UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~September 30, 2022~~March 31, 2023


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

For the transition period from ____________ to ____________

Commission file number: 000-12247

SOUTHSIDE BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Texas

75-1848732

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

1201 S. Beckham Avenue,

Tyler,

Texas

75701

(Address of Principal Executive Offices)

(Zip Code)

903-531-7111

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $1.25 par value

SBSI

NASDAQ Global Select Market

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

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

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


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

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

The number of shares of the issuer’s common stock, par value $1.25, outstanding as of ~~October 27, 2022~~April 25, 2023 was ~~32,105,020~~30,924,812 shares.

TABLE OF CONTENTS

Table of Contents

SOUTHSIDE BANCSHARES, INC.

Glossary of Acronyms, Abbreviations and Terms

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


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

Other Acronyms, Abbreviations and Terms:
~~2021~~2022 Form 10-K						Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022
401(k) Plan						401(k) Defined Contribution Plan
Acquired Retirement Plan						OmniAmerican Bank defined benefit pension plan
AFS						Available for sale
ALCO						Asset/Liability Committee
AOCI						Accumulated other comprehensive income or loss
ASC						Accounting Standards Codification
ASU						Accounting Standards Update issued by the FASB
ATM						Automated teller machines
BTFP						The Federal Reserve’s Bank Term Funding Program
Basel Committee						Basel Committee on Banking Supervision
BOLI						Bank owned life insurance
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
CDs						Certificates of deposit
CECL						~~ASU No. 2016-13,~~ASC 326, Financial Instruments- Credit Losses, also known as Current Expected Credit Losses
CET1						Common Equity Tier 1
CMOs						Collateralized mortgage obligations
COVID-19						Novel strain of coronavirus
Dodd-Frank Act						Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Economic Aid Act						Economic Aid to Hard-Hit Small Business, Nonprofits and Venues Act
ESOP						Employee Stock Ownership Plan
ETR						Effective tax rate
Exchange Act						Securities Exchange Act of 1934
FASB						Financial Accounting Standards Board
FDIC						Federal Deposit Insurance Corporation
Federal Reserve						The Board of Governors of the Federal Reserve System
FHLB						Federal Home Loan Bank
FRBNY						Federal Reserve Bank of New York
FRDW						Federal Reserve Discount Window
FTE						Fully-taxable equivalents measurements
GAAP						United States generally accepted accounting principles
GSEs						U.S. government-sponsored enterprises

Southside Bancshares, Inc. |1

Table of Contents


Guidelines						Interagency Guidelines Prescribing Standards for Safety and Soundness adopted by federal banking agencies
HTM						Held to maturity
ITM						Interactive teller machines
LIBOR						London Interbank Offered Rate
MBS						Mortgage-backed securities
MVPE						Market value of portfolio equity
OREO						Other real estate owned
PCD						Purchased financial assets with credit deterioration under CECL
PCI						Financial assets purchased credit impaired under ASC 310-30 prior to CECL
~~PPP~~						~~Paycheck Protection Program~~
~~PPP Facility~~						~~Paycheck Protection Program Lending Facility~~
Repurchase agreements						Securities sold under agreements to repurchase
Restoration Plan						Nonfunded supplemental retirement plan
Retirement Plan						Defined benefit pension plan
ROU						Right-of-use
SBA						Small Business Administration
SEC						Securities and Exchange Commission
SOFR						Secured Overnight Financing Rate provided by the Federal Reserve Bank of New York
TDR						Troubled debt restructurings prior to implementation of ASU 2022-02 “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”
U.S.						United States

Southside Bancshares, Inc. |2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(UNAUDITED)
(in thousands, except share amounts)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	110,620	$	91,120	Cash and due from banks	$	101,109	$	106,143
Interest earning deposits	Interest earning deposits	3,476		110,633		Interest earning deposits	151,999		9,276
Federal funds sold	Federal funds sold	81,031		—		Federal funds sold	57,384		83,833
Total cash and cash equivalents	Total cash and cash equivalents	195,127		201,753		Total cash and cash equivalents	310,492		199,252
Securities:	Securities:					Securities:
Securities AFS, at estimated fair value (amortized cost of $1,592,891 and $2,655,594, respectively)		1,424,562		2,764,325
Securities HTM (estimated fair value of $943,322 and $95,235, respectively)		1,151,205		90,780
Securities AFS, at estimated fair value (amortized cost of $1,499,135 and $1,387,874, respectively)						Securities AFS, at estimated fair value (amortized cost of $1,499,135 and $1,387,874, respectively)	1,437,222		1,299,014
Securities HTM (estimated fair value of $1,172,574 and $1,149,156, respectively)						Securities HTM (estimated fair value of $1,172,574 and $1,149,156, respectively)	1,308,457		1,326,729
FHLB stock, at cost	FHLB stock, at cost	12,887		14,375		FHLB stock, at cost	16,696		9,190
Equity investments	Equity investments	11,052		11,841		Equity investments	9,909		11,181
Loans held for sale	Loans held for sale	421		1,684		Loans held for sale	407		667
Loans:	Loans:					Loans:
Loans	Loans	4,063,495		3,645,162		Loans	4,152,644		4,147,691
Less: Allowance for loan losses	Less: Allowance for loan losses	(36,506)		(35,273)		Less: Allowance for loan losses	(36,332)		(36,515)
Net loans	Net loans	4,026,989		3,609,889		Net loans	4,116,312		4,111,176
Premises and equipment, net	Premises and equipment, net	142,653		142,509		Premises and equipment, net	141,363		141,256
Operating lease ROU assets	Operating lease ROU assets	15,610		15,073		Operating lease ROU assets	15,183		15,314
Goodwill	Goodwill	201,116		201,116		Goodwill	201,116		201,116
Other intangible assets, net	Other intangible assets, net	5,137		6,895		Other intangible assets, net	4,144		4,622
Interest receivable	Interest receivable	32,914		39,145		Interest receivable	34,890		49,350
Deferred tax asset, net	Deferred tax asset, net	45,991		—		Deferred tax asset, net	33,787		34,695
Unsettled trades to sell securities						Unsettled trades to sell securities	4,044		—

Unsettled issuances of brokered CDs		28,481		—
BOLI	BOLI	133,394		131,232		BOLI	134,635		133,911
Other assets	Other assets	26,208		28,985		Other assets	23,688		21,163
Total assets	Total assets	$	7,453,747	$	7,259,602	Total assets	$	7,792,345	$	7,558,636

LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:	Deposits:					Deposits:
Noninterest bearing	Noninterest bearing	$	1,759,959	$	1,644,775	Noninterest bearing	$	1,543,413	$	1,671,562
Interest bearing	Interest bearing	4,421,200		4,077,552		Interest bearing	4,294,807		4,526,457
Total deposits	Total deposits	6,181,159		5,722,327		Total deposits	5,838,220		6,198,019
Other borrowings	Other borrowings	74,721		23,219		Other borrowings	625,627		221,153
FHLB borrowings	FHLB borrowings	243,531		344,038		FHLB borrowings	333,183		153,358
Subordinated notes, net of unamortized debt issuance costs	Subordinated notes, net of unamortized debt issuance costs	98,639		98,534		Subordinated notes, net of unamortized debt issuance costs	98,710		98,674
Trust preferred subordinated debentures, net of unamortized debt issuance costs	Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,264		60,260		Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,266		60,265
Deferred tax liability, net		—		17,808
Unsettled trades to purchase securities		—		18,995

Operating lease liabilities	Operating lease liabilities	17,337		16,676		Operating lease liabilities	16,989		17,070
Other liabilities	Other liabilities	70,460		45,573		Other liabilities	68,320		64,100
Total liabilities	Total liabilities	6,746,111		6,347,430		Total liabilities	7,041,315		6,812,639

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

Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock: ($1.25 par value, 80,000,000 shares authorized, 37,991,729 shares issued at September 30, 2022 and 37,968,969 shares issued at December 31, 2021)		47,490		47,461
Common stock: ($1.25 par value, 80,000,000 shares authorized, 38,008,848 shares issued at March 31, 2023 and 38,000,822 shares issued at December 31, 2022)						Common stock: ($1.25 par value, 80,000,000 shares authorized, 38,008,848 shares issued at March 31, 2023 and 38,000,822 shares issued at December 31, 2022)	47,511		47,501
Paid-in capital	Paid-in capital	783,803		780,501		Paid-in capital	786,119		784,545
Retained earnings	Retained earnings	224,142		179,813		Retained earnings	254,565		239,610
Treasury stock: (shares at cost, 5,864,774 at September 30, 2022 and 5,616,917 at December 31, 2021)		(167,109)		(155,308)
Treasury stock: (shares at cost, 6,887,667 at March 31, 2023 and 6,454,192 at December 31, 2022)						Treasury stock: (shares at cost, 6,887,667 at March 31, 2023 and 6,454,192 at December 31, 2022)	(203,853)		(188,203)
AOCI	AOCI	(180,690)		59,705		AOCI	(133,312)		(137,456)
Total shareholders’ equity	Total shareholders’ equity	707,636		912,172		Total shareholders’ equity	751,030		745,997
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	7,453,747	$	7,259,602	Total liabilities and shareholders’ equity	$	7,792,345	$	7,558,636

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

Southside Bancshares, Inc. |3

Table of Contents

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except per share data)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2022		2021		2022		2021			2023		2022
Interest income:	Interest income:									Interest income:
Loans	Loans	$	45,257	$	37,034	$	118,489	$	108,792	Loans	$	54,776	$	34,888
Taxable investment securities	Taxable investment securities	4,896		3,853		14,136		9,097		Taxable investment securities	5,712		4,608
Tax-exempt investment securities	Tax-exempt investment securities	11,482		9,649		32,306		27,787		Tax-exempt investment securities	13,916		10,219
MBS	MBS	4,770		4,405		12,025		15,140		MBS	4,329		4,017
FHLB stock and equity investments	FHLB stock and equity investments	101		111		291		355		FHLB stock and equity investments	245		113
Other interest earning assets	Other interest earning assets	374		24		606		56		Other interest earning assets	1,870		28
Total interest income	Total interest income	66,880		55,076		177,853		161,227		Total interest income	80,848		53,873
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	7,887		2,234		15,388		7,170		Deposits	19,906		3,237
FHLB borrowings	FHLB borrowings	1,078		1,865		1,668		5,590		FHLB borrowings	3,141		366
Subordinated notes	Subordinated notes	1,004		2,417		3,002		7,235		Subordinated notes	999		998
Trust preferred subordinated debentures	Trust preferred subordinated debentures	669		345		1,496		1,045		Trust preferred subordinated debentures	1,031		356
Other borrowings	Other borrowings	727		9		800		31		Other borrowings	2,418		10
Total interest expense	Total interest expense	11,365		6,870		22,354		21,071		Total interest expense	27,495		4,967
Net interest income	Net interest income	55,515		48,206		155,499		140,156		Net interest income	53,353		48,906
Provision for (reversal of) credit losses	Provision for (reversal of) credit losses	1,494		(5,071)		1,155		(13,543)		Provision for (reversal of) credit losses	(40)		294
Net interest income after provision for credit losses	Net interest income after provision for credit losses	54,021		53,277		154,344		153,699		Net interest income after provision for credit losses	53,393		48,612
Noninterest income:	Noninterest income:									Noninterest income:
Deposit services	Deposit services	6,241		6,779		19,365		19,513		Deposit services	6,422		6,628
Net gain (loss) on sale of securities AFS	Net gain (loss) on sale of securities AFS	(99)		1,381		(3,819)		3,399		Net gain (loss) on sale of securities AFS	(2,146)		(1,543)
Net gain on sale of equity securities										Net gain on sale of equity securities	2,416		—
Gain on sale of loans	Gain on sale of loans	109		299		495		1,285		Gain on sale of loans	104		178
Trust fees	Trust fees	1,407		1,494		4,421		4,373		Trust fees	1,467		1,494
BOLI	BOLI	720		637		2,131		1,908		BOLI	1,675		691
Brokerage services	Brokerage services	701		846		2,608		2,476		Brokerage services	697		809
Other	Other	1,190		1,333		4,890		4,371		Other	1,398		2,468
Total noninterest income	Total noninterest income	10,269		12,769		30,091		37,325		Total noninterest income	12,033		10,725
Noninterest expense:	Noninterest expense:									Noninterest expense:
Salaries and employee benefits	Salaries and employee benefits	21,368		19,777		61,666		59,825		Salaries and employee benefits	21,856		19,969
Net occupancy	Net occupancy	3,847		3,532		11,157		10,698		Net occupancy	3,734		3,656

Advertising, travel & entertainment	Advertising, travel & entertainment	789		579		2,242		1,491		Advertising, travel & entertainment	1,050		737
ATM expense	ATM expense	317		311		954		821		ATM expense	355		281
Professional fees	Professional fees	1,412		1,135		3,486		3,166		Professional fees	1,372		927
Software and data processing	Software and data processing	1,736		1,503		5,106		4,221		Software and data processing	2,055		1,631
Communications	Communications	497		552		1,509		1,689		Communications	327		503
FDIC insurance	FDIC insurance	485		454		1,434		1,343		FDIC insurance	544		472
Amortization of intangibles	Amortization of intangibles	550		695		1,758		2,191		Amortization of intangibles	478		622
Loss on redemption of subordinated notes		—		1,118		—		1,118

Other	Other	2,463		2,107		7,453		7,133		Other	3,078		2,397
Total noninterest expense	Total noninterest expense	33,464		31,763		96,765		93,696		Total noninterest expense	34,849		31,195
Income before income tax expense	Income before income tax expense	30,826		34,283		87,670		97,328		Income before income tax expense	30,577		28,142
Income tax expense	Income tax expense	3,875		4,977		10,318		12,614		Income tax expense	4,543		3,146
Net income	Net income	$	26,951	$	29,306	$	77,352	$	84,714	Net income	$	26,034	$	24,996

Earnings per common share – basic	Earnings per common share – basic	$	0.84	$	0.90	$	2.40	$	2.60	Earnings per common share – basic	$	0.83	$	0.77
Earnings per common share – diluted	Earnings per common share – diluted	$	0.84	$	0.90	$	2.39	$	2.59	Earnings per common share – diluted	$	0.83	$	0.77
Cash dividends paid per common share	Cash dividends paid per common share	$	0.34	$	0.33	$	1.02	$	0.98	Cash dividends paid per common share	$	0.35	$	0.34

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

Southside Bancshares, Inc. |4

Table of Contents

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2022		2021		2022		2021			2023		2022
Net income	Net income	$	26,951	$	29,306	$	77,352	$	84,714	Net income	$	26,034	$	24,996
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Securities AFS and transferred securities:	Securities AFS and transferred securities:									Securities AFS and transferred securities:
Change in unrealized holding gain (loss) on AFS securities during the period	Change in unrealized holding gain (loss) on AFS securities during the period	(61,354)		(27,714)		(256,778)		(43,527)		Change in unrealized holding gain (loss) on AFS securities during the period	13,019		(161,901)

Change in net unrealized loss on securities transferred from AFS to HTM	Change in net unrealized loss on securities transferred from AFS to HTM	(6,367)		—		(97,871)		—		Change in net unrealized loss on securities transferred from AFS to HTM	—		(39,144)

Reclassification adjustment for amortization related to AFS and HTM debt securities	Reclassification adjustment for amortization related to AFS and HTM debt securities	1,396		312		2,949		1,118		Reclassification adjustment for amortization related to AFS and HTM debt securities	1,992		243

Reclassification adjustment for net (gain) loss on sale of AFS securities, included in net income	Reclassification adjustment for net (gain) loss on sale of AFS securities, included in net income	99		(1,381)		3,819		(3,399)		Reclassification adjustment for net (gain) loss on sale of AFS securities, included in net income	2,146		1,543

Derivatives:	Derivatives:									Derivatives:
Change in net unrealized gain (loss) on effective cash flow hedge interest rate swap derivatives	Change in net unrealized gain (loss) on effective cash flow hedge interest rate swap derivatives	15,226		377		42,819		8,296		Change in net unrealized gain (loss) on effective cash flow hedge interest rate swap derivatives	(6,976)		20,546

Reclassification adjustment of net (gain) loss related to derivatives designated as cash flow hedges	Reclassification adjustment of net (gain) loss related to derivatives designated as cash flow hedges	(1,572)		1,617		94		4,784		Reclassification adjustment of net (gain) loss related to derivatives designated as cash flow hedges	(5,108)		1,322

Pension plans:	Pension plans:									Pension plans:
Amortization of net actuarial loss, included in net periodic benefit cost	Amortization of net actuarial loss, included in net periodic benefit cost	224		316		671		948		Amortization of net actuarial loss, included in net periodic benefit cost	173		206

Other comprehensive income (loss), before tax	Other comprehensive income (loss), before tax	(52,348)		(26,473)		(304,297)		(31,780)		Other comprehensive income (loss), before tax	5,246		(177,185)
Income tax (expense) benefit related to items of other comprehensive income (loss)	Income tax (expense) benefit related to items of other comprehensive income (loss)	10,993		5,560		63,902		6,674		Income tax (expense) benefit related to items of other comprehensive income (loss)	(1,102)		37,209
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	(41,355)		(20,913)		(240,395)		(25,106)		Other comprehensive income (loss), net of tax	4,144		(139,976)
Comprehensive income (loss)	Comprehensive income (loss)	$	(14,404)	$	8,393	$	(163,043)	$	59,608	Comprehensive income (loss)	$	30,178	$	(114,980)

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

Southside Bancshares, Inc. |5

Table of Contents

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except share and per share data)

