminate at the discretion of the tenant.

Operating lease income received from tenants who rent our properties is reported as a reduction to occupancy expense on our
consolidated statements of income. The underlying assets associated with these operating leases are included in premises and
equipment on our consolidated balance sheets.

Gross rental income from these leases were as follows (in thousands):

Gross rental income .....................................................................................................

3,584 $

3,173 $

3,288

At December 31, 2023, non-cancelable operating leases with future minimum lease payments are as follows (in thousands):

Years Ended December 31,

2023

2022

2021

Year ending December 31,
2024 ............................................................................................................................................... $
2025 ...............................................................................................................................................
2026 ...............................................................................................................................................
2027 ...............................................................................................................................................
2028 ...............................................................................................................................................
2029 and thereafter ........................................................................................................................
$

Total lease payments

2,962
2,297
1,964
1,197
509
794
9,723

121

17. 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):

Years Ended December 31,

2023

2022

2021

3,687 $
245
3,932 $

2,384 $
1,303
3,687 $

6,386
(4,002)
2,384

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):

December 31, 2023

December 31, 2022

Commitments to extend credit ................................................................................... $
Standby letters of credit .............................................................................................

Total ...................................................................................................................... $

1,082,327 $
10,823

1,093,150 $

1,296,773
26,844

1,323,617

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.

Securities. In the normal course of business we buy and sell securities. At December 31, 2023 and December 31, 2022, 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 December 31, 2023 or December 31, 2022.

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.

122

18. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK

Although we have a diversified loan portfolio, a significant portion of our loans are collateralized by real estate. Repayment of
these loans is in part dependent upon the economic conditions in the market area. Our market areas primarily include East and
Southeast Texas, as well as the greater Dallas-Fort Worth, Austin and Houston, Texas areas. Part of the risk associated with
real estate loans has been mitigated since 19.1% of this group represents loans collateralized by residential dwellings that are
primarily owner occupied. Losses on this type of loan have historically been less than those on speculative properties. Many of
the remaining real estate loans are collateralized primarily with non-owner occupied commercial real estate.

The MBS we hold consist exclusively of U.S. agency securities which are either directly or indirectly backed by the full faith
and credit of the U.S. Government or guaranteed by GSEs. The GNMA MBS are backed by the full faith and credit of the U.S.
Government. The Fannie Mae and Freddie Mac U.S. agency GSE guaranteed MBS are not backed by the full faith and credit
of the U.S. government.

19. PARENT COMPANY FINANCIAL INFORMATION

Condensed financial information for Southside Bancshares, Inc. (parent company only) was as follows (in thousands, except
share amounts):

CONDENSED BALANCE SHEETS

ASSETS

December 31,

2023

2022

Cash and due from banks .......................................................................................................................... $
Investment in bank subsidiaries at equity in underlying net assets ...........................................................
Investment in nonbank subsidiaries at equity in underlying net assets .....................................................
Other assets ................................................................................................................................................

5,097 $

917,035
1,826
4,765

20,235
879,449
1,826
4,411

Total assets ......................................................................................................................................... $

928,723 $

905,921

LIABILITIES AND SHAREHOLDERS’ EQUITY

Subordinated notes, net of unamortized debt issuance costs ..................................................................... $
Trust preferred subordinated debentures, net of unamortized debt issuance costs ...................................
Other liabilities ..........................................................................................................................................

93,877 $

60,270
1,288

98,674

60,265
985

Total liabilities ...................................................................................................................................

155,435

159,924

Shareholders’ equity:

Common stock: ($1.25 par value, 80,000,000 shares authorized, 38,039,706 shares issued at
December 31, 2023 and 38,000,822 shares issued at December 31, 2022) ...........................................
Paid-in capital .........................................................................................................................................
Retained earnings ...................................................................................................................................
Treasury stock: (shares at cost, 7,790,276 at December 31, 2023 and 6,454,192 at December 31,
2022) .......................................................................................................................................................
AOCI ......................................................................................................................................................

47,550
788,840
282,355

47,501
784,545
239,610

(231,995)
(113,462)

(188,203)
(137,456)

Total shareholders’ equity .................................................................................................................