Common
Stock Paid In
Capital Retained
Earnings Treasury
Stock Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Balance at December 31, 2021 $ 47,461 $ 780,501 $ 179,813 $ (155,308) $ 59,705 $ 912,172
Net income — — 24,996 — — 24,996
Other comprehensive income (loss) — — — — (139,976) (139,976)
Issuance of common stock for dividend reinvestment plan (7,671 shares) 10 312 — — — 322
Purchase of common stock (82,285 shares) — — — (3,358) — (3,358)
Stock compensation expense — 819 — — — 819
Net issuance of common stock under employee stock plans (16,551 shares) — 182 (67) 154 — 269
Cash dividends paid on common stock ($0.34 per share) — — (11,003) — — (11,003)
Balance at March 31, 2022 47,471 781,814 193,739 (158,512) (80,271) 784,241
Net income — — 25,405 — — 25,405
Other comprehensive income (loss) — — — — (59,064) (59,064)
Issuance of common stock for dividend reinvestment plan (7,717 shares) 10 303 — — — 313
Purchase of common stock (223,901 shares) — — — (8,842) — (8,842)
Stock compensation expense — 847 — — — 847
Net issuance of common stock under employee stock plans (30,162 shares) — (453) (67) 308 — (212)
Cash dividends paid on common stock ($0.34 per share) — — (10,906) — — (10,906)
Balance at June 30, 2022 47,481 782,511 208,171 (167,046) (139,335) 731,782
Net income — — 26,951 — — 26,951
Other comprehensive loss — — — — (41,355) (41,355)
Issuance of common stock for dividend reinvestment plan (7,372 shares) 9 269 — — — 278
Purchase of common stock (8,613 shares) — — — (309) — (309)
Stock compensation expense — 760 — — — 760
Net issuance of common stock under employee stock plans (20,229 shares) — 263 (61) 246 — 448
Cash dividends paid on common stock ($0.34 per share) — — (10,919) — — (10,919)
Balance at September 30, 2022 $ 47,490 $ 783,803 $ 224,142 $ (167,109) $ (180,690) $ 707,636


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


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



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

~~Southside Bancshares, Inc. |6~~

~~Table of Contents~~

~~SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (continued)~~

~~(UNAUDITED)~~

~~(in thousands, except share and per share data)~~

Common
Stock Paid In
Capital Retained
Earnings Treasury
Stock Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Balance at December 31, 2020 $ 47,419 $ 771,511 $ 111,208 $ (123,921) $ 69,080 $ 875,297
Net income — — 34,091 — — 34,091
Other comprehensive income (loss) — — — — (29,494) (29,494)
Issuance of common stock for dividend reinvestment plan (8,918 shares) 11 321 — — — 332
Purchase of common stock (427,396 shares) — — — (15,213) — (15,213)
Stock compensation expense — 674 — — — 674
Net issuance of common stock under employee stock plans (126,260 shares) — 2,309 (41) 1,118 — 3,386
Cash dividends paid on common stock ($0.32 per share) — — (10,476) — — (10,476)
Balance at March 31, 2021 47,430 774,815 134,782 (138,016) 39,586 858,597
Net income — — 21,317 — — 21,317
Other comprehensive income — — — — 25,301 25,301
Issuance of common stock for dividend reinvestment plan (7,780 shares) 9 321 — — — 330
Purchase of common stock (90,884 shares) — — — (3,497) — (3,497)
Stock compensation expense — 686 — — — 686
Net issuance of common stock under employee stock plans (99,217 shares) — 1,591 (47) 897 — 2,441
Cash dividends paid on common stock ($0.33 per share) — — (10,775) — — (10,775)
Balance at June 30, 2021 47,439 777,413 145,277 (140,616) 64,887 894,400
Net income — — 29,306 — — 29,306
Other comprehensive income — — — — (20,913) (20,913)
Issuance of common stock for dividend reinvestment plan (8,631 shares) 11 313 — — — 324
Purchase of common stock (420,204 shares) — — — (15,438) — (15,438)
Stock compensation expense — 829 — — — 829
Net issuance of common stock under employee stock plans (9,426 shares) — 45 (68) 87 — 64
Cash dividends paid on common stock ($0.33 per share) — — (10,706) — — (10,706)
Balance at September 30, 2021 $ 47,450 $ 778,600 $ 163,809 $ (155,967) $ 43,974 $ 877,866



Balance at December 31, 2021	$	47,461	$	780,501	$	179,813	$	(155,308)	$	59,705	$	912,172


Net income	—		—		24,996		—		—		24,996
Other comprehensive income (loss)	—		—		—		—		(139,976)		(139,976)
Issuance of common stock for dividend reinvestment plan (7,671 shares)	10		312		—		—		—		322
Purchase of common stock (82,285 shares)	—		—		—		(3,358)		—		(3,358)
Stock compensation expense	—		819		—		—		—		819
Net issuance of common stock under employee stock plans (16,551 shares)	—		182		(67)		154		—		269
Cash dividends paid on common stock ($0.34 per share)	—		—		(11,003)		—		—		(11,003)


Balance at March 31, 2022	$	47,471	$	781,814	$	193,739	$	(158,512)	$	(80,271)	$	784,241

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

Southside Bancshares, Inc. |7|6

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2022		2021			2023		2022
OPERATING ACTIVITIES:	OPERATING ACTIVITIES:					OPERATING ACTIVITIES:
Net income	Net income	$	77,352	$	84,714	Net income	$	26,034	$	24,996
Adjustments to reconcile net income to net cash provided by operations:	Adjustments to reconcile net income to net cash provided by operations:					Adjustments to reconcile net income to net cash provided by operations:
Depreciation and net amortization	Depreciation and net amortization	8,332		8,634		Depreciation and net amortization	2,636		2,765
Securities premium amortization (discount accretion), net	Securities premium amortization (discount accretion), net	13,861		17,709		Securities premium amortization (discount accretion), net	3,586		4,804
Loan (discount accretion) premium amortization, net	Loan (discount accretion) premium amortization, net	(267)		(649)		Loan (discount accretion) premium amortization, net	89		(132)
Provision for (reversal of) credit losses	Provision for (reversal of) credit losses	1,155		(13,543)		Provision for (reversal of) credit losses	(40)		294
Stock compensation expense	Stock compensation expense	2,426		2,189		Stock compensation expense	914		819
Deferred tax expense (benefit)	Deferred tax expense (benefit)	103		3,612		Deferred tax expense (benefit)	(194)		285

Net (gain) loss on sale of AFS securities	Net (gain) loss on sale of AFS securities	3,819		(3,399)		Net (gain) loss on sale of AFS securities	2,146		1,543
Net (gain) loss on sale of equity securities						Net (gain) loss on sale of equity securities	(2,416)		—
Loss on impairment of investments	Loss on impairment of investments	38		—		Loss on impairment of investments	—		38
Net loss on premises and equipment	Net loss on premises and equipment	435		315		Net loss on premises and equipment	4		334
Gross proceeds from sales of loans held for sale	Gross proceeds from sales of loans held for sale	20,195		36,961		Gross proceeds from sales of loans held for sale	4,309		5,114
Gross originations of loans held for sale	Gross originations of loans held for sale	(18,932)		(34,397)		Gross originations of loans held for sale	(4,049)		(5,006)
Net (gain) loss on OREO	Net (gain) loss on OREO	(12)		(180)		Net (gain) loss on OREO	(51)		—

Loss on redemption of subordinated notes		—		1,118

Net change in:	Net change in:					Net change in:
Interest receivable	Interest receivable	6,231		9,611		Interest receivable	14,460		10,778
Other assets	Other assets	76,432		(2,803)		Other assets	(3,082)		(74)
Interest payable	Interest payable	925		(1,223)		Interest payable	3,253		728
Other liabilities	Other liabilities	16,271		19,981		Other liabilities	(23,968)		38,091
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	208,364		128,650		Net cash provided by (used in) operating activities	23,631		85,377

INVESTING ACTIVITIES:	INVESTING ACTIVITIES:					INVESTING ACTIVITIES:
Securities AFS:	Securities AFS:					Securities AFS:
Purchases	Purchases	(697,393)		(569,807)		Purchases	(361,685)		(126,240)
Sales	Sales	460,765		104,728		Sales	237,316		118,952
Maturities, calls and principal repayments	Maturities, calls and principal repayments	98,046		243,507		Maturities, calls and principal repayments	8,617		50,269
Securities HTM:	Securities HTM:					Securities HTM:
Purchases		(1,632)		—

Maturities, calls and principal repayments	Maturities, calls and principal repayments	11,020		16,602		Maturities, calls and principal repayments	14,970		2,216
Proceeds from sales of equity securities						Proceeds from sales of equity securities	3,785		—
Proceeds from redemption of FHLB stock and equity investments	Proceeds from redemption of FHLB stock and equity investments	26,623		19,240		Proceeds from redemption of FHLB stock and equity investments	18,370		11,041
Purchases of FHLB stock and equity investments	Purchases of FHLB stock and equity investments	(24,346)		(21,113)		Purchases of FHLB stock and equity investments	(25,973)		(57)
Net loan paydowns (originations)	Net loan paydowns (originations)	(418,546)		9,314		Net loan paydowns (originations)	(5,342)		(155,667)

Purchases of premises and equipment	Purchases of premises and equipment	(8,370)		(6,491)		Purchases of premises and equipment	(2,183)		(2,806)
Purchases of BOLI		—		(13,000)

Proceeds from sales of premises and equipment	Proceeds from sales of premises and equipment	1,365		1,853		Proceeds from sales of premises and equipment	—		3
Net proceeds from sales of OREO	Net proceeds from sales of OREO	34		797		Net proceeds from sales of OREO	144		—
Proceeds from sales of repossessed assets	Proceeds from sales of repossessed assets	47		247		Proceeds from sales of repossessed assets	93		30
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(552,387)		(214,123)		Net cash provided by (used in) investing activities	(111,888)		(102,259)

(continued)	(continued)					(continued)

Southside Bancshares, Inc. | 87


SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES	SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES					SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)	CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)					CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED)	(UNAUDITED)					(UNAUDITED)
(in thousands)	(in thousands)					(in thousands)
		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2022		2021			2023		2022
FINANCING ACTIVITIES:	FINANCING ACTIVITIES:					FINANCING ACTIVITIES:
Net change in deposits	Net change in deposits	430,321		399,303		Net change in deposits	(359,846)		348,066
Net change in other borrowings	Net change in other borrowings	51,502		(2,448)		Net change in other borrowings	404,474		6,977
Proceeds from FHLB borrowings	Proceeds from FHLB borrowings	2,501,000		11,648,180		Proceeds from FHLB borrowings	1,078,000		117,000
Repayment of FHLB borrowings	Repayment of FHLB borrowings	(2,601,507)		(11,821,503)		Repayment of FHLB borrowings	(898,175)		(457,167)
Net proceeds from issuance of subordinated notes		—		(95)
Redemption of subordinated notes		—		(100,011)

Proceeds from stock option exercises	Proceeds from stock option exercises	912		6,108		Proceeds from stock option exercises	640		332
Cash paid to tax authority related to tax withholding on share-based awards	Cash paid to tax authority related to tax withholding on share-based awards	(407)		(217)		Cash paid to tax authority related to tax withholding on share-based awards	(68)		(63)
Purchase of common stock	Purchase of common stock	(12,509)		(34,148)		Purchase of common stock	(14,842)		(2,228)
Proceeds from the issuance of common stock for dividend reinvestment plan	Proceeds from the issuance of common stock for dividend reinvestment plan	913		986		Proceeds from the issuance of common stock for dividend reinvestment plan	302		322

Cash dividends paid	Cash dividends paid	(32,828)		(31,957)		Cash dividends paid	(10,988)		(11,003)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	337,397		64,198		Net cash provided by (used in) financing activities	199,497		2,236

Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	(6,626)		(21,275)		Net increase (decrease) in cash and cash equivalents	111,240		(14,646)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	201,753		108,408		Cash and cash equivalents at beginning of period	199,252		201,753
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	195,127	$	87,133	Cash and cash equivalents at end of period	$	310,492	$	187,107

SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:	SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:

Interest paid	Interest paid	$	21,428	$	22,295	Interest paid	$	24,242	$	4,239
Income taxes paid	Income taxes paid	$	8,200	$	8,750	Income taxes paid	$	—	$	—

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:	SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:					SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Loans transferred to other repossessed assets and real estate through foreclosure	Loans transferred to other repossessed assets and real estate through foreclosure	$	266	$	740	Loans transferred to other repossessed assets and real estate through foreclosure	$	13	$	31

Transfer of AFS to HTM securities	Transfer of AFS to HTM securities	$	1,166,550	$	—	Transfer of AFS to HTM securities	$	—	$	424,895

Unsettled trades to purchase securities	Unsettled trades to purchase securities	$	—	$	4,433	Unsettled trades to purchase securities	$	—	$	(2,053)
Unsettled trades to sell securities						Unsettled trades to sell securities	$	4,044	$	47,019
Unsettled trades to repurchase common stock						Unsettled trades to repurchase common stock	$	(957)	$	(1,130)

Unsettled issuances of brokered CDs		$	28,481	$	—

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

Southside Bancshares, Inc. |9|8

Table of Contents

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Summary of Significant Accounting and Reporting Policies

Basis of Presentation

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

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

Interim results are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Accounting Changes and Reclassifications

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

Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 is intended to provide relief for companies preparing for discontinuation of interest rates based on LIBOR. The ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or other reference rates expected to be discontinued. ASU 2020-04 also provides for a one-time sale and/or transfer to AFS or trading to be made for HTM debt securities that both reference an eligible reference rate and were classified as HTM before January 1, 2020. ASU 2020-04 was effective for all entities as of March 12, 2020 and through December 31, 2022. Companies can apply the ASU as of the beginning of the interim period that includes March 12, 2020 or any date thereafter. The guidance requires companies to apply the guidance prospectively to contract modifications and hedging relationships while the one-time election to sell and/or transfer debt securities classified as HTM may be made any time after March 12, 2020. Additionally, in January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope,” which provided additional clarification that certain optional expedients and exceptions noted above apply to derivative instruments that use an interest rate for margining, discounting or contract price alignment that is modified as a result of reference rate reform. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” which was effective upon issuance and deferred the sunset date in Topic 848 from December 31, 2022 to December 31, 2024. We established an officer level committee to guide our transition from LIBOR in October 2019 and are transitioning to alternative rates consistent with industry timelines. We continue to evaluate our LIBOR ~~exposure, and note that we have the option to have certain of our interest rate swaps fall back to an adjusted SOFR index. Additionally, we anticipate the~~exposure. The trust preferred subordinated debentures will transition to aan adjusted SOFR index ~~once~~in accordance with the Federal Reserve ~~completes~~final rule implementing the ~~relevant rule.~~Adjustable Interest Rate Act. Our cash flow hedges will transition to an adjusted SOFR index in accordance with the ISDA 2020 IBOR Fallbacks Protocol. We have identified our products that utilize LIBOR and have implemented enhanced fallback language to facilitate the transition to alternative reference rates. We ~~are evaluating existing~~have evaluated our systems and ~~have begun~~are offering alternative rates. We are no longer

Southside Bancshares, Inc. |9

Table of Contents

offering LIBOR indexed rates on newly originated loans. ASU 2020-04 and ASU 2021-01 are ~~not expected to have a material impact on our consolidated financial statements.~~

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 eliminates 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 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 for companies that have adopted CECL, which we adopted on January 1, 2020. Early adoption is permitted. The guidance should be applied prospectively with the option to use a modified retrospective transition method for the recognition

~~Southside Bancshares, Inc. |10~~

~~Table of Contents~~

~~and measurement of TDRs, resulting in a cumulative-effect adjustment to retained earnings. ASU 2022-02 is not expected to have a material impact on our consolidated financial statements.~~

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. ASU 2022-04 is not expected to have a material impact 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):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Basic and Diluted Earnings:	Basic and Diluted Earnings:									Basic and Diluted Earnings:
Net income	Net income	$	26,951	$	29,306	$	77,352	$	84,714	Net income	$	26,034	$	24,996
Basic weighted-average shares outstanding	Basic weighted-average shares outstanding	32,112		32,465		32,195		32,641		Basic weighted-average shares outstanding	31,372		32,357
Add: Stock awards	Add: Stock awards	109		91		146		118		Add: Stock awards	92		180
Diluted weighted-average shares outstanding	Diluted weighted-average shares outstanding	32,221		32,556		32,341		32,759		Diluted weighted-average shares outstanding	31,464		32,537
Basic earnings per share:	Basic earnings per share:									Basic earnings per share:
Net income	Net income	$	0.84	$	0.90	$	2.40	$	2.60	Net income	$	0.83	$	0.77
Diluted earnings per share:	Diluted earnings per share:									Diluted earnings per share:
Net income	Net income	$	0.84	$	0.90	$	2.39	$	2.59	Net income	$	0.83	$	0.77

For the three months ended ~~September 30, 2022,~~March 31, 2023, there were approximately ~~22,000~~121,000 anti-dilutive shares. For the ~~nine~~three months ended ~~September 30,~~March 31, 2022, there were no anti-dilutive shares. ~~For the three and nine months ended September 30, 2021, there were approximately 462,000 and 288,000 anti-dilutive shares, respectively.~~

Southside Bancshares, Inc. ~~|11~~|10

Table of Contents

3. Accumulated Other Comprehensive Income (Loss)

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


		Three Months Ended September 30, 2022						Three Months Ended March 31, 2023

		Unrealized Gains (Losses) on Securities		Unrealized Gains (Losses) on Derivatives		Retirement Plans			Total			Unrealized Gains (Losses) on Securities		Unrealized Gains (Losses) on Derivatives		Retirement Plans		Total
Beginning balance, net of tax	Beginning balance, net of tax	$	(137,792)	$	21,857	$	(23,400)		$	(139,335)	Beginning balance, net of tax	$	(149,181)	$	31,227	$	(19,502)	$	(137,456)
Other comprehensive income (loss):	Other comprehensive income (loss):										Other comprehensive income (loss):
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(67,721)		15,226		—			(52,495)		Other comprehensive income (loss) before reclassifications	13,019		(6,976)		—		6,043
Reclassification adjustments included in net income	Reclassification adjustments included in net income	1,495		(1,572)		224			147		Reclassification adjustments included in net income	4,138		(5,108)		173		(797)
Income tax (expense) benefit	Income tax (expense) benefit	13,908		(2,868)		(47)			10,993		Income tax (expense) benefit	(3,603)		2,537		(36)		(1,102)
Net current-period other comprehensive income (loss), net of tax	Net current-period other comprehensive income (loss), net of tax	(52,318)		10,786		177			(41,355)		Net current-period other comprehensive income (loss), net of tax	13,554		(9,547)		137		4,144
Ending balance, net of tax	Ending balance, net of tax	$	(190,110)	$	32,643	$	(23,223)		$	(180,690)	Ending balance, net of tax	$	(135,627)	$	21,680	$	(19,365)	$	(133,312)