773,288

745,997

Total liabilities and shareholders’ equity ........................................................................................... $

928,723 $

905,921

123

CONDENSED STATEMENTS OF INCOME

Years Ended December 31,
2022

2021

2023

Income
Dividends from subsidiary ............................................................................................... $
Interest income .................................................................................................................
Other .................................................................................................................................
Total income ..................................................................................................................

85,000 $
135
587
85,722

85,000 $
72
—
85,072

100,000
42
—
100,042

Expense
Interest expense ................................................................................................................
Other .................................................................................................................................
Total expense .................................................................................................................

8,424
3,319
11,743

6,412
3,148
9,560

9,636
4,162
13,798

Income before income tax expense ..................................................................................
Income tax benefit ............................................................................................................
Income before equity in undistributed earnings of subsidiaries ......................................
Equity in undistributed earnings of subsidiaries ..............................................................

Net income .................................................................................................................... $

73,979
2,314
76,293
10,399
86,692 $

75,512
1,992
77,504
27,516
105,020 $

86,244
2,889
89,133
24,268
113,401

CONDENSED STATEMENTS OF CASH FLOWS

Years Ended December 31,

2023

2022

2021

OPERATING ACTIVITIES:

Net Income .................................................................................................................... $
Adjustments to reconcile net income to net cash provided by operations:

86,692 $

105,020 $

113,401

Amortization .............................................................................................................

Stock compensation expense ....................................................................................

Equity in undistributed earnings of subsidiaries ......................................................

(Gain on purchase) loss on redemption of subordinated notes .................................

Net change in other assets ........................................................................................

Net change in other liabilities ...................................................................................

159

145

360
(10,399)

342
(27,516)

(587)

(354)

303

—
(27)

204

Net cash provided by operating activities ..............................................................

76,174

78,168

INVESTING ACTIVITIES:

Net cash used in investing activities ......................................................................

FINANCING ACTIVITIES:

Net proceeds from issuance of subordinated long-term debt ........................................

Purchase/redemption of subordinated notes ..................................................................

Purchase of common stock ............................................................................................

Proceeds from issuance of common stock ....................................................................

Cash dividends paid ......................................................................................................

Net cash (used in) provided by financing activities ...............................................

Net increase (decrease) in cash and cash equivalents ...................................................

Cash and cash equivalents at beginning of period ........................................................
Cash and cash equivalents at end of period ................................................................... $

124

—

(4,365)

(45,074)

1,709

(43,582)

(91,312)

(15,138)

20,235

—

—
(33,708)

1,522

(44,936)

(77,122)

1,046

19,189

(80,827)

100,016

5,097 $

20,235 $

19,189

277

306
(24,268)

1,118
348

(1,732)

89,450

—

(95)

(100,011)
(34,148)

8,546

(44,569)

(170,277)

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

DISCLOSURE

None.

ITEM 9A. 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 of December 31, 2023. The term "disclosure controls and procedures,"
as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act of 1934, as amended (the “Exchange Act”), means controls
and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time
periods specified in the SEC's rules and forms. Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and
procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily applies its
judgment in evaluating the cost-benefit relationship of possible controls and procedures. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company
in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management,
including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. The design of any
disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

The Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of

December 31, 2023.

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 last fiscal quarter of the period covered by this report that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal
control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as
amended, is a process designed by, or under the supervision of, our CEO and CFO and effected by our board of directors,
management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:

•

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.

its

inherent

limitations,

Because of

internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of December 31,
2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control-Integrated Framework (“2013 framework”).

Based on this assessment, management concluded that we maintained effective internal control over financial reporting

as of December 31, 2023.

The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as stated in their report which appears in this Item under the
heading “Attestation Report of Independent Registered Public Accounting Firm.”

Southside Bancshares, Inc.
February 27, 2024

125

Attestation Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Southside Bancshares, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Southside Bancshares, Inc. and subsidiaries’ internal control over financial reporting as of December 31,
2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Southside Bancshares, Inc.
and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated
statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the
period ended December 31, 2023, and the related notes and our report dated February 27, 2024 expressed an unqualified
opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Dallas, Texas
February 27, 2024

126

ITEM 9B. 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 December 31, 2023.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item is incorporated herein by reference to our Proxy Statement (Schedule 14A) for our

2024 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to our Proxy Statement (Schedule 14A) for our

2024 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED

STOCKHOLDER MATTERS

The information required by this Item is incorporated herein by reference to our Proxy Statement (Schedule 14A) for our

2024 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated herein by reference to our Proxy Statement (Schedule 14A) for our

2024 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item is incorporated herein by reference to our Proxy Statement (Schedule 14A) for our

2024 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

1. Financial Statements

The information required by this item is set forth in Part II. See Part II—Item 8. Financial Statements and
Supplementary Data.

2. Financial Statement Schedules

All schedules are omitted because they are not applicable or not required, or because the required information is
included in the consolidated financial statements or notes thereto.

3. Exhibits

The following exhibits listed in the Exhibit Index (following ITEM 16 in this report) are filed with, or incorporated by
reference in, this report.

ITEM 16. FORM 10-K SUMMARY

Not applicable.

127

Exhibit
Number

Exhibit Description

Filed
Herewith

Exhibit

Form

Filing Date

File No.

INDEX TO EXHIBITS

Incorporated by Reference

(3)

3.1

3.2

(4)

4.1

4.2

4.3

(10)
10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

Articles of Incorporation and Bylaws

Restated Certificate of Formation of Southside
Bancshares, Inc.

Amended and Restated Bylaws of Southside
Bancshares, Inc.

Instruments defining the rights of security
holders, including indentures
Description of Securities of the Registrant
Registered Under Section 12.

Indenture, dated as of November 6, 2020, by and
between the Company and UMB Bank, National
Association, as Trustee, including the form of the
Notes attached as Exhibit A-2 thereto.

Management agrees to furnish to the Securities and
Exchange Commission, upon request, a copy of any
instruments of Southside
other agreements or
Bancshares, Inc. and its subsidiaries defining the
rights of holders of any long-term debt whose
authorization does not exceed 10% of total assets.

Material Contracts
Officers Long-term Disability Income Plan effective
June 25, 1990 (as filed with the Registrant’s Form
10-K for the year ended June 30, 1990).

Retirement Restoration Plan for the subsidiaries of
SoBank, Inc. (now named Southside Bancshares,
Inc.).

Deferred Compensation Agreement dated June 30,
1994 by and between Southside Bank and Lee
Gibson, as amended October 15, 1997.

Deferred Compensation Agreement dated January
15, 2009, by and between Southside Bank and Julie
Shamburger.

First Amendment
to Deferred Compensation
Agreement dated February 25, 2021, by and between
Southside Bank and Julie Shamburger.

Deferred Compensation Agreement dated December
12, 2008, by and between Southside Bank and Tim
Alexander.

Deferred Compensation Agreement dated January
12, 2009, by and between Southside Bank and Brian
McCabe.

Split Dollar Agreement dated September 7, 2004
with Lee R. Gibson, III.

Split Dollar Agreement dated February 25, 2021
with Julie Shamburger.

128

3.1

8-K

05/14/2018

0-12247

8-K

02/22/2018

0-12247

4.1

10-K

02/28/2020

0-12247

4.1

8-K

11/9/2020

0-12247

**10 (b)

10-K

1991

**10 (c)

10-K

1993

**10 (f)

10-K

03/30/1998

0-12247

**10.4

10-K

02/26/2021

0-12247

**10.5

10-K

02/26/2021

0-12247

**10.2

10-Q

04/28/2017

0-12247

**10.7

10-K

02/28/2018

0-12247

**10 (i)

8-K

10/19/2004

3-17203

**10.9

10-K

02/26/2021

0-12247

10.10

10.11

10.12

10.13

10.14

Employment Agreement dated October 22, 2007, by
and between Southside Bank and Lee R. Gibson.

**10 (l)

8-K

10/26/2007

3-17203

Employment Agreement dated June 4, 2008, by and
between Southside Bank and Julie Shamburger.

**10.1

10-Q

04/28/2017

0-12247

Employment Agreement dated November 17, 2008,
by and between Southside Bank and Brian McCabe.

**10.14

10-K

02/28/2018

0-12247

Employment Agreement dated April 28, 2014, by
and between Southside Bank, Southside Bancshares,
Inc., and T.L. Arnold.

First Amendment to Employment Agreement dated
as of October 25, 2018, by and between Southside
Bank and Julie Shamburger.

**10.5

S-4

07/18/2014

3-196817

**10.1

10-Q

10/26/2018

0-12247

10.15

Southside Bancshares, Inc. 2009 Incentive Plan.