		Nine Months Ended September 30, 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 (loss) income before reclassifications		(354,649)		42,819		—			(311,830)
Reclassification adjustments included in net income		6,768		94		671			7,533

Income tax (expense) benefit		73,055		(9,013)		(140)			63,902
Net current-period other comprehensive income (loss), net of tax		(274,826)		33,900		531			(240,395)

Ending balance, net of tax		$	(190,110)	$	32,643	$	(23,223)		$	(180,690)

~~Southside Bancshares, Inc. |12~~

~~Table of Contents~~


		Three Months Ended September 30, 2021				Three Months Ended March 31, 2022

		Unrealized Gains (Losses) on Securities		Unrealized Gains (Losses) on Derivatives			Retirement Plans		Total			Unrealized Gains (Losses) on Securities		Unrealized Gains (Losses) on Derivatives		Retirement Plans		Total
Beginning balance, net of tax	Beginning balance, net of tax	$	102,628	$	(8,334)		$	(29,407)	$	64,887	Beginning balance, net of tax	$	84,716	$	(1,257)	$	(23,754)	$	59,705
Other comprehensive income (loss):	Other comprehensive income (loss):										Other comprehensive income (loss):
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(27,714)		377			—		(27,337)		Other comprehensive income (loss) before reclassifications	(201,045)		20,546		—		(180,499)
Reclassification adjustments included in net income	Reclassification adjustments included in net income	(1,069)		1,617			316		864		Reclassification adjustments included in net income	1,786		1,322		206		3,314
Income tax (expense) benefit	Income tax (expense) benefit	6,045		(418)			(67)		5,560		Income tax (expense) benefit	41,844		(4,593)		(42)		37,209
Net current-period other comprehensive income (loss), net of tax	Net current-period other comprehensive income (loss), net of tax	(22,738)		1,576			249		(20,913)		Net current-period other comprehensive income (loss), net of tax	(157,415)		17,275		164		(139,976)
Ending balance, net of tax	Ending balance, net of tax	$	79,890	$	(6,758)		$	(29,158)	$	43,974	Ending balance, net of tax	$	(72,699)	$	16,018	$	(23,590)	$	(80,271)

		Nine Months Ended September 30, 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		(43,527)		8,296			—		(35,231)
Reclassification adjustments included in net income		(2,281)		4,784			948		3,451
Income tax (expense) benefit		9,620		(2,747)			(199)		6,674
Net current-period other comprehensive income (loss), net of tax		(36,188)		10,333			749		(25,106)
Ending balance, net of tax		$	79,890	$	(6,758)		$	(29,158)	$	43,974

Southside Bancshares, Inc. ~~|13~~|11

Table of Contents

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022

Unrealized gains and losses on securities transferred:	Unrealized gains and losses on securities transferred:									Unrealized gains and losses on securities transferred:
Amortization of unrealized gains and losses (1)	Amortization of unrealized gains and losses (1)	$	(1,396)	$	(312)	$	(2,949)	$	(1,118)	Amortization of unrealized gains and losses (1)	$	(1,992)	$	(243)
Tax benefit	Tax benefit	293		66		619		235		Tax benefit	418		51
Net of tax	Net of tax	(1,103)		(246)		(2,330)		(883)		Net of tax	(1,574)		(192)

Unrealized gains and losses on available for sale securities:	Unrealized gains and losses on available for sale securities:									Unrealized gains and losses on available for sale securities:
Realized net gain (loss) on sale of securities (2)	Realized net gain (loss) on sale of securities (2)	(99)		1,381		(3,819)		3,399		Realized net gain (loss) on sale of securities (2)	(2,146)		(1,543)

Tax (expense) benefit	Tax (expense) benefit	21		(290)		802		(714)		Tax (expense) benefit	451		324
Net of tax	Net of tax	(78)		1,091		(3,017)		2,685		Net of tax	(1,695)		(1,219)

Derivatives:	Derivatives:									Derivatives:
Realized net gain (loss) on interest rate swap derivatives (3)	Realized net gain (loss) on interest rate swap derivatives (3)	1,572		(1,617)		(94)		(4,784)		Realized net gain (loss) on interest rate swap derivatives (3)	5,108		(1,322)
Tax benefit	Tax benefit	(330)		340		20		1,005		Tax benefit	(1,072)		278
Net of tax	Net of tax	1,242		(1,277)		(74)		(3,779)		Net of tax	4,036		(1,044)

Amortization of pension plan:	Amortization of pension plan:									Amortization of pension plan:
Net actuarial loss (4)	Net actuarial loss (4)	(224)		(316)		(671)		(948)		Net actuarial loss (4)	(173)		(206)

Tax benefit	Tax benefit	47		67		140		199		Tax benefit	36		42
Net of tax	Net of tax	(177)		(249)		(531)		(749)		Net of tax	(137)		(164)
Total reclassifications for the period, net of tax	Total reclassifications for the period, net of tax	$	(116)	$	(681)	$	(5,952)	$	(2,726)	Total reclassifications for the period, net of tax	$	630	$	(2,619)

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

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

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

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

Southside Bancshares, Inc. ~~|14~~|12

Table of Contents

4. Securities

Debt securities

The amortized cost, gross unrealized gains and losses and estimated fair value of investment and mortgage-backed AFS and HTM securities as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 are reflected in the tables below (in thousands):


		September 30, 2022								March 31, 2023
		Amortized		Gross Unrealized		Gross Unrealized		Estimated				Amortized		Gross Unrealized		Gross Unrealized		Estimated
AVAILABLE FOR SALE	AVAILABLE FOR SALE	Cost		Gains		Losses		Fair Value			AVAILABLE FOR SALE	Cost		Gains		Losses		Fair Value
Investment securities:	Investment securities:										Investment securities:

U.S. Treasury											U.S. Treasury	$	297,061	$	96	$	—	$	297,157

State and political subdivisions	State and political subdivisions	$	1,186,010	$	26	$	147,704	$	1,038,332		State and political subdivisions	938,822		2,023		54,373		886,472
Corporate bonds and other	Corporate bonds and other	60,144		67		2,794		57,417			Corporate bonds and other	14,513		33		1,135		13,411

MBS: (1)	MBS: (1)										MBS: (1)
Residential	Residential	337,189		263		17,084		320,368			Residential	237,426		302		7,992		229,736
Commercial	Commercial	9,548		—		1,103		8,445			Commercial	11,313		57		924		10,446
Total	Total	$	1,592,891	$	356	$	168,685	$	1,424,562		Total	$	1,499,135	$	2,511	$	64,424	$	1,437,222

HELD TO MATURITY	HELD TO MATURITY										HELD TO MATURITY
Investment securities:	Investment securities:										Investment securities:
State and political subdivisions	State and political subdivisions	$	918,216	$	—	$	190,841	$	727,375		State and political subdivisions	$	1,038,054	$	8,703	$	126,946	$	919,811
Corporate bonds and other	Corporate bonds and other	95,458		—		6,077		89,381			Corporate bonds and other	146,203		561		9,821		136,943
MBS: (1)	MBS: (1)										MBS: (1)
Residential	Residential	94,539		22		8,383		86,178			Residential	93,399		24		6,282		87,141
Commercial	Commercial	42,992		—		2,604		40,388			Commercial	30,801		—		2,122		28,679
Total	Total	$	1,151,205	$	22	$	207,905	$	943,322		Total	$	1,308,457	$	9,288	$	145,171	$	1,172,574


		December 31, 2021									December 31, 2022
		Amortized		Gross Unrealized		Gross Unrealized		Estimated			Amortized		Gross Unrealized		Gross Unrealized		Estimated
AVAILABLE FOR SALE	AVAILABLE FOR SALE	Cost		Gains		Losses		Fair Value		AVAILABLE FOR SALE	Cost		Gains		Losses		Fair Value
Investment securities:	Investment securities:									Investment securities:
U.S. Treasury		$	58,084	$	843	$	50	$	58,877

State and political subdivisions	State and political subdivisions	1,962,257		93,893		4,214		2,051,936		State and political subdivisions	$	1,039,453	$	956	$	75,557	$	964,852
Corporate bonds and other	Corporate bonds and other	133,333		2,408		209		135,532		Corporate bonds and other	8,692		26		14		8,704

MBS: (1)	MBS: (1)									MBS: (1)
Residential	Residential	411,727		14,895		272		426,350		Residential	328,400		250		13,623		315,027
Commercial	Commercial	90,193		1,642		205		91,630		Commercial	11,329		50		948		10,431
Total	Total	$	2,655,594	$	113,681	$	4,950	$	2,764,325	Total	$	1,387,874	$	1,282	$	90,142	$	1,299,014

HELD TO MATURITY	HELD TO MATURITY									HELD TO MATURITY
Investment securities:	Investment securities:									Investment securities:
State and political subdivisions	State and political subdivisions	$	788	$	3	$	—	$	791	State and political subdivisions	$	1,037,556	$	3,969	$	163,283	$	878,242
Corporate bonds and other										Corporate bonds and other	152,552		575		7,993		145,134
MBS: (1)	MBS: (1)									MBS: (1)
Residential	Residential	38,644		2,103		—		40,747		Residential	93,796		21		8,343		85,474
Commercial	Commercial	51,348		2,349		—		53,697		Commercial	42,825		—		2,519		40,306
Total	Total	$	90,780	$	4,455	$	—	$	95,235	Total	$	1,326,729	$	4,565	$	182,138	$	1,149,156

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

From time to time, we transfer securities from AFS to HTM due to overall balance sheet strategies. We had no transferred securities from AFS to HTM during the three months ended March 31, 2023. We transferred securities from AFS to HTM with an estimated fair value of ~~$1.07~~$1.25 billion ~~during the nine months ended September 30, 2022. There were no securities transferred from AFS to HTM~~ during the year ended December 31, ~~2021.~~2022. The remaining net unamortized, unrealized loss on the transferred securities included in AOCI in the accompanying balance sheets totaled ~~$96.2~~$119.6 million ($~~76.0~~94.5 million, net of tax) at ~~September 30, 2022~~March 31, 2023 and ~~$1.5~~$121.5 million ($~~1.2~~96.0 million, net of tax) at December 31, ~~2021.~~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

Southside Bancshares, Inc. |13

Table of Contents

included in management’s assessment for impairment for each individual security. We transferred these securities

~~Southside Bancshares, Inc. |15~~

~~Table of Contents~~

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 ~~$1.58~~$2.13 billion and ~~$1.61~~$1.82 billion were pledged as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~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.

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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, segregated by major security type and length of time in a continuous loss position (in thousands):


		September 30, 2022													March 31, 2023
		Less Than 12 Months				More Than 12 Months				Total					Less Than 12 Months				More Than 12 Months				Total
		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AVAILABLE FOR SALE	AVAILABLE FOR SALE													AVAILABLE FOR SALE
Investment securities:	Investment securities:													Investment securities:

State and political subdivisions	State and political subdivisions	$	1,026,787	$	146,634	$	3,862	$	1,070	$	1,030,649	$	147,704	State and political subdivisions	$	152,248	$	2,179	$	625,144	$	52,194	$	777,392	$	54,373
Corporate bonds and other	Corporate bonds and other	53,381		2,794		—		—		53,381		2,794		Corporate bonds and other	13,193		1,135		—		—		13,193		1,135

MBS:	MBS:													MBS:
Residential	Residential	307,521		17,084		—		—		307,521		17,084		Residential	155,602		3,903		64,334		4,089		219,936		7,992
Commercial	Commercial	5,666		344		2,779		759		8,445		1,103		Commercial	—		—		8,167		924		8,167		924
Total	Total	$	1,393,355	$	166,856	$	6,641	$	1,829	$	1,399,996	$	168,685	Total	$	321,043	$	7,217	$	697,645	$	57,207	$	1,018,688	$	64,424

HELD TO MATURITY	HELD TO MATURITY													HELD TO MATURITY
Investment securities:	Investment securities:													Investment securities:
State and political subdivisions	State and political subdivisions	$	644,238	$	161,326	$	83,137	$	29,515	$	727,375	$	190,841	State and political subdivisions	$	182,401	$	7,385	$	544,200	$	119,561	$	726,601	$	126,946
Corporate bonds and other	Corporate bonds and other	87,630		5,939		1,751		138		89,381		6,077		Corporate bonds and other	95,612		6,228		36,668		3,593		132,280		9,821
MBS:	MBS:													MBS:
Residential	Residential	81,422		7,809		3,935		574		85,357		8,383		Residential	20,893		1,114		65,539		5,168		86,432		6,282
Commercial	Commercial	40,388		2,604		—		—		40,388		2,604		Commercial	—		—		28,679		2,122		28,679		2,122
Total	Total	$	853,678	$	177,678	$	88,823	$	30,227	$	942,501	$	207,905	Total	$	298,906	$	14,727	$	675,086	$	130,444	$	973,992	$	145,171

		December 31, 2021													December 31, 2022
		Less Than 12 Months				More Than 12 Months				Total					Less Than 12 Months				More Than 12 Months				Total
		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AVAILABLE FOR SALE	AVAILABLE FOR SALE													AVAILABLE FOR SALE
Investment securities:	Investment securities:													Investment securities:
U.S. Treasury		$	9,947	$	50	$	—	$	—	$	9,947	$	50

State and political subdivisions	State and political subdivisions	260,509		3,622		7,608		592		268,117		4,214		State and political subdivisions	$	859,270	$	68,683	$	26,620	$	6,874	$	885,890	$	75,557
Corporate bonds and other	Corporate bonds and other	35,597		209		—		—		35,597		209		Corporate bonds and other	3,678		14		—		—		3,678		14

MBS:	MBS:													MBS:
Residential	Residential	1,225		3		5,168		269		6,393		272		Residential	306,294		13,623		—		—		306,294		13,623
Commercial	Commercial	4,274		7		4,674		198		8,948		205		Commercial	5,613		318		2,545		630		8,158		948
Total	Total	$	311,552	$	3,891	$	17,450	$	1,059	$	329,002	$	4,950	Total	$	1,174,855	$	82,638	$	29,165	$	7,504	$	1,204,020	$	90,142

HELD TO MATURITY														HELD TO MATURITY
Investment securities:														Investment securities:
State and political subdivisions														State and political subdivisions	$	426,382	$	66,898	$	323,385	$	96,385	$	749,767	$	163,283
Corporate bonds and other														Corporate bonds and other	125,250		6,660		12,738		1,333		137,988		7,993
Mortgage-backed securities:														Mortgage-backed securities:
Residential														Residential	80,801		7,799		3,932		544		84,733		8,343
Commercial														Commercial	40,306		2,519		—		—		40,306		2,519
Total														Total	$	672,739	$	83,876	$	340,055	$	98,262	$	1,012,794	$	182,138

Southside Bancshares, Inc. |14

Table of Contents

For those 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-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.

~~Southside Bancshares, Inc. |16~~

~~Table of Contents~~

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~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 ~~September 30, 2022,~~March 31, 2023, we had ~~811~~515 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 corporate bonds and other investment securities consist of ~~highly rated~~ 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. ~~Due to a relatively small number of HTM securities in our portfolio as of September 30, 2022 and 2021, we~~We elected to use the specific identification method to model ~~these~~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 and private placement bonds with a long history of no credit losses, no credit loss should be recognized for these securities for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 or ~~2021.~~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 ~~September 30,~~March 31, 2023, accrued interest receivable on AFS and HTM debt securities totaled $9.8 million and $8.4 million, respectively. As of December 31, 2022, accrued interest receivable on AFS and HTM debt securities totaled ~~$11.8~~$16.9 million and ~~$6.3~~$13.6 million, ~~respectively. As of December 31, 2021, accrued interest receivable on AFS and HTM debt securities totaled $25.6 million and $244,000,~~ respectively. No HTM debt securities were past-due or on nonaccrual status as of ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

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


		Three Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
U.S. Treasury	U.S. Treasury	$	44	$	182	U.S. Treasury	$	697	$	168

State and political subdivisions	State and political subdivisions	14,666		12,223		State and political subdivisions	17,099		13,332

Corporate bonds and other	Corporate bonds and other	1,668		1,097		Corporate bonds and other	1,832		1,327
MBS	MBS	4,770		4,405		MBS	4,329		4,017
Total interest income on securities	Total interest income on securities	$	21,148	$	17,907	Total interest income on securities	$	23,957	$	18,844

Nine Months Ended
September 30,
2022 2021
U.S. Treasury $ 271 $ 388
State and political subdivisions 41,786 33,568
Corporate bonds and other 4,385 2,928
MBS 12,025 15,140
Total interest income on securities $ 58,467 $ 52,024

There was a ~~$3.8~~$2.1 million net realized loss as a result of sales from the ~~sale of~~ AFS securities portfolio for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, which consisted of ~~$4.4~~$3.2 million in realized losses and ~~$584,000~~$1.1 million in realized gains. There was a ~~$3.4~~$1.5 million net realized ~~gain~~loss as a result of sales from the ~~sale of~~ AFS securities portfolio for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, which consisted of ~~$3.5~~$1.8 million in realized ~~gains~~losses and ~~$71,000~~$238,000 in realized ~~losses.~~gains. There were no sales from the HTM portfolio during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 or ~~2021.~~2022. We calculate realized gains and losses on sales of securities under the specific identification method.

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

Southside Bancshares, Inc. ~~|17~~|15

Table of Contents

The amortized cost and estimated fair value of AFS and HTM securities at ~~September 30, 2022,~~March 31, 2023, are presented below by contractual maturity (in thousands):


		September 30, 2022					March 31, 2023
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
AVAILABLE FOR SALE	AVAILABLE FOR SALE					AVAILABLE FOR SALE
Investment securities:	Investment securities:					Investment securities:
Due in one year or less	Due in one year or less	$	528	$	529	Due in one year or less	$	297,272	$	297,367
Due after one year through five years	Due after one year through five years	21,668		21,154		Due after one year through five years	1,563		1,601
Due after five years through ten years	Due after five years through ten years	96,779		93,415		Due after five years through ten years	33,196		32,564
Due after ten years	Due after ten years	1,127,179		980,651		Due after ten years	918,365		865,508
		1,246,154		1,095,749			1,250,396		1,197,040
MBS:	MBS:	346,737		328,813		MBS:	248,739		240,182
Total	Total	$	1,592,891	$	1,424,562	Total	$	1,499,135	$	1,437,222


		September 30, 2022					March 31, 2023
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
HELD TO MATURITY	HELD TO MATURITY					HELD TO MATURITY
Investment securities:	Investment securities:					Investment securities:
Due in one year or less	Due in one year or less	$	125	$	123	Due in one year or less	$	125	$	125
Due after one year through five years	Due after one year through five years	1,039		1,016		Due after one year through five years	20,795		20,037
Due after five years through ten years	Due after five years through ten years	100,463		94,140		Due after five years through ten years	135,369		126,811
Due after ten years	Due after ten years	912,047		721,477		Due after ten years	1,027,968		909,781
		1,013,674		816,756			1,184,257		1,056,754
MBS:	MBS:	137,531		126,566		MBS:	124,200		115,820
Total	Total	$	1,151,205	$	943,322	Total	$	1,308,457	$	1,172,574

Equity Investments

Equity investments on our consolidated balance sheets include Community Reinvestment Act funds with a readily determinable fair value as well as equity investments without readily determinable fair values. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we had equity investments recorded in our consolidated balance sheets of ~~$11.1~~$9.9 million and ~~$11.8~~$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 three months ended March 31, 2023, there was a net gain on the sale of equity securities of $2.4 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):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Net gains (losses) recognized during the period on equity investments	Net gains (losses) recognized during the period on equity investments	$	(230)	$	(28)	$	(696)	$	(118)	Net gains (losses) recognized during the period on equity investments	$	2,500	$	(275)
Less: Net gains recognized during the period on equity investments sold during the period	Less: Net gains recognized during the period on equity investments sold during the period	—		—		—		—		Less: Net gains recognized during the period on equity investments sold during the period	2,416		—
Unrealized gains (losses) recognized during the reporting period on equity investments held at the reporting date	Unrealized gains (losses) recognized during the reporting period on equity investments held at the reporting date	$	(230)	$	(28)	$	(696)	$	(118)	Unrealized gains (losses) recognized during the reporting period on equity investments held at the reporting date	$	84	$	(275)

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 ~~September 30, 2022.~~March 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 ~~September 30, 2022,~~March 31, 2023, our FHLB stock was not impaired and thus was not considered to be other-than-temporarily impaired.

Southside Bancshares, Inc. ~~|18~~|16

Table of Contents

5. Loans and Allowance for Loan Losses

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


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Real estate loans:	Real estate loans:					Real estate loans:
Construction	Construction	$	554,345	$	447,860	Construction	$	591,894	$	559,681
1-4 family residential	1-4 family residential	646,692		651,140		1-4 family residential	672,595		663,519
Commercial	Commercial	1,901,921		1,598,172		Commercial	1,990,861		1,987,707
Commercial loans	Commercial loans	433,538		418,998		Commercial loans	388,182		412,064
Municipal loans	Municipal loans	449,219		443,078		Municipal loans	438,566		450,067
Loans to individuals	Loans to individuals	77,780		85,914		Loans to individuals	70,546		74,653
Total loans	Total loans	4,063,495		3,645,162		Total loans	4,152,644		4,147,691
Less: Allowance for loan losses	Less: Allowance for loan losses	36,506		35,273		Less: Allowance for loan losses	36,332		36,515
Net loans	Net loans	$	4,026,989	$	3,609,889	Net loans	$	4,116,312	$	4,111,176

~~Paycheck Protection Program Loans~~

In April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Loans covered by the PPP may be eligible for loan forgiveness for certain costs incurred related to payroll, group health care benefit costs and qualifying mortgage, rent and utility payments. The remaining loan balance after forgiveness of any amount is still fully guaranteed by the SBA. On December 27, 2020, the Economic Aid Act was signed into law. This second coronavirus relief package granted additional funds for a new round of PPP loans. Additionally, it expanded the eligibility for loans and allowed certain businesses to request a second loan. In return for processing and booking a PPP loan, the SBA paid lenders a processing fee tiered by the size of the loan. These loans are included in commercial loans with an amortized cost basis at September 30, 2022 and December 31, 2021 of $306,000 and $31.0 million, 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 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 loan officers, in-house origination staff, marketing efforts, present customers, walk-in customers and referrals from real estate agents and builders. We focus our lending efforts primarily on the origination of loans secured by first mortgages on owner occupied 1-4 family residences. Substantially all of our 1-4 family residential originations are secured by properties located in or near our market areas.

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

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

Commercial Real Estate Loans

Commercial real estate loans as of ~~September 30, 2022~~March 31, 2023 consisted of ~~$1.57~~$1.65 billion of owner and non-owner occupied real estate, ~~$307.1~~$313.4 million of loans secured by multi-family properties and ~~$24.8~~$25.9 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.

~~Southside Bancshares, Inc. |19~~

~~Table of Contents~~

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 make 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

Southside Bancshares, Inc. |17

Table of Contents

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. Lending money directly to these municipalities allows 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.

Southside Bancshares, Inc. ~~|20~~|18

Table of Contents

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


September 30, 2022		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Total
March 31, 2023																		March 31, 2023	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Total
		2022		2021		2020		2019		2018		Prior							2023		2022		2021		2020		2019		Prior
Construction real estate:	Construction real estate:																	Construction real estate:
Pass	Pass	$	127,074	$	200,310	$	40,301	$	9,256	$	1,918	$	6,813	$	165,829	$	551,501	Pass	$	22,665	$	179,803	$	176,130	$	37,195	$	6,980	$	7,789	$	141,330	$	571,892
Pass watch	Pass watch	—		—		—		—		—		—		—		—		Pass watch	—		2,434		—		—		—		—		14,808		17,242
Special mention	Special mention	1,830		305		—		—		—		—		—		2,135		Special mention	—		822		1,010		—		9		—		—		1,841
Substandard	Substandard	—		—		—		389		45		229		—		663		Substandard	—		—		—		—		—		229		—		229
Doubtful	Doubtful	—		46		—		—		—		—		—		46		Doubtful	—		299		43		—		348		—		—		690
Total construction real estate	Total construction real estate	$	128,904	$	200,661	$	40,301	$	9,645	$	1,963	$	7,042	$	165,829	$	554,345	Total construction real estate	$	22,665	$	183,358	$	177,183	$	37,195	$	7,337	$	8,018	$	156,138	$	591,894
Current period gross charge-offs																		Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

1-4 family residential real estate:	1-4 family residential real estate:																	1-4 family residential real estate:
Pass	Pass	$	91,723	$	127,248	$	112,796	$	68,045	$	37,349	$	202,116	$	2,190	$	641,467	Pass	$	13,984	$	92,684	$	144,451	$	126,154	$	68,073	$	220,774	$	2,123	$	668,243
Pass watch	Pass watch	—		—		—		—		—		—		—		—		Pass watch	—		—		—		—		—		—		—		—
Special mention	Special mention	—		—		80		—		1,414		—		—		1,494		Special mention	—		—		—		78		—		1,381		—		1,459
Substandard	Substandard	4		—		396		160		184		2,531		42		3,317		Substandard	—		2		64		210		124		2,146		42		2,588
Doubtful	Doubtful	—		—		—		—		178		236		—		414		Doubtful	—		—		—		—		—		305		—		305
Total 1-4 family residential real estate	Total 1-4 family residential real estate	$	91,727	$	127,248	$	113,272	$	68,205	$	39,125	$	204,883	$	2,232	$	646,692	Total 1-4 family residential real estate	$	13,984	$	92,686	$	144,515	$	126,442	$	68,197	$	224,606	$	2,165	$	672,595
Current period gross charge-offs																		Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	49	$	—	$	49

Commercial real estate:	Commercial real estate:																	Commercial real estate:
Pass	Pass	$	664,538	$	579,040	$	170,699	$	138,748	$	56,168	$	241,718	$	11,944	$	1,862,855	Pass	$	137,028	$	754,591	$	523,896	$	156,316	$	111,505	$	263,451	$	10,180	$	1,956,967
Pass watch	Pass watch	—		9,434		—		—		—		1,771		—		11,205		Pass watch	—		—		9,001		—		349		—		—		9,350
Special mention	Special mention	—		—		1,844		333		116		1,898		—		4,191		Special mention	—		—		—		1,820		437		945		—		3,202
Substandard	Substandard	596		—		285		14,699		263		7,620		—		23,463		Substandard	—		—		—		278		14,395		6,484		—		21,157
Doubtful	Doubtful	—		—		—		78		—		129		—		207		Doubtful	—		—		—		—		73		112		—		185
Total commercial real estate	Total commercial real estate	$	665,134	$	588,474	$	172,828	$	153,858	$	56,547	$	253,136	$	11,944	$	1,901,921	Total commercial real estate	$	137,028	$	754,591	$	532,897	$	158,414	$	126,759	$	270,992	$	10,180	$	1,990,861
Current period gross charge-offs																		Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial loans:	Commercial loans:																	Commercial loans:
Pass	Pass	$	105,247	$	76,210	$	20,852	$	9,369	$	5,792	$	3,680	$	164,967	$	386,117	Pass	$	17,642	$	101,347	$	61,883	$	16,062	$	7,209	$	6,968	$	161,646	$	372,757
Pass watch	Pass watch	217		6		—		247		—		—		27,452		27,922		Pass watch	—		73		149		—		—		—		199		421
Special mention	Special mention	—		5,183		34		—		307		—		12,742		18,266		Special mention	—		183		4,996		27		—		269		8,318		13,793
Substandard	Substandard	—		16		72		122		37		9		74		330		Substandard	—		418		190		—		86		25		—		719
Doubtful	Doubtful	68		328		17		195		240		55		—		903		Doubtful	—		67		73		50		109		193		—		492
Total commercial loans	Total commercial loans	$	105,532	$	81,743	$	20,975	$	9,933	$	6,376	$	3,744	$	205,235	$	433,538	Total commercial loans	$	17,642	$	102,088	$	67,291	$	16,139	$	7,404	$	7,455	$	170,163	$	388,182
Current period gross charge-offs																		Current period gross charge-offs	$	—	$	84	$	11	$	14	$	—	$	—	$	—	$	109

Municipal loans:	Municipal loans:																	Municipal loans:
Pass	Pass	$	49,215	$	75,567	$	58,288	$	56,151	$	26,141	$	183,857	$	—	$	449,219	Pass	$	5,679	$	63,464	$	73,606	$	55,338	$	45,918	$	187,652	$	—	$	431,657
Pass watch	Pass watch	—		—		—		—		—		—		—		—		Pass watch	—		—		—		—		507		6,402		—		6,909
Special mention	Special mention	—		—		—		—		—		—		—		—		Special mention	—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		—		—		—		—		Substandard	—		—		—		—		—		—		—		—
Doubtful	Doubtful	—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—
Total municipal loans	Total municipal loans	$	49,215	$	75,567	$	58,288	$	56,151	$	26,141	$	183,857	$	—	$	449,219	Total municipal loans	$	5,679	$	63,464	$	73,606	$	55,338	$	46,425	$	194,054	$	—	$	438,566
Current period gross charge-offs																		Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Loans to individuals:	Loans to individuals:																	Loans to individuals:
Pass	Pass	$	25,795	$	24,290	$	15,004	$	6,515	$	1,994	$	1,285	$	2,838	$	77,721	Pass	$	7,504	$	24,621	$	18,476	$	10,868	$	4,219	$	2,092	$	2,704	$	70,484
Pass watch	Pass watch	—		—		—		—		—		—		—		—		Pass watch	—		—		—		—		—		—		10		10
Special mention	Special mention	—		—		—		—		—		—		—		—		Special mention	—		—		—		—		—		—		—		—
Substandard	Substandard	—		1		—		10		40		4		1		56		Substandard	—		—		—		—		5		4		—		9
Doubtful	Doubtful	—		—		—		—		—		3		—		3		Doubtful	—		—		6		—		17		20		—		43
Total loans to individuals	Total loans to individuals	$	25,795	$	24,291	$	15,004	$	6,525	$	2,034	$	1,292	$	2,839	$	77,780	Total loans to individuals	$	7,504	$	24,621	$	18,482	$	10,868	$	4,241	$	2,116	$	2,714	$	70,546
Current period gross charge-offs (1)																		Current period gross charge-offs (1)	$	391	$	24	$	6	$	2	$	—	$	52	$	—	$	475

Total loans	Total loans	$	1,066,307	$	1,097,984	$	420,668	$	304,317	$	132,186	$	653,954	$	388,079	$	4,063,495	Total loans	$	204,502	$	1,220,808	$	1,013,974	$	404,396	$	260,363	$	707,241	$	341,360	$	4,152,644
Total current period gross charge-offs (1)																		Total current period gross charge-offs (1)	$	391	$	108	$	17	$	16	$	—	$	101	$	—	$	633

(1) Includes $391,000 in charged off demand deposit overdrafts reported as 2023 originations.

Southside Bancshares, Inc. ~~|21~~|19

Table of Contents


December 31, 2021		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Total
December 31, 2022																		December 31, 2022	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Total
		2021		2020		2019		2018		2017		Prior							2022		2021		2020		2019		2018		Prior
Construction real estate:	Construction real estate:																	Construction real estate:
Pass	Pass	$	179,521	$	82,862	$	38,788	$	5,666	$	2,126	$	6,080	$	132,592	$	447,635	Pass	$	169,652	$	184,501	$	34,537	$	7,091	$	1,844	$	6,434	$	152,530	$	556,589
Pass watch	Pass watch	—		—		—		—		—		—		—		—		Pass watch	299		—		—		—		—		—		—		299
Special mention	Special mention	—		—		—		—		—		—		—		—		Special mention	1,858		290		—		—		—		—		—		2,148
Substandard	Substandard	—		—		—		—		—		175		—		175		Substandard	—		—		—		10		42		194		—		246
Doubtful	Doubtful	—		—		—		50		—		—		—		50		Doubtful	—		44		—		355		—		—		—		399
Total construction real estate	Total construction real estate	$	179,521	$	82,862	$	38,788	$	5,716	$	2,126	$	6,255	$	132,592	$	447,860	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:	1-4 family residential real estate:																	1-4 family residential real estate:
Pass	Pass	$	141,058	$	129,681	$	81,607	$	47,566	$	34,236	$	209,470	$	2,238	$	645,856	Pass	$	82,847	$	144,424	$	128,666	$	70,142	$	36,710	$	194,490	$	2,160	$	659,439
Pass watch	Pass watch	—		—		—		—		—		777		—		777		Pass watch	—		—		—		—		—		—		—		—
Special mention	Special mention	—		82		—		—		—		—		—		82		Special mention	—		—		79		—		1,397		—		—		1,476
Substandard	Substandard	57		403		55		—		295		3,257		88		4,155		Substandard	3		—		217		54		32		1,942		43		2,291
Doubtful	Doubtful	—		—		—		—		—		270		—		270		Doubtful	—		—		—		—		173		140		—		313
Total 1-4 family residential real estate	Total 1-4 family residential real estate	$	141,115	$	130,166	$	81,662	$	47,566	$	34,531	$	213,774	$	2,326	$	651,140	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:	Commercial real estate:																	Commercial real estate:
Pass	Pass	$	648,002	$	207,370	$	209,923	$	114,788	$	143,350	$	209,368	$	7,566	$	1,540,367	Pass	$	798,653	$	546,938	$	168,607	$	136,440	$	55,480	$	233,509	$	12,315	$	1,951,942
Pass watch	Pass watch	21,669		—		2,163		3,074		374		—		—		27,280		Pass watch	—		9,219		—		—		—		—		—		9,219
Special mention	Special mention	—		2,062		2,217		119		163		1,877		—		6,438		Special mention	—		—		1,832		330		115		1,849		—		4,126
Substandard	Substandard	3,299		667		10,830		1,480		—		7,691		—		23,967		Substandard	—		—		281		14,603		260		6,992		—		22,136
Doubtful	Doubtful	—		—		—		—		—		120		—		120		Doubtful	—		—		—		76		—		208		—		284
Total commercial real estate	Total commercial real estate	$	672,970	$	210,099	$	225,133	$	119,461	$	143,887	$	219,056	$	7,566	$	1,598,172	Total commercial real estate	$	798,653	$	556,157	$	170,720	$	151,449	$	55,855	$	242,558	$	12,315	$	1,987,707

Commercial loans:	Commercial loans:																	Commercial loans:
Pass	Pass	$	140,628	$	51,866	$	24,688	$	13,204	$	2,516	$	4,062	$	178,263	$	415,227	Pass	$	113,678	$	68,509	$	17,852	$	8,249	$	4,820	$	3,313	$	178,951	$	395,372
Pass watch	Pass watch	—		—		280		22		—		—		—		302		Pass watch	208		13		56		—		—		—		—		277
Special mention	Special mention	—		57		78		363		—		157		—		655		Special mention	—		5,109		31		—		288		—		9,986		15,414
Substandard	Substandard	—		283		296		174		16		—		1,457		2,226		Substandard	220		116		70		110		12		9		—		537
Doubtful	Doubtful	7		26		124		359		—		72		—		588		Doubtful	68		100		—		86		210		—		—		464
Total commercial loans	Total commercial loans	$	140,635	$	52,232	$	25,466	$	14,122	$	2,532	$	4,291	$	179,720	$	418,998	Total commercial loans	$	114,174	$	73,847	$	18,009	$	8,445	$	5,330	$	3,322	$	188,937	$	412,064

Municipal loans:	Municipal loans:																	Municipal loans:
Pass	Pass	$	80,167	$	64,803	$	61,348	$	29,168	$	56,274	$	151,318	$	—	$	443,078	Pass	$	65,258	$	74,617	$	57,147	$	47,636	$	24,576	$	173,919	$	—	$	443,153
Pass watch	Pass watch	—		—		—		—		—		—		—		—		Pass watch	—		—		—		508		403		6,003		—		6,914
Special mention	Special mention	—		—		—		—		—		—		—		—		Special mention	—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		—		—		—		—		Substandard	—		—		—		—		—		—		—		—
Doubtful	Doubtful	—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—
Total municipal loans	Total municipal loans	$	80,167	$	64,803	$	61,348	$	29,168	$	56,274	$	151,318	$	—	$	443,078	Total municipal loans	$	65,258	$	74,617	$	57,147	$	48,144	$	24,979	$	179,922	$	—	$	450,067

Loans to individuals:	Loans to individuals:																	Loans to individuals:
Pass	Pass	$	40,252	$	24,028	$	11,813	$	4,121	$	1,684	$	849	$	3,052	$	85,799	Pass	$	29,579	$	21,480	$	12,651	$	5,261	$	1,665	$	1,005	$	2,935	$	74,576
Pass watch	Pass watch	—		—		—		—		—		—		—		—		Pass watch	—		—		—		—		—		—		—		—
Special mention	Special mention	—		—		—		36		—		—		—		36		Special mention	—		—		—		—		—		—		—		—
Substandard	Substandard	—		1		24		4		23		10		2		64		Substandard	—		1		—		6		—		2		—		9
Doubtful	Doubtful	—		—		1		7		3		4		—		15		Doubtful	7		—		—		18		40		3		—		68
Total loans to individuals	Total loans to individuals	$	40,252	$	24,029	$	11,838	$	4,168	$	1,710	$	863	$	3,054	$	85,914	Total loans to individuals	$	29,586	$	21,481	$	12,651	$	5,285	$	1,705	$	1,010	$	2,935	$	74,653
Total loans	Total loans	$	1,254,660	$	564,191	$	444,235	$	220,201	$	241,060	$	595,557	$	325,258	$	3,645,162	Total loans	$	1,262,330	$	1,055,361	$	422,026	$	290,975	$	128,067	$	630,012	$	358,920	$	4,147,691

Watchlisted loans reported as 2023 originations as of March 31, 2023 and watchlisted loans reported as 2022 originations as of ~~September 30, 2022 and watchlisted loans reported as 2021 originations as of~~ December 31, ~~2021~~2022 were, for the majority, first originated in various years prior to ~~2022~~2023 and ~~2021,~~2022, respectively, but were renewed in the respective year.

Southside Bancshares, Inc. ~~|22~~|20

Table of Contents

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


		September 30, 2022													March 31, 2023
		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total			30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total
Real estate loans:	Real estate loans:													Real estate loans:
Construction	Construction	$	160	$	410	$	46	$	616	$	553,729	$	554,345	Construction	$	455	$	299	$	—	$	754	$	591,140	$	591,894
1-4 family residential	1-4 family residential	1,367		547		516		2,430		644,262		646,692		1-4 family residential	2,562		48		359		2,969		669,626		672,595
Commercial	Commercial	243		422		—		665		1,901,256		1,901,921		Commercial	763		—		39		802		1,990,059		1,990,861
Commercial loans	Commercial loans	1,094		794		434		2,322		431,216		433,538		Commercial loans	1,929		315		94		2,338		385,844		388,182
Municipal loans	Municipal loans	—		—		—		—		449,219		449,219		Municipal loans	—		—		—		—		438,566		438,566
Loans to individuals	Loans to individuals	208		—		—		208		77,572		77,780		Loans to individuals	221		—		19		240		70,306		70,546
Total	Total	$	3,072	$	2,173	$	996	$	6,241	$	4,057,254	$	4,063,495	Total	$	5,930	$	662	$	511	$	7,103	$	4,145,541	$	4,152,644


		December 31, 2021													December 31, 2022
		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total			30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total
Real estate loans:	Real estate loans:													Real estate loans:
Construction	Construction	$	82	$	58	$	—	$	140	$	447,720	$	447,860	Construction	$	43	$	21	$	—	$	64	$	559,617	$	559,681
1-4 family residential	1-4 family residential	3,226		606		227		4,059		647,081		651,140		1-4 family residential	3,529		368		214		4,111		659,408		663,519
Commercial	Commercial	1,191		—		99		1,290		1,596,882		1,598,172		Commercial	105		153		415		673		1,987,034		1,987,707
Commercial loans	Commercial loans	1,523		251		537		2,311		416,687		418,998		Commercial loans	515		277		247		1,039		411,025		412,064
Municipal loans	Municipal loans	170		—		—		170		442,908		443,078		Municipal loans	—		—		—		—		450,067		450,067
Loans to individuals	Loans to individuals	315		41		8		364		85,550		85,914		Loans to individuals	203		3		40		246		74,407		74,653
Total	Total	$	6,507	$	956	$	871	$	8,334	$	3,636,828	$	3,645,162	Total	$	4,395	$	822	$	916	$	6,133	$	4,141,558	$	4,147,691

Southside Bancshares, Inc. ~~|23~~|21

Table of Contents

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


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Nonaccrual loans:	Nonaccrual loans:					Nonaccrual loans:
Real estate loans:	Real estate loans:					Real estate loans:
Construction	Construction	$	77	$	57	Construction	$	695	$	405
1-4 family residential	1-4 family residential	1,183		969		1-4 family residential	933		848
Commercial	Commercial	696		668		Commercial	582		762
Commercial loans	Commercial loans	1,071		815		Commercial loans	911		757

Loans to individuals	Loans to individuals	12		27		Loans to individuals	48		74
Total nonaccrual loans (1)	Total nonaccrual loans (1)	3,039		2,536		Total nonaccrual loans (1)	3,169		2,846

Accruing loans past due more than 90 days	Accruing loans past due more than 90 days	—		—		Accruing loans past due more than 90 days	—		—
TDR loans		8,481		9,073
Restructured loans (2)						Restructured loans (2)	—		7,849
OREO	OREO	162		—		OREO	—		93
Repossessed assets	Repossessed assets	35		—		Repossessed assets	11		74
Total nonperforming assets	Total nonperforming assets	$	11,717	$	11,609	Total nonperforming assets	$	3,180	$	10,862

(1) Includes ~~$950,000~~$179,000 and ~~$1.1 million~~$897,000 of ~~TDR~~restructured loans as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~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 March 31, 2023 exclude any loan modifications that are performing but would have previously required disclosure as troubled debt restructures.

We reversed ~~$10,000 and $33,000~~$26,000 of interest income on nonaccrual loans during the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, and ~~$5,000 and $13,000~~$12,000 for the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2022. We had ~~$1.0~~$1.3 million and ~~$1.2~~$1.6 million of loans on nonaccrual for which there was no related allowance for credit losses as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we had ~~$8.7~~$8.3 million and ~~$8.5~~$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 ~~$171,000 and $21,000~~no loans secured by 1-4 family residential properties for which formal foreclosure proceedings were in process as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

~~Southside Bancshares, Inc. |24~~

~~Table of Contents~~

Restructured Loans

~~Troubled Debt Restructurings~~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.

~~The restructuring of a~~A loan is now considered ~~a TDR~~restructured if ~~both (i)~~ the borrower is experiencing financial difficulties and ~~(ii)~~ the ~~creditor~~loan has ~~granted a concession. Concessions~~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 ~~concessions~~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.

The following tables set forth the recorded balance of loans considered to be TDRs that were restructured and the type of concession by class of loans during the periods presented (dollars in thousands):

Nine Months Ended September 30, 2022

Extend Amortization
Period
Interest Rate Reductions Combination Total Modifications Number of Loans
Real estate loans:
1-4 family residential $ — $ — $ 307 $ 307 4
Commercial loans — — 5 5 1
Loans to individuals — — 9 9 2
Total $ — $ — $ 321 $ 321 7

Three Months Ended September 30, 2021

Extend Amortization
Period
Interest Rate Reductions Combination Total Modifications Number of Loans
Real estate loans:
1-4 family residential $ — $ — $ 219 $ 219 3
Commercial — — 453 453 1
Total $ — $ — $ 672 $ 672 4

Nine Months Ended September 30, 2021

Extend Amortization
Period
Interest Rate Reductions Combination Total Modifications Number of Loans
Real estate loans:
1-4 family residential $ — $ — $ 344 $ 344 5
Commercial — — 453 453 1
Commercial loans — 16 94 110 3
Total $ — $ 16 $ 891 $ 907 9

~~There were no TDRs restructured during the three months ended September 30, 2022.~~

~~Interest continues~~ 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 ~~as TDRs~~ during the ~~nine~~three months ended ~~September 30, 2022 and 2021~~March 31, 2023 were not significant.

There was one commercial loan for $179,000 that was restructured with an extension of amortization period as of March 31, 2023 and is included in our nonaccrual loans in nonperforming assets.

Southside Bancshares, Inc. |22

Table of Contents

On an ongoing basis, the performance of the ~~TDRs~~restructured loans is monitored for subsequent payment default. Payment default ~~for TDRs~~ is recognized when the borrower is 90 days or more past due. As of ~~September 30, 2022 and 2021, the amount of TDRs~~March 31, 2023, there were no restructured loans in ~~default was not significant.~~default. Payment defaults for ~~TDRs~~restructured loans did not significantly impact the determination of the allowance for loan losses in the periods presented. At ~~September 30, 2022 and 2021,~~March 31, 2023, there were no commitments to lend additional funds to borrowers whose ~~terms~~loans had been ~~modified in TDRs.~~restructured.

~~Southside Bancshares, Inc. |25~~

~~Table of Contents~~

Allowance for Loan Losses

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


		Three Months Ended September 30, 2022												Three Months Ended March 31, 2023
		Real Estate																Real Estate
		Construction		1-4 Family Residential		Commercial		Commercial Loans		Municipal Loans		Loans to Individuals			Total			Construction		1-4 Family Residential		Commercial		Commercial Loans		Municipal Loans		Loans to Individuals		Total
Balance at beginning of period	Balance at beginning of period	$	3,399	$	2,024	$	27,221	$	2,558	$	46	$	201		$	35,449	Balance at beginning of period	$	3,164	$	2,173	$	28,701	$	2,235	$	45	$	197	$	36,515
Loans charged-off	Loans charged-off	—		(66)		—		(192)		—		(428)			(686)		Loans charged-off	—		(49)		—		(109)		—		(475)		(633)
Recoveries of loans charged-off	Recoveries of loans charged-off	—		4		—		139		—		306			449		Recoveries of loans charged-off	1		5		—		60		—		296		362
Net loans (charged-off) recovered	Net loans (charged-off) recovered	—		(62)		—		(53)		—		(122)			(237)		Net loans (charged-off) recovered	1		(44)		—		(49)		—		(179)		(271)
Provision for (reversal of) loan losses	Provision for (reversal of) loan losses	136		44		1,273		(272)		(2)		115			1,294		Provision for (reversal of) loan losses	(13)		185		20		(285)		(1)		182		88
Balance at end of period	Balance at end of period	$	3,535	$	2,006	$	28,494	$	2,233	$	44	$	194		$	36,506	Balance at end of period	$	3,152	$	2,314	$	28,721	$	1,901	$	44	$	200	$	36,332

Nine Months Ended September 30, 2022
Real Estate
Construction
1-4 Family
Residential
Commercial
Commercial
Loans
Municipal
Loans
Loans to
Individuals
Total
Balance at beginning of period $ 3,787 $ 1,866 $ 26,980 $ 2,397 $ 47 $ 196 $ 35,273
Loans charged-off — (66) — (369) — (1,285) (1,720)
Recoveries of loans charged-off 1 96 81 469 — 858 1,505
Net loans (charged-off) recovered 1 30 81 100 — (427) (215)
Provision for (reversal of) loan losses (253) 110 1,433 (264) (3) 425 1,448
Balance at end of period $ 3,535 $ 2,006 $ 28,494 $ 2,233 $ 44 $ 194 $ 36,506


		Three Months Ended September 30, 2021												Three Months Ended March 31, 2022
		Real Estate																Real Estate
		Construction		1-4 Family Residential		Commercial		Commercial Loans		Municipal Loans		Loans to Individuals			Total			Construction		1-4 Family Residential		Commercial		Commercial Loans		Municipal Loans		Loans to Individuals		Total
Balance at beginning of period	Balance at beginning of period	$	8,018	$	2,520	$	28,930	$	3,097	$	47	$	301		$	42,913	Balance at beginning of period	$	3,787	$	1,866	$	26,980	$	2,397	$	47	$	196	$	35,273

Loans charged-off	Loans charged-off	—		(35)		—		(508)		—		(397)			(940)		Loans charged-off	—		—		—		(131)		—		(424)		(555)
Recoveries of loans charged-off	Recoveries of loans charged-off	1		4		12		74		—		346			437		Recoveries of loans charged-off	—		39		47		216		—		238		540
Net loans (charged-off) recovered	Net loans (charged-off) recovered	1		(31)		12		(434)		—		(51)			(503)		Net loans (charged-off) recovered	—		39		47		85		—		(186)		(15)
Provision for (reversal of) loan losses	Provision for (reversal of) loan losses	(3,036)		(543)		(684)		(103)		(1)		(21)			(4,388)		Provision for (reversal of) loan losses	(183)		77		198		(28)		1		201		266
Balance at end of period	Balance at end of period	$	4,983	$	1,946	$	28,258	$	2,560	$	46	$	229		$	38,022	Balance at end of period	$	3,604	$	1,982	$	27,225	$	2,454	$	48	$	211	$	35,524

~~Southside Bancshares, Inc. |26~~

~~Table of Contents~~

Nine Months Ended September 30, 2021
Real Estate
Construction
1-4 Family
Residential
Commercial
Commercial
Loans
Municipal
Loans
Loans to
Individuals
Total
Balance at beginning of period $ 6,490 $ 2,270 $ 35,709 $ 4,107 $ 46 $ 384 $ 49,006
Loans charged-off — (136) — (943) — (1,183) (2,262)
Recoveries of loans charged-off 2 71 13 535 — 904 1,525
Net loans (charged-off) recovered 2 (65) 13 (408) — (279) (737)
Provision for (reversal of) loan losses (1,509) (259) (7,464) (1,139) — 124 (10,247)
Balance at end of period $ 4,983 $ 1,946 $ 28,258 $ 2,560 $ 46 $ 229 $ 38,022

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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the accrued interest on our loan portfolio was ~~$14.8~~$16.7 million and ~~$13.3~~$18.8 million, respectively.

Southside Bancshares, Inc. |23

Table of Contents

6. Borrowing Arrangements

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


		September 30, 2022			December 31, 2021				March 31, 2023			December 31, 2022
Other borrowings:	Other borrowings:							Other borrowings:
Balance at end of period	Balance at end of period	$	74,721		$	23,219		Balance at end of period	$	625,627		$	221,153
Average amount outstanding during the period (1)	Average amount outstanding during the period (1)	62,814			22,257			Average amount outstanding during the period (1)	202,135			77,845
Maximum amount outstanding during the period (2)	Maximum amount outstanding during the period (2)	248,592			24,549			Maximum amount outstanding during the period (2)	625,627			316,563
Weighted average interest rate during the period (3)	Weighted average interest rate during the period (3)	1.7		%	0.2		%	Weighted average interest rate during the period (3)	4.9		%	2.4		%
Interest rate at end of period (4)	Interest rate at end of period (4)	2.1		%	0.2		%	Interest rate at end of period (4)	4.6		%	4.1		%

FHLB borrowings:	FHLB borrowings:							FHLB borrowings:
Balance at end of period	Balance at end of period	$	243,531		$	344,038		Balance at end of period	$	333,183		$	153,358
Average amount outstanding during the period (1)	Average amount outstanding during the period (1)	117,724			665,384			Average amount outstanding during the period (1)	404,199			135,926
Maximum amount outstanding during the period (2)	Maximum amount outstanding during the period (2)	423,645			723,584			Maximum amount outstanding during the period (2)	533,242			423,645
Weighted average interest rate during the period (3)	Weighted average interest rate during the period (3)	1.9		%	1.1		%	Weighted average interest rate during the period (3)	3.2		%	2.4		%
Interest rate at end of period (5)	Interest rate at end of period (5)	3.1		%	1.3		%	Interest rate at end of period (5)	5.2		%	4.7		%

(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 (annualized for interim periods) by the average amount outstanding during the period. The weighted average interest rate on ~~the~~other borrowings and FHLB borrowings includes the effect of interest rate swaps.

(4)Stated rate.

(5)~~As of December 31, 2021, the~~The interest rate on ~~the~~ FHLB borrowings includes the effect of interest rate swaps.

~~Southside Bancshares, Inc. |27~~

~~Table of Contents~~

Maturities of the obligations associated with our borrowing arrangements based on scheduled repayments at ~~September 30, 2022~~March 31, 2023 are as follows (in thousands):


		Payments Due by Period															Payments Due by Period
		Less than 1 Year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		Thereafter		Total			Less than 1 Year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		Thereafter		Total
Other borrowings	Other borrowings	$	72,021	$	2,700	$	—	$	—	$	—	$	—	$	74,721	Other borrowings	$	621,527	$	2,750	$	1,350	$	—	$	—	$	—	$	625,627
FHLB borrowings	FHLB borrowings	240,702		733		764		582		401		349		243,531		FHLB borrowings	330,717		748		775		391		411		141		333,183
Total obligations	Total obligations	$	312,723	$	3,433	$	764	$	582	$	401	$	349	$	318,252	Total obligations	$	952,244	$	3,498	$	2,125	$	391	$	411	$	141	$	958,810

Other borrowings may include federal funds purchased, repurchase agreements and borrowings from the ~~FRDW.~~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 ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022. To provide more liquidity in response to the economic impact of the COVID-19 pandemic, the Federal Reserve took steps to encourage broader use of the discount window. At ~~September 30, 2022,~~March 31, 2023, the amount of additional funding the Bank could obtain from the FRDW, collateralized by securities, was approximately ~~$505.8~~$282.8 million. There were ~~$34.0~~$350.0 million and $188.0 million in borrowings from the FRDW at ~~September 30, 2022.~~March 31, 2023 and December 31, 2022, respectively. To provide more stability and to assure banks have the ability to meet the needs of all their depositors, the Federal Reserve created the BTFP in the first quarter of 2023. At March 31, 2023, the amount of additional funding the Bank could obtain from the BTFP, collateralized by securities, was approximately $3.1 million. There were no$198.4 million in borrowings from the ~~FRDW~~BTFP at ~~December~~March 31, ~~2021.~~2023. Southside Bank has a $5.0 million line of credit with Frost Bank to be used to issue letters of credit, and at ~~September 30, 2022,~~March 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 Bancshares, Inc. |24

Table of Contents

Southside Bank enters into sales of securities under repurchase agreements. These repurchase agreements totaled ~~$40.7~~$77.2 million at ~~September 30, 2022~~March 31, 2023 and ~~$23.2~~$33.2 million at December 31, ~~2021,~~2022, and had maturities of less than ~~1.4~~3.0 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 ~~2.73%~~3.73% to ~~4.799%~~5.33% and with remaining maturities of 613 days to ~~5.8~~5.3 years at ~~September 30, 2022.~~March 31, 2023. FHLB borrowings may be collateralized by FHLB stock, nonspecified loans and/or securities. At ~~September 30, 2022,~~March 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 ~~$1.62~~$1.53 billion, net of FHLB stock purchases required.

Southside Bancshares, Inc. ~~|28~~|25

Table of Contents

7. Long-term Debt

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


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

Subordinated notes: (1)	Subordinated notes: (1)					Subordinated notes: (1)
3.875% Subordinated notes, net of unamortized debt issuance costs (2)	3.875% Subordinated notes, net of unamortized debt issuance costs (2)	$	98,639	$	98,534	3.875% Subordinated notes, net of unamortized debt issuance costs (2)	$	98,710	$	98,674

Total Subordinated notes	Total Subordinated notes	98,639		98,534		Total Subordinated notes	98,710		98,674
Trust preferred subordinated debentures: (3)	Trust preferred subordinated debentures: (3)					Trust preferred subordinated debentures: (3)
Southside Statutory Trust III, net of unamortized debt issuance costs (4)	Southside Statutory Trust III, net of unamortized debt issuance costs (4)	20,572		20,568		Southside Statutory Trust III, net of unamortized debt issuance costs (4)	20,574		20,573
Southside Statutory Trust IV	Southside Statutory Trust IV	23,196		23,196		Southside Statutory Trust IV	23,196		23,196
Southside Statutory Trust V	Southside Statutory Trust V	12,887		12,887		Southside Statutory Trust V	12,887		12,887
Magnolia Trust Company I	Magnolia Trust Company I	3,609		3,609		Magnolia Trust Company I	3,609		3,609
Total Trust preferred subordinated debentures	Total Trust preferred subordinated debentures	60,264		60,260		Total Trust preferred subordinated debentures	60,266		60,265

Total Long-term debt	Total Long-term debt	$	158,903	$	158,794	Total Long-term debt	$	158,976	$	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 ~~$1.4~~$1.3 million at ~~September 30, 2022~~March 31, 2023 and ~~$1.5 million at~~ December 31, ~~2021.~~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 ~~$47,000~~$45,000 at ~~September 30, 2022~~March 31, 2023 and ~~$51,000~~$46,000 at December 31, ~~2021.~~2022.

As of ~~September 30, 2022,~~March 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

November 6, 2020

100,000

Fixed-to-Floating

3.875%

November 15, 2030

Southside Statutory Trust III

September 4, 2003

20,619

Floating

3 month LIBOR + 2.94%

September 4, 2033

Southside Statutory Trust IV

August 8, 2007

23,196

Floating

3 month LIBOR + 1.30%

October 30, 2037

Southside Statutory Trust V

August 10, 2007

12,887

Floating

3 month LIBOR + 2.25%

September 15, 2037

Magnolia Trust Company I (1)

May 20, 2005

3,609

Floating

3 month LIBOR + 1.80%

November 23, 2035

(1)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.

Southside Bancshares, Inc. ~~|29~~|26

Table of Contents

8. Employee Benefit Plans

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


		Three Months Ended September 30,													Three Months Ended March 31,
		Retirement Plan				Acquired Retirement Plan				Restoration Plan					Retirement Plan				Acquired Retirement Plan				Restoration Plan
		2022		2021		2022		2021		2022		2021			2023		2022		2023		2022		2023		2022

Interest cost	Interest cost	$	685	$	642	$	25	$	23	$	144	$	130	Interest cost	$	925	$	680	$	32	$	26	$	206	$	139
Expected return on assets	Expected return on assets	(1,461)		(1,355)		(58)		(53)		—		—		Expected return on assets	(1,143)		(1,461)		(47)		(59)		—		—
Net loss amortization	Net loss amortization	160		251		—		1		64		64		Net loss amortization	166		151		—		—		7		55

Net periodic benefit cost (income)	Net periodic benefit cost (income)	$	(616)	$	(462)	$	(33)	$	(29)	$	208	$	194	Net periodic benefit cost (income)	$	(52)	$	(630)	$	(15)	$	(33)	$	213	$	194

Nine Months Ended September 30,
Defined Benefit
Pension Plan Defined Benefit
Pension Plan Acquired Restoration
Plan
2022 2021 2022 2021 2022 2021
Interest cost $ 2,056 $ 1,927 $ 76 $ 69 $ 433 $ 390
Expected return on assets (4,384) (4,065) (174) (158) — —
Net loss amortization 480 752 — 4 191 192
Net periodic benefit cost (income) $ (1,848) $ (1,386) $ (98) $ (85) $ 624 $ 582

At 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%. This assumption is reviewed, at a minimum, on an annual basis.

The noncash adjustment to the employee benefit plan liabilities, consisting of changes in net loss, was ~~$671,000~~$173,000 and ~~$948,000~~$206,000 for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

Southside Bancshares, Inc. ~~|30~~|27

Table of Contents

9. Derivative Financial Instruments and Hedging Activities

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

Derivative instruments may be designated as cash flow hedges of variable rate assets or liabilities, cash flow hedges of forecasted transactions, fair value hedges of a recognized asset or liability or as non-hedging instruments. 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 earnings in the same periods that the hedged cash flows impact earnings. The ineffective portion of changes in fair value is reported in current earnings. 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. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change.

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 ~~$575.0~~$880.0 million of Bank liabilities. The cash flows from the swap contracts are expected to be effective in hedging the variability in future cash flows attributable to fluctuations in the underlying LIBOR interest rate or SOFR rate.

During ~~the second and third quarters of~~ 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 ~~September 30, 2022,~~March 31, 2023, hedged securities with a carrying amount of ~~$708.9~~$759.7 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. The change in the fair value of these hedging instruments is recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged transactions affects earnings.

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.

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~~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~~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 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~~third-party financial institution. The swap fee income is included in other noninterest income in our consolidated statements of income.

At ~~September 30,~~March 31, 2023 and December 31, 2022, net derivative ~~asset~~assets included ~~$81.0~~$53.3 million and $82.1 million, respectively, of cash collateral received from counterparties under ~~master netting agreements. At December 31, 2021, net derivative liabilities included $12.8 million, of cash collateral held by counterparties subject to~~ 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.

Southside Bancshares, Inc. ~~|31~~|28

Table of Contents

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


		September 30, 2022						December 31, 2021							March 31, 2023						December 31, 2022
				Estimated Fair Value						Estimated Fair Value							Estimated Fair Value						Estimated Fair Value
		Notional Amount (1)		Asset Derivative		Liability Derivative		Notional Amount (1)		Asset Derivative		Liability Derivative			Notional Amount (1)		Asset Derivative		Liability Derivative		Notional Amount (1)		Asset Derivative		Liability Derivative
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments													Derivatives designated as hedging instruments
Interest rate contracts:	Interest rate contracts:													Interest rate contracts:
Swaps-Cash Flow Hedge-Financial institution counterparties	Swaps-Cash Flow Hedge-Financial institution counterparties	$	575,000	$	41,320	$	—	$	605,000	$	4,274	$	5,866	Swaps-Cash Flow Hedge-Financial institution counterparties	$	880,000	$	32,886	$	5,443	$	575,000	$	39,527	$	—
Swaps-Fair Value Hedge-Financial institution counterparties	Swaps-Fair Value Hedge-Financial institution counterparties	742,675		23,956		18		—		—		—		Swaps-Fair Value Hedge-Financial institution counterparties	742,675		13,035		3,246		742,675		21,733		171
Derivatives designated as non-hedging instruments	Derivatives designated as non-hedging instruments													Derivatives designated as non-hedging instruments
Interest rate contracts:	Interest rate contracts:													Interest rate contracts:
Swaps-Financial institution counterparties	Swaps-Financial institution counterparties	229,199		22,804		—		214,379		545		13,412		Swaps-Financial institution counterparties	220,999		16,018		—		223,124		21,046		—
Swaps-Customer counterparties	Swaps-Customer counterparties	229,199		—		22,804		214,379		13,412		545		Swaps-Customer counterparties	220,999		—		16,018		223,124		—		21,046
Gross derivatives	Gross derivatives			88,080		22,822				18,231		19,823		Gross derivatives			61,939		24,707				82,306		21,217
Offsetting derivative assets/liabilities	Offsetting derivative assets/liabilities			(18)		(18)				(4,819)		(4,819)		Offsetting derivative assets/liabilities			(8,689)		(8,689)				(171)		(171)
Cash collateral received/posted	Cash collateral received/posted			(81,030)		—				—		(12,810)		Cash collateral received/posted			(53,250)		—				(82,135)		—
Net derivatives included in the consolidated balance sheets (2)	Net derivatives included in the consolidated balance sheets (2)			$	7,032	$	22,804			$	13,412	$	2,194	Net derivatives included in the consolidated balance sheets (2)			$	—	$	16,018			$	—	$	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. We had ~~$7.0 million~~no credit exposure related to interest rate swaps with financial institutions and none related to interest rate swaps with customers at ~~September 30, 2022. We had no credit exposure related to interest rate swaps with financial institutions and $13.4 million related to interest rate swaps with customers at~~March 31, 2023 or December 31, ~~2021.~~2022. The credit risk associated with customer transactions is partially mitigated as these are generally secured by the non-cash collateral securing the underlying transaction being hedged.

The summarized expected weighted average remaining maturity of the notional amount of interest rate swaps and the weighted average interest rates associated with the amounts expected to be received or paid on interest rate swap agreements are 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


		September 30, 2022							December 31, 2021								March 31, 2023							December 31, 2022
				Weighted Average							Weighted Average								Weighted Average							Weighted Average
		Notional Amount		Remaining Maturity (in years)	Receive Rate		Pay Rate		Notional Amount		Remaining Maturity (in years)	Receive Rate		Pay Rate			Notional Amount		Remaining Maturity (in years)	Receive Rate		Pay Rate		Notional Amount		Remaining Maturity (in years)	Receive Rate		Pay Rate
Swaps-Cash Flow hedge	Swaps-Cash Flow hedge															Swaps-Cash Flow hedge
Financial institution counterparties	Financial institution counterparties	$	575,000	2.6	2.94	%	1.13	%	$	605,000	3.2	0.13	%	1.10	%	Financial institution counterparties	$	880,000	3.0	4.77	%	2.20	%	$	575,000	2.3	4.44	%	1.13	%
Swaps-Fair Value hedge	Swaps-Fair Value hedge															Swaps-Fair Value hedge
Financial institution counterparties	Financial institution counterparties	742,675		6.5	2.58	%	3.21	%	—		—	—		—		Financial institution counterparties	742,675		6.0	4.56	%	3.21	%	742,675		6.3	3.42	%	3.21	%
Swaps-Non-hedging	Swaps-Non-hedging															Swaps-Non-hedging
Financial institution counterparties	Financial institution counterparties	229,199		9.1	3.37	%	2.68	%	214,379		10.3	0.47	%	2.42	%	Financial institution counterparties	220,999		8.8	5.29	%	2.68	%	223,124		9.0	4.83	%	2.69	%
Customer counterparties	Customer counterparties	229,199		9.1	2.68	%	3.37	%	214,379		10.3	2.42	%	0.47	%	Customer counterparties	220,999		8.8	2.68	%	5.29	%	223,124		9.0	2.69	%	4.83	%

Southside Bancshares, Inc. ~~|32~~|29

Table of Contents

10. Fair Value Measurement

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

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

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

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

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

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

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

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

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

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

Southside Bancshares, Inc. ~~|33~~|30

Table of Contents

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis, which means that the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a nonrecurring basis included foreclosed assets and collateral-dependent loans at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~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.

Southside Bancshares, Inc. ~~|34~~|31

Table of Contents

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


				Fair Value Measurements at the End of the Reporting Period Using									Fair Value Measurements at the End of the Reporting Period Using
September 30, 2022		Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2023										March 31, 2023	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring fair value measurements	Recurring fair value measurements									Recurring fair value measurements
Investment securities:	Investment securities:									Investment securities:

U.S. Treasury										U.S. Treasury	$	297,157	$	297,157	$	—	$	—

State and political subdivisions	State and political subdivisions	$	1,038,332	$	—	$	1,038,332	$	—	State and political subdivisions	886,472		—		886,472		—
Corporate bonds and other	Corporate bonds and other	57,417		—		57,417		—		Corporate bonds and other	13,411		—		13,411		—
MBS: (1)	MBS: (1)									MBS: (1)
Residential	Residential	320,368		—		320,368		—		Residential	229,736		—		229,736		—
Commercial	Commercial	8,445		—		8,445		—		Commercial	10,446		—		10,446		—
Equity investments:	Equity investments:									Equity investments:
Equity investments	Equity investments	5,224		5,224		—		—		Equity investments	5,319		5,319		—		—
Derivative assets:	Derivative assets:									Derivative assets:
Interest rate swaps	Interest rate swaps	88,080		—		88,080		—		Interest rate swaps	61,939		—		61,939		—
Total asset recurring fair value measurements	Total asset recurring fair value measurements	$	1,517,866	$	5,224	$	1,512,642	$	—	Total asset recurring fair value measurements	$	1,504,480	$	302,476	$	1,202,004	$	—

Derivative liabilities:	Derivative liabilities:									Derivative liabilities:
Interest rate swaps	Interest rate swaps	$	22,822	$	—	$	22,822	$	—	Interest rate swaps	$	24,707	$	—	$	24,707	$	—
Total liability recurring fair value measurements	Total liability recurring fair value measurements	$	22,822	$	—	$	22,822	$	—	Total liability recurring fair value measurements	$	24,707	$	—	$	24,707	$	—

Nonrecurring fair value measurements	Nonrecurring fair value measurements									Nonrecurring fair value measurements
Foreclosed assets	Foreclosed assets	$	197	$	—	$	—	$	197	Foreclosed assets	$	11	$	—	$	—	$	11
Collateral-dependent loans (2)	Collateral-dependent loans (2)	8,224		—		—		8,224		Collateral-dependent loans (2)	7,857		—		—		7,857
Total asset nonrecurring fair value measurements	Total asset nonrecurring fair value measurements	$	8,421	$	—	$	—	$	8,421	Total asset nonrecurring fair value measurements	$	7,868	$	—	$	—	$	7,868

Southside Bancshares, Inc. ~~|35~~|32

Table of Contents


				Fair Value Measurements at the End of the Reporting Period Using									Fair Value Measurements at the End of the Reporting Period Using
December 31, 2021		Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2022										December 31, 2022	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring fair value measurements	Recurring fair value measurements									Recurring fair value measurements
Investment securities:	Investment securities:									Investment securities:
U.S. Treasury		$	58,877	$	58,877	$	—	$	—

State and political subdivisions	State and political subdivisions	2,051,936		—		2,051,936		—		State and political subdivisions	$	964,852	$	—	$	964,852	$	—
Corporate bonds and other	Corporate bonds and other	135,532		—		135,532		—		Corporate bonds and other	8,704		—		8,704		—
MBS: (1)	MBS: (1)									MBS: (1)
Residential	Residential	426,350		—		426,350		—		Residential	315,027		—		315,027		—
Commercial	Commercial	91,630		—		91,630		—		Commercial	10,431		—		10,431		—
Equity investments:	Equity investments:									Equity investments:
Equity investments	Equity investments	5,920		5,920		—		—		Equity investments	5,235		5,235		—		—
Derivative assets:	Derivative assets:									Derivative assets:
Interest rate swaps	Interest rate swaps	18,231		—		18,231		—		Interest rate swaps	82,306		—		82,306		—
Total asset recurring fair value measurements	Total asset recurring fair value measurements	$	2,788,476	$	64,797	$	2,723,679	$	—	Total asset recurring fair value measurements	$	1,386,555	$	5,235	$	1,381,320	$	—

Derivative liabilities:	Derivative liabilities:									Derivative liabilities:
Interest rate swaps	Interest rate swaps	$	19,823	$	—	$	19,823	$	—	Interest rate swaps	$	21,217	$	—	$	21,217	$	—
Total liability recurring fair value measurements	Total liability recurring fair value measurements	$	19,823	$	—	$	19,823	$	—	Total liability recurring fair value measurements	$	21,217	$	—	$	21,217	$	—

Nonrecurring fair value measurements	Nonrecurring fair value measurements									Nonrecurring fair value measurements

Foreclosed assets										Foreclosed assets	$	167	$	—	$	—	$	167
Collateral-dependent loans (2)	Collateral-dependent loans (2)	$	8,458	$	—	$	—	$	8,458	Collateral-dependent loans (2)	7,815		—		—		7,815

Total asset nonrecurring fair value measurements	Total asset nonrecurring fair value measurements	$	8,458	$	—	$	—	$	8,458	Total asset nonrecurring fair value measurements	$	7,982	$	—	$	—	$	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.

Southside Bancshares, Inc. ~~|36~~|33

Table of Contents

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

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

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

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

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

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

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

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

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

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

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

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

Southside Bancshares, Inc. ~~|37~~|34

Table of Contents

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


				Estimated Fair Value											Estimated Fair Value
September 30, 2022		Carrying Amount		Total		Level 1		Level 2		Level 3
March 31, 2023												March 31, 2023	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	195,127	$	195,127	$	195,127	$	—	$	—	Cash and cash equivalents	$	310,492	$	310,492	$	310,492	$	—	$	—
Investment securities:	Investment securities:											Investment securities:
HTM, at carrying value	HTM, at carrying value	1,013,674		816,756		—		816,756		—		HTM, at carrying value	1,184,257		1,056,754		—		1,056,754		—
MBS:	MBS:											MBS:
HTM, at carrying value	HTM, at carrying value	137,531		126,566		—		126,566		—		HTM, at carrying value	124,200		115,820		—		115,820		—
FHLB stock, at cost	FHLB stock, at cost	12,887		12,887		—		12,887		—		FHLB stock, at cost	16,696		16,696		—		16,696		—
Equity investments	Equity investments	5,828		5,828		—		5,828		—		Equity investments	4,590		4,590		—		4,590		—
Loans, net of allowance for loan losses	Loans, net of allowance for loan losses	4,026,989		3,793,430		—		—		3,793,430		Loans, net of allowance for loan losses	4,116,312		3,861,859		—		—		3,861,859
Loans held for sale	Loans held for sale	421		421		—		421		—		Loans held for sale	407		407		—		407		—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits	$	6,181,159	$	6,126,861	$	—	$	6,126,861	$	—	Deposits	$	5,838,220	$	5,807,050	$	—	$	5,807,050	$	—
Other borrowings	Other borrowings	74,721		74,721		—		74,721		—		Other borrowings	625,627		630,270		—		630,270		—
FHLB borrowings	FHLB borrowings	243,531		243,512		—		243,512		—		FHLB borrowings	333,183		321,144		—		321,144		—
Subordinated notes, net of unamortized debt issuance costs	Subordinated notes, net of unamortized debt issuance costs	98,639		89,214		—		89,214		—		Subordinated notes, net of unamortized debt issuance costs	98,710		89,952		—		89,952		—
Trust preferred subordinated debentures, net of unamortized debt issuance costs	Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,264		57,598		—		57,598		—		Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,266		54,520		—		54,520		—


				Estimated Fair Value											Estimated Fair Value
December 31, 2021		Carrying Amount		Total		Level 1		Level 2		Level 3
December 31, 2022												December 31, 2022	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	201,753	$	201,753	$	201,753	$	—	$	—	Cash and cash equivalents	$	199,252	$	199,252	$	199,252	$	—	$	—
Investment securities:	Investment securities:											Investment securities:
HTM, at carrying value	HTM, at carrying value	788		791		—		791		—		HTM, at carrying value	1,190,108		1,023,376		—		1,023,376		—
Mortgage-backed securities:	Mortgage-backed securities:											Mortgage-backed securities:
HTM, at carrying value	HTM, at carrying value	89,992		94,444		—		94,444		—		HTM, at carrying value	136,621		125,780		—		125,780		—
FHLB stock, at cost	FHLB stock, at cost	14,375		14,375		—		14,375		—		FHLB stock, at cost	9,190		9,190		—		9,190		—
Equity investments	Equity investments	5,921		5,921		—		5,921		—		Equity investments	5,946		5,946		—		5,946		—
Loans, net of allowance for loan losses	Loans, net of allowance for loan losses	3,609,889		3,748,116		—		—		3,748,116		Loans, net of allowance for loan losses	4,111,176		3,880,664		—		—		3,880,664
Loans held for sale	Loans held for sale	1,684		1,684		—		1,684		—		Loans held for sale	667		667		—		667		—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits	$	5,722,327	$	5,721,694	$	—	$	5,721,694	$	—	Deposits	$	6,198,019	$	6,158,517	$	—	$	6,158,517	$	—
Other borrowings	Other borrowings	23,219		23,219		—		23,219		—		Other borrowings	221,153		221,153		—		221,153		—
FHLB borrowings	FHLB borrowings	344,038		346,604		—		346,604		—		FHLB borrowings	153,358		140,976		—		140,976		—
Subordinated notes, net of unamortized debt issuance costs	Subordinated notes, net of unamortized debt issuance costs	98,534		98,642		—		98,642		—		Subordinated notes, net of unamortized debt issuance costs	98,674		91,357		—		91,357		—
Trust preferred subordinated debentures, net of unamortized debt issuance costs	Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,260		48,480		—		48,480		—		Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,265		60,594		—		60,594		—

Southside Bancshares, Inc. ~~|38~~|35

Table of Contents

11. Income Taxes

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Current income tax expense	Current income tax expense	$	4,415	$	3,387	$	10,215	$	9,002	Current income tax expense	$	4,737	$	2,861
Deferred income tax expense (benefit)	Deferred income tax expense (benefit)	(540)		1,590		103		3,612		Deferred income tax expense (benefit)	(194)		285
Income tax expense	Income tax expense	$	3,875	$	4,977	$	10,318	$	12,614	Income tax expense	$	4,543	$	3,146

The net deferred tax asset totaled ~~$46.0~~$33.8 million at ~~September 30, 2022~~March 31, 2023 as compared to ~~a net deferred tax liability of $17.8~~$34.7 million at December 31, ~~2021.~~2022. The ~~increase~~decrease in the net deferred tax asset is primarily the result of ~~an increase~~a decrease in unrealized losses in the AFS securities portfolio. No valuation allowance was recorded at ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021,~~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 ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

We recognized income tax expense of ~~$3.9 million and $10.3~~$4.5 million for an ETR of ~~12.6% and 11.8%~~14.9% for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to income tax expense of ~~$5.0 million and $12.6~~$3.1 million, for an ETR of ~~14.5% and 13.0%,~~11.2% for the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2022. The ~~lower~~higher ETR for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was primarily due to ~~an increase~~a decrease in tax-exempt income as a percentage of pre-tax income as compared to the same ~~periods~~period in ~~2021.~~2022. The ETR differs from the statutory rate of 21% for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ primarily due to the effect of tax-exempt income from municipal loans and securities, as well as BOLI. We file income tax returns in the U.S. federal jurisdictions and in certain states. We are no longer subject to U.S. federal income tax examinations by tax authorities for years before ~~2018~~2019 or Texas state tax examinations by tax authorities for years before ~~2017.~~2018.

Southside Bancshares, Inc. ~~|39~~|36

Table of Contents

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

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

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022

Balance at beginning of period	Balance at beginning of period	$	1,891	$	3,773	$	2,384	$	6,386	Balance at beginning of period	$	3,687	$	2,384

Provision for (reversal of) off-balance-sheet credit exposures	Provision for (reversal of) off-balance-sheet credit exposures	200		(683)		(293)		(3,296)		Provision for (reversal of) off-balance-sheet credit exposures	(128)		28
Balance at end of period	Balance at end of period	$	2,091	$	3,090	$	2,091	$	3,090	Balance at end of period	$	3,559	$	2,412

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):


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

Commitments to extend credit	Commitments to extend credit	$	1,223,284	$	1,053,002	Commitments to extend credit	$	1,274,326	$	1,296,773
Standby letters of credit	Standby letters of credit	14,719		12,708		Standby letters of credit	25,959		26,844
Total	Total	$	1,238,003	$	1,065,710	Total	$	1,300,285	$	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.

Leases. During both the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, there were ~~$1.5 million~~$192,000 operating lease ROU assets obtained in exchange for new operating lease liabilities. During the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, there were ~~$240,000 and $1.3 million, respectively, of~~no operating lease ROU assets obtained in exchange for new operating lease ~~liabilities, primarily due to one lease that commenced in January 2021 with an initial ROU asset of $1.1 million.~~liabilities.

Securities. In the normal course of business we buy and sell securities. At ~~September 30, 2022,~~March 31, 2023, there were no unsettled trades to purchase securities and no$4.0 million unsettled trades to sell securities. At December 31, ~~2021,~~2022, there were ~~$19.0 million~~no unsettled trades to purchase securities and no unsettled trades to sell securities.

Deposits. There were ~~$28.5 million unsettled issuances of brokered CDs at September 30, 2022. There were~~ no unsettled issuances of brokered CDs at March 31, 2023 or December 31, ~~2021.~~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.

Southside Bancshares, Inc. ~~|40~~

~~Table of Contents~~

~~13.~~ ~~Subsequent Events~~

~~Subsequent to September 30, 2022, on October 27, 2022, we purchased 21,935 shares of common stock at an average price of $33.37 pursuant to the Stock Repurchase Plan.~~

Subsequent to September 30, 2022, on October 4, 2022, we transferred municipal securities and corporate bonds with fair values of approximately $118.9 million and $56.9 million, respectively, to HTM. All transfers from AFS to HTM were at the fair market value on the date of transfer. There was no impact to the income statement as a result of these transfers.

~~Southside Bancshares, Inc. |41~~|37

Table of Contents

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

The following is a discussion of our consolidated financial condition, changes in our financial condition and results of our operations, and should be read and reviewed in conjunction with the financial statements, and the notes thereto, in this Quarterly Report on Form 10-Q and in our ~~2021~~2022 Form 10-K. Certain risks, uncertainties and other factors, including those set forth under "Risk Factors" in Part I, Item 1A. of the ~~2021~~2022 Form 10-K and elsewhere in this Quarterly Report on Form 10-Q, may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this discussion and analysis.

Forward-Looking Statements

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

•economic or other disruptions caused by acts of terrorism, war or other conflicts, including the Russia-Ukraine conflict, 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 changes or other catastrophic events;

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

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

Southside Bancshares, Inc. ~~|42~~|38

Table of Contents

•our ability to identify and address cyber-security risks such as data security breaches, malware, “denial of service” attacks, “hacking” and identity theft, which 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 ~~ongoing impact of the COVID-19 pandemic and related variants on our future consolidated financial condition and results of operations and the financial condition of our customers;~~

•~~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, inflation and interest rates;~~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 monitor 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 and leverage 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 ~~the economic impact of COVID-19;~~recessionary concerns;

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

•our ability to increase market share and control expenses;

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

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

•the effect of changes in accounting policies and practices;

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

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

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

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

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

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

•other risks and uncertainties discussed in “Part I -– Item 1A. Risk Factors” in the ~~2021~~2022 Form 10-K.

~~Southside Bancshares, Inc. |43~~

~~Table of Contents~~

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

Southside Bancshares, Inc. |39

Table of Contents

Critical Accounting Estimates

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

Critical accounting estimates include a high degree of uncertainty in the underlying assumptions. Management bases its estimates on historical experience, current information and other factors deemed relevant. The development, selection and disclosure of our critical accounting estimates are reviewed with the Audit Committee of the ~~Company's~~Company’s Board of Directors. Actual results could differ from these estimates. For additional information regarding critical accounting policies, refer to “Part II -– Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Critical Accounting Estimates,,” “Part II -– Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Allowance for Credit Losses -– Loans and Allowance for Credit Losses -– Off-Balance-Sheet Credit Exposures,” “Note 1 – Summary of Significant Accounting and Reporting Policies,” “Note 5 – Loans and Allowance for Loan Losses” and “Note 17 -– Off-Balance-Sheet Arrangements, Commitments and Contingencies” in the ~~2021~~2022 Form 10-K. As of ~~September 30, 2022,~~March 31, 2023, there have been no significant changes to our critical accounting estimates.

Southside Bancshares, Inc. ~~|44~~|40

Table of Contents

Non-GAAP Financial Measures

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

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

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

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


Non-GAAP Reconciliations	Non-GAAP Reconciliations													Non-GAAP Reconciliations
		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2022			2021			2022			2021				2023			2022
Net interest income (GAAP)	Net interest income (GAAP)	$	55,515		$	48,206		$	155,499		$	140,156		Net interest income (GAAP)	$	53,353		$	48,906
Tax equivalent adjustments:	Tax equivalent adjustments:													Tax equivalent adjustments:
Loans	Loans	742			722			2,249			2,180			Loans	697			745
Tax-exempt investment securities	Tax-exempt investment securities	2,973			2,666			8,431			7,289			Tax-exempt investment securities	2,550			2,464
Net interest income (FTE) (1)	Net interest income (FTE) (1)	$	59,230		$	51,594		$	166,179		$	149,625		Net interest income (FTE) (1)	$	56,600		$	52,115

Average earning assets	Average earning assets	$	6,999,525		$	6,467,545		$	6,742,985		$	6,368,906		Average earning assets	$	7,161,836		$	6,553,710

Net interest margin	Net interest margin	3.15		%	2.96		%	3.08		%	2.94		%	Net interest margin	3.02		%	3.03		%
Net interest margin (FTE) (1)	Net interest margin (FTE) (1)	3.36		%	3.16		%	3.29		%	3.14		%	Net interest margin (FTE) (1)	3.21		%	3.22		%

Net interest spread	Net interest spread	2.87		%	2.79		%	2.90		%	2.77		%	Net interest spread	2.44		%	2.89		%
Net interest spread (FTE) (1)	Net interest spread (FTE) (1)	3.08		%	3.00		%	3.11		%	2.97		%	Net interest spread (FTE) (1)	2.62		%	3.09		%

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

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

Southside Bancshares, Inc. ~~|45~~|41

Table of Contents

OVERVIEW

~~COVID-19~~

COVID-19 significantly impacted local, national and global economies due to stay-at-home orders and social distancing guidelines. In compliance with social distancing guidelines issued by federal, state and local governments, we implemented a number of precautionary actions to safeguard our business and our employees from COVID-19. Additionally, COVID-19 significantly disrupted supply chains, business activity and the overall economic and financial markets globally and in our footprint.

Since the implementation of the PPP in 2020, we originated over $420 million of loans in this program, of which $306,000 were still outstanding as of September 30, 2022. Additionally, we assisted both our consumer and commercial borrowers that experienced financial hardship due to COVID-19 related challenges.

We continue to monitor and assess the impacts of the COVID-19 pandemic on our employees and customers. The ongoing pandemic could continue to adversely impact the markets in which we operate and our business, operations and financial condition.

ECONOMIC CONDITIONS

The economic conditions and growth prospects for our markets, even against the headwinds of inflation and recessionary concerns, continue to reflect a solid and positive overall ~~outlook with economic activity close to pre-pandemic levels.~~outlook. Increasing interest rates and high building costs, however, have caused a slowdown in what was a robust single family housing ~~market, however there continues to be a shortage of housing in several Texas markets.~~market. Worker shortages, ~~especially in the restaurant, hospitality and retail industries, combined with~~ supply chain disruptions, ~~impacting numerous industries~~higher interest rates and inflationary conditions, ~~has~~have had some impact on the level of economic ~~growth.~~growth in our market areas. Ongoing higher inflation ~~levels~~ and ~~higher~~ interest rates could have a negative impact on both our consumer and commercial borrowers. Despite these conditions, overall, Texas continues to experience economic growth due to company relocations and expansions, combined with overall population growth.

~~Operating Results~~DEPOSITS

~~Net income decreased $2.4~~Deposits at March 31, 2023 were $5.84 billion, a decrease of $232.2 million, or ~~8.0%~~3.8%, ~~for~~compared to $6.07 billion at March 31, 2022. Linked quarter, deposits decreased $359.8 million, or 5.8%, from $6.20 billion at December 31, 2022. During the three months ended ~~September 30, 2022, to $27.0~~March 31, 2023, brokered deposits decreased $191.8 million, or 29.1%, compared to ~~the same period in 2021. The decrease in net income was primarily a result of an increase in the provision for credit losses, a $2.5~~December 31, 2022, and decreased $208.1 million, decrease in noninterest income and the $1.7 million increase in noninterest expense, partially offset by the $7.3 million increase in net interest income and the $1.1 million decrease in income tax expense. For the three months ended September 30, 2022, we recorded a provision for credit losses of $1.5 million,or 30.8%, compared to ~~a reversal~~March 31, 2022, as the funding of ~~provision for credit losses~~our cash flow hedge swaps partially transitioned from brokered deposits to Federal Home Loan Bank advances and other borrowings to obtain lower cost funding.

At March 31, 2023, we had 180,516 total deposit accounts with an average balance of ~~$5.1 million for~~$30,000. At March 31, 2023, our deposit accounts consisted of the ~~same period~~following (dollars in ~~2021. Earnings per diluted common share decreased $0.06, or 6.7%~~thousands):


	March 31, 2023
	Balance		Number of Accounts	Average Balance		% of Total Deposits

Individual non-maturity	$	2,328,776	150,070	$	16	39.9	%
Commercial non-maturity	1,646,832		21,027	78		28.2	%
Certificates of deposits	496,672		8,707	57		8.5	%
Public funds	898,467		712	1,262		15.4	%
Total deposits, excluding brokered deposits	5,370,747		180,516	$	30	92.0	%

Brokered deposits	467,473		—	—		8.0	%
Total deposits	$	5,838,220				100.0	%

At March 31, 2023, our estimated uninsured deposits, excluding affiliate deposits (Southside-owned deposits) and public funds (all collateralized), ~~to $0.84 for~~was 26.5%. At March 31, 2023, estimated uninsured deposits consisted of the ~~three months ended September 30, 2022, compared to $0.90 for the three months ended September 30, 2021.~~

~~During the nine months ended September 30, 2022, our net income decreased $7.4 million, or 8.7%, to $77.4 million from $84.7 million for the same period~~following (dollars in 2021. The decrease in net income was largely driven by the increase in the provision for credit losses, the $7.2 million decrease in noninterest income, and the $3.1 million increase in noninterest expense, partially offset by the $15.3 million increase in net interest income and the $2.3 million decrease in income tax expense. For the nine months ended September 30, 2022, we recorded a provision for credit losses of $1.2 million compared to a reversal of provision for credit losses of $13.5 million for the same period in 2021. Earnings per diluted common share decreased $0.20, or 7.7%, to $2.39 for the nine months ended September 30, 2022, from $2.59 for the same period in 2021.thousands):


	March 31, 2023
	Balance		Uninsured Balance		% of Uninsured Total Deposits

Affiliate deposits	$	21,807	$	21,470	0.4	%
Customer deposits	4,450,473		1,545,304		26.5	%
Brokered deposits	467,473		—		—
Public funds	898,467		870,076		14.9	%
Total	$	5,838,220	2,436,850		41.7	%

Excluding public funds (collateralized)			(870,076)		(14.9)	%
Excluding affiliate deposits			(21,470)		(0.4)	%
Total estimated uninsured deposits			$	1,545,304	26.5	%

Southside Bancshares, Inc. ~~|46~~|42

Table of Contents

We continued to increase interest rates paid on deposits during the quarter in order to retain deposits. Our noninterest bearing deposits represent 26.4% of total deposits. Linked quarter, our cost of interest bearing deposits increased 60 basis points from 1.22% in the prior quarter to 1.82%. Our cost of total deposits for the first quarter of 2023 increased 46 basis points from 0.88% in the prior quarter to 1.34%.

Our cost of interest bearing deposits increased 152 basis points, from 0.30% for the three months ended March 31, 2022, to 1.82% for the three months ended March 31, 2023. Our cost of total deposits increased 112 basis points, from 0.22% at March 31, 2022 to 1.34% at March 31, 2023.

CAPITAL RESOURCES AND LIQUIDITY

Our capital ratios and contingent liquidity sources remain solid. We utilized the Federal Reserve’s Bank Term Funding Program to reduce our overall funding costs and to enhance our interest rate risk position. As of March 31, 2023, our BTFP borrowings of $198.4 million were at a cost of 4.37%.

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


	March 31, 2023
	Line of Credit		Borrowings		Total Available for Future Liquidity		Swapped

FHLB advances	$	1,866,515	$	333,183	$	1,533,332	$	180,000
Federal Reserve discount window	632,832		350,000		282,832		350,000
Correspondent bank lines of credit	62,500		—		62,500		—
Federal Reserve Bank Term Funding Program	201,539		198,416		3,123		—
Total liquidity lines	$	2,763,386	$	881,599	$	1,881,787	$	530,000

Operating Results

Net income increased $1.0 million, or 4.2%, for the three months ended March 31, 2023, to $26.0 million compared to the same period in 2022. The increase in net income was primarily a result of a $4.4 million increase in net interest income, a $1.3 million increase in noninterest income, partially offset by the $3.7 million increase in noninterest expense and the $1.4 million increase in income tax expense. Earnings per diluted common share increased $0.06, or 7.8%, to $0.83 for the three months ended March 31, 2023, compared to $0.77 for the three months ended March 31, 2022.

Financial Condition

Our total assets increased ~~$194.1~~$233.7 million, or ~~2.7%~~3.1%, to ~~$7.45~~$7.79 billion at ~~September 30, 2022~~March 31, 2023 from ~~$7.26~~$7.56 billion at December 31, ~~2021.~~2022. Our securities portfolio ~~decreased~~increased by ~~$279.3~~$119.9 million, or ~~9.8%~~4.6%, to ~~$2.58~~$2.75 billion, compared to ~~$2.86~~$2.63 billion at December 31, ~~2021.~~2022. The ~~decrease~~increase in the securities portfolio was due to ~~the increase~~purchases of three-month U.S. Treasury Bills, partially offset by a decrease in ~~the unrealized loss in the portfolio, sales of securities,~~MBS and ~~principal payments, which more than offset the securities purchased~~municipal bonds during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. Our FHLB stock ~~decreased $1.5~~increased $7.5 million, or ~~10.4%~~81.7%, to ~~$12.9~~$16.7 million from ~~$14.4~~$9.2 million at December 31, ~~2021,~~2022, due to the ~~decline~~increase in our FHLB borrowings during the ~~nine~~three months ended ~~September 30, 2022, reducing~~March 31, 2023, increasing the amount of FHLB stock we are required to hold.

Loans at ~~September 30, 2022~~March 31, 2023 were ~~$4.06~~$4.15 billion, an increase of ~~$418.3~~$5.0 million, or ~~11.5%~~0.1%, compared ~~to $3.65 billion at~~ December 31, ~~2021. Our PPP loans, a component of the commercial loan category, decreased $30.7 million, or 99.0%, during the nine months ended September 30,~~ 2022, ~~due to forgiveness payments received for loans funded under the CARES Act. Excluding PPP loans, total loans increased $449.1 million, or 12.4%,~~ due to increases of ~~$303.7~~$32.2 million in construction loans, $9.1 million in 1-4 family residential loans and $3.2 million in commercial real estate ~~loans, $106.5 million in construction loans, $45.3 million in commercial loans (excluding PPP loans) and $6.1 million in municipal~~ loans. The increases were partially offset by decreases of ~~$8.1~~$23.9 million in commercial loans, $11.5 million in municipal loans and $4.1 million in loans to ~~individuals and $4.4 million in 1-4 family residential loans.~~individuals. Loans held for sale decreased ~~$1.3 million,~~$260,000, or ~~75.0%~~39.0%, to ~~$421,000~~$407,000 at ~~September 30, 2022~~March 31, 2023 from ~~$1.7 million~~$667,000 at December 31, ~~2021.~~2022.

Our nonperforming assets at ~~September 30, 2022 increased $108,000,~~March 31, 2023 decreased $7.7 million, or ~~0.9%~~70.7%, to ~~$11.7~~$3.2 million and represented ~~0.16%~~0.04% of total assets, compared to ~~$11.6~~$10.9 million, or ~~0.16%~~0.14% of total assets, at December 31, ~~2021.~~2022. Nonaccruing loans increased ~~$503,000,~~$323,000, or ~~19.8%~~11.3%, to ~~$3.0~~$3.2 million, and the ratio of nonaccruing loans to total loans ~~remained at~~was 0.08% and 0.07% for ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021. TDR loans were $8.5 million and $9.1 million at September 30,~~ 2022, ~~and December 31, 2021,~~ respectively. There ~~was $162,000 of OREO~~were no restructured loans at ~~September 30, 2022 and none~~March 31, 2023 compared to $7.8 million at December 31, ~~2021.~~

~~Our deposits increased $458.8 million, or 8.0%, to $6.18 billion at September 30, 2022 from $5.72 billion at December 31, 2021.~~2022. The ~~increase~~decrease in restructured loans was primarily due to the ~~increase~~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 was $11,000 and $74,000 of repossessed assets at

Southside Bancshares, Inc. |43

Table of Contents

March 31, 2023 and December 31, 2022, respectively. There was no OREO at March 31, 2023 and $93,000 at December 31, 2022.

Our deposits decreased $359.8 million, or 5.8%, to $5.84 billion at March 31, 2023 from $6.20 billion at December 31, 2022, including a decrease in our brokered deposits of ~~$467.2~~$191.8 million, or ~~158.5%~~29.1%, ~~associated with~~as the funding of our cash flow hedge swaps ~~in place of the~~partially transitioned from brokered deposits to FHLB advances and other borrowings to obtain lower cost funding.

Total FHLB borrowings ~~decreased $100.5~~increased $179.8 million, or ~~29.2%~~117.3%, to ~~$243.5~~$333.2 million at ~~September 30, 2022~~March 31, 2023 from ~~$344.0~~$153.4 million at December 31, ~~2021.~~2022.

Our total shareholders’ equity at ~~September 30, 2022 decreased 22.4%~~March 31, 2023 increased 0.7%, or ~~$204.5~~$5.0 million, to ~~$707.6~~$751.0 million, or ~~9.5%~~9.6% of total assets, compared to ~~$912.2~~$746.0 million, or ~~12.6%~~9.9% of total assets, at December 31, ~~2021.~~2022. The ~~primary decrease~~increase in shareholders’ equity was the result of other comprehensive loss of $240.4 million, a direct result of the impact of rising interest rates on the AFS securities portfolio. Additional decreases to shareholders’ equity included cash dividends paid of $32.8 million and the repurchase of $12.5 million of our common stock. These decreases were partially offset by net income of ~~$77.4~~$26.0 million, other comprehensive income of $4.1 million, stock compensation expense of ~~$2.4 million, common stock issued under our dividend reinvestment plan of $913,000 and~~$914,000, net issuance of common stock under employee stock plans of ~~$505,000.~~$572,000 and common stock issued under our dividend reinvestment plan of $302,000. These increases were partially offset by decreases in shareholders’ equity, including the repurchase of $15.9 million of our common stock and cash dividends paid of $11.0 million.

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

Southside Bancshares, Inc. ~~|47~~|44

Table of Contents

Balance Sheet Strategy

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

As a result of recent events in the banking industry, we increased our cash balance at the Federal Reserve for potential liquidity needs and utilized the BTFP as a source of wholesale funding to reduce interest cost and interest rate risk. We also pledged additional securities to the FRDW increasing our credit line in preparation of potential liquidity needs. We ended the first quarter with approximately $286 million in available liquidity between the FRDW and the BTFP in addition to the approximately $1.53 billion credit line available from FHLB due primarily to the blanket lien on our loan portfolio and to a lesser extent, securities available as collateral. At March 31, 2023, the estimated uninsured deposits to total deposits, excluding affiliate deposits (Southside-owned deposits) and public funds (fully collateralized), was 26.5%, or $1.5 billion.

During the first quarter of ~~2022,~~2023, we ~~replaced $310~~entered into $350 million of additional cash flow hedge swaps funded by FRDW borrowings. We also replaced $30 million of brokered deposits with FHLB advances ~~with lower cost brokered deposits~~ as the funding source for cash flow hedge swaps, bringing this funding source to $180 million. At March 31, 2023, brokered deposits funded $350 million of our cash flow hedge swaps, which totaled $880 million. As of March 31, 2023, a pre-tax unrealized gain of $27.4 million was recognized in other comprehensive income, and there was no ineffective portion of these hedges. We continue to ~~lower this expense. Over~~evaluate the ~~past two years,~~lowest cost alternative funding sources for our cash flow swaps and will use either brokered deposits, FHLB advances or FRDW borrowings, or a combination of the three funding sources. During 2020 and 2021, management ~~used~~utilized the significant increase in non-maturity deposits, net of brokered deposits, to reduce dependence on more interest rate sensitive and higher cost wholesale funding. At ~~September 30, 2022,~~March 31, 2023, the majority of the securities portfolio ~~is currently~~was funded ~~primarily~~ by non-maturity deposits with wholesale funding accounting for approximately ~~38%~~49% of the funding source, of which approximately ~~55%~~65% is swapped at a fixed rate, providing protection from rising interest rates.

We utilize wholesale funding and securities to enhance overall profitability ~~by maximizing~~to determine the ~~use~~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 ~~funds~~ market, FHLB and ~~FRDW.~~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, corporate securities. Although U.S. agency MBS 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, (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 ~~municipal~~corporate securities, the unpredictable nature of MBS prepayments and credit risks associated with the municipal and corporate securities. See “Part I - Item 1A. Risk Factors – Risks Related to Our Business” in the ~~2021~~2022 Form 10-K for a discussion of risks related to interest rates. An additional risk is significant increases in interest rates, especially long-term interest rates, which could adversely impact the fair value of the AFS securities portfolio and could also impact our equity capital. Due to the unpredictable nature of MBS prepayments, the length of interest rate cycles and the slope of the interest rate yield curve, net interest income could fluctuate more than simulated under the scenarios modeled by our ALCO and described under “Item 3. Quantitative and Qualitative Disclosures about Market Risk” in this Quarterly Report on Form 10-Q.

Our securities portfolio ~~decreased~~increased from ~~$2.86~~$2.63 billion at December 31, ~~2021~~2022 to ~~$2.58~~$2.75 billion at ~~September 30, 2022.~~March 31, 2023. The ~~decrease~~increase in the securities portfolio was due to securities purchased during the ~~increase in the unrealized loss in the portfolio,~~three months ended March 31, 2023, which more than offset sales of securities and principal ~~payments, which more than offset~~payments.

During the ~~securities purchased during the nine~~three months ended ~~September 30, 2022.~~

~~During the nine months ended September 30, 2022,~~March 31, 2023, the composition of the securities portfolio continued to change as ~~corporate bonds~~U.S. Treasury Bills increased while the remaining categories in the portfolio decreased. The decrease in MBS was attributable to ~~the~~ sales of U.S. Agency MBS and ~~regular~~ principal payments, partially offset by MBS ~~purchases during the second and third quarter.~~purchases. During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, we purchased ~~$303~~$296.4 million in ~~highly rated primarily Texas municipal securities, $41.2 million of which were taxable, $49.4 million in~~three-month U.S. Treasury ~~Notes, $320.3~~Bills, $59.5 million in MBS and ~~$26.4~~$5.8 million in investment grade subordinated corporate debt. Sales during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, included ~~$107.5~~$143.9 million in ~~U.S. Treasury Notes due to the rising rate environment, $28.1~~MBS and $95.6 million in municipal securities ~~and $328.8 million in MBS~~ to align the investment portfolio with the current balance sheet strategy. Sales of AFS securities for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, resulted in a net realized loss of ~~$99,000 and $3.8~~$2.1 million ~~respectively.~~

~~During~~which was more than offset by the ~~three and nine months ended September 30, 2022, management transferred to HTM, long duration AFS municipal~~sale of equity securities ~~with fair values~~that resulted in a net gain of approximately $41.8 million and $916.7 million, respectively. Management also transferred to HTM, MBS with fair values of approximately $28.4 million and $56.7 million during the three and nine months ended September 30, 2022, respectively. Additionally, during the nine months ended September 30, 2022, management transferred to HTM, $95.3 million in corporate bonds. Long duration securities experience greater fair value volatility when interest rates either rise or fall. These transfers reduce any future volatility reflected in AOCI, resulting from unrealized gains or losses. These transfers were made to align the investment portfolio with the current balance sheet strategy, and management has the intent and ability to hold these securities to maturity. $2.4 million.

Southside Bancshares, Inc. |45

Table of Contents

At ~~September 30, 2022,~~March 31, 2023, securities as a percentage of assets totaled ~~34.6%~~35.2%, compared to ~~39.3%~~34.7% at December 31, ~~2021,~~2022, due to ~~an increase in total assets of $194.1 million and the $279.3~~a $119.9 million, or ~~9.8%~~4.6%, ~~decrease~~increase in the securities portfolio. Our balance sheet management strategy is dynamic and is continually evaluated as market conditions warrant.

~~Southside Bancshares, Inc. |48~~

~~Table of Contents~~

During the ~~second and third quarters of~~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 ~~September 30, 2022,~~March 31, 2023, hedged securities with a carrying amount of ~~$708.9~~$759.7 million are included in our AFS securities portfolio in our consolidated balance ~~sheets.~~sheets representing approximately 52% and 85% 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. ~~The change in the fair value~~As of ~~these hedging instruments is recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged transactions affects earnings. A~~March 31, 2023, a pre-tax unrealized gain of ~~$23.9~~$9.8 million was recognized in other comprehensive income, ~~as of September 30, 2022~~ and there was no ineffective portion of these hedges.

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 ~~borrowings.~~and BTFP. Our FHLB borrowings ~~decreased 29.2%~~increased 117.3%, or ~~$100.5~~$179.8 million, to ~~$243.5~~$333.2 million at ~~September 30, 2022~~March 31, 2023 from ~~$344.0~~$153.4 million at December 31, ~~2021.~~2022.

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, our total wholesale funding as a percentage of deposits, not including brokered deposits, increased to ~~19.2%~~25.1%, from ~~11.8%~~18.1% at December 31, ~~2021,~~2022, and ~~14.8%~~12.6% at ~~September 30, 2021.~~March 31, 2022.

Our brokered deposits consist of CDs and non-maturity deposits. Our brokered CDs ~~increased $137.7~~decreased $129.4 million, or ~~557.6%~~58.6%, from ~~$24.7~~$220.9 million at December 31, ~~2021~~2022 to ~~$162.4~~$91.5 million at ~~September 30, 2022.~~March 31, 2023. At ~~September 30, 2022,~~March 31, 2023, our brokered CDs had a weighted average cost of ~~239~~426 basis points and remaining maturities of less than 74 months. Our brokered non-maturity deposits ~~increased~~decreased to ~~$599.6~~$376.0 million at ~~September 30, 2022,~~March 31, 2023, of which ~~$575.0~~$350.0 million are related to our cash flow hedges, from ~~$270.1~~$438.4 million at December 31, ~~2021,~~2022, with a weighted average cost of ~~107~~151 basis points and 91126 basis points, respectively. Our wholesale funding policy currently allows for maximum brokered deposits of $1.10 billion, with an additional $50 million of flexibility for deposits maturing within 30 days. Potential higher interest expense and lack of customer loyalty are risks associated with the use of brokered deposits.

In connection with ~~most~~$880.0 million of our wholesale funds, the Bank has entered into various variable rate agreements and fixed or variable rate short-term pay agreements with an interest rate tied to three-month LIBOR, one-month LIBOR or ~~to one-month LIBOR.~~overnight SOFR. In connection with ~~$575.0~~$880.0 million and $605.0 million of the agreements outstanding at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~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 LIBOR interest rate. The interest rate swap contracts had an average interest rate of ~~1.13%~~2.20% with a remaining average weighted maturity of ~~2.6~~3.0 years at ~~September 30, 2022.~~March 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.

Southside