**99.1

8-K

04/20/2009

3-17203

10.16

Form of Southside Bancshares, Inc. Nonstatutory
Stock Option Award Certificate for grant of Options
pursuant to the Southside Bancshares, Inc. 2009
Incentive Plan.

**10.1

10-Q

08/08/2011

3-17203

10.17

Southside Bancshares, Inc. 2017 Incentive Plan.

**10.1

8-K

05/12/2017

0-12247

10.18

10.19

10.20

10.21

Form of Southside Bancshares, Inc. Restricted Stock
Unit Award Certificate for grant of Units pursuant to
the Southside Bancshares, Inc. 2017 Incentive Plan.

Form of Southside Bancshares, Inc. Nonstatutory
Stock Option Award Certificate for grant of Options
pursuant to the Southside Bancshares, Inc. 2017
Incentive Plan.

Form of Note Purchase Agreement, dated as of
November 6, 2020, by and among the Company and
the Purchasers.

Form of Registration Rights Agreement, dated as of
November 6, 2020, by and among the Company and
the Purchasers.

**10.2

10-Q

10/27/2017

0-12247

**10.3

10-Q

10/27/2017

0-12247

10.1

8-K

11/9/2020

0-12247

10.2

8-K

11/9/2020

0-12247

10.22

Southside Bancshares, Inc. Annual Incentive
Program.

**10.1

8-K

06/21/2021

0-12247

10.23

Form of Southside Bancshares, Inc. Performance-
Based Restricted Stock Unit Award Agreement
for grant of Units pursuant
the Southside
to
Bancshares, Inc. 2017 Incentive Plan.

**10.1

10-Q

04/28/2022

0-12247

129

(21)

(23)

23.1

(31)
31.1

31.2

(32)

(97)

Subsidiaries of the registrant

Subsidiaries of the Registrant.

Consents of experts and counsel

Consent of Independent Registered Public
Accounting Firm.

Rule 13a-14(a)/15d-14(a) Certifications
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

Section 1350 Certification

Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

Policy Relating to Recovery of Erroneously
Awarded Compensation
Compensation Recoupment Policy

Interactive Date File

(101)
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 XBRL Taxonomy Extension Schema Document.

101.CAL XBRL Taxonomy Extension Calculation Linkbase

Document.

101.LAB XBRL Taxonomy Extension Label Linkbase

Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase

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101.DEF XBRL Taxonomy Extension Definition Linkbase

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104

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

**Compensation plan, benefit plan or employment contract or
arrangement.

130

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly

caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

DATE: February 27, 2024

SOUTHSIDE BANCSHARES, INC.

BY:

/s/ Lee R. Gibson
Lee R. Gibson, CPA

President and Chief Executive Officer
(Principal Executive Officer)

BY:

/s/ Julie N. Shamburger

Julie N. Shamburger, CPA

Chief Financial Officer

(Principal Financial and Accounting Officer)

131

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons on behalf of the registrant and in the capacities and on the date indicated.

Signature

/s/

John R. (Bob) Garrett

/s/ Donald W. Thedford

Donald W. Thedford

/s/ Lee R. Gibson

Lee R. Gibson

/s/ Lawrence Anderson

Lawrence Anderson

/s/ S. Elaine Anderson

S. Elaine Anderson

/s/ Michael J. Bosworth

Michael J. Bosworth

/s/ Herbert C. Buie

Herbert C. Buie

/s/ Patricia A. Callan

Patricia A. Callan

/s/ Shannon Dacus

Shannon Dacus

/s/ Alton L. Frailey

Alton L. Frailey

/s/ George H. (Trey) Henderson, III

George H. (Trey) Henderson, III

/s/ Tony K. Morgan

Tony K. Morgan

/s/

John F. Sammons, Jr.

/s/ H. J. Shands, III

H. J. Shands, III

/s/ Preston L. Smith

Preston L. Smith

Title

Chairman of the Board

and Director

Date

February 27, 2024

Vice Chairman of the Board

February 27, 2024

and Director

President, Chief Executive Officer

February 27, 2024

and Director

Director

132

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CONTACT INFORMATION
Southside Bancshares, Inc.
Post Office Box 1079
Tyler, TX 75710-1079
903.531.7111

MEDIA INQUIRIES
pr@southside.com

INVESTOR INQUIRIES
ir@southside.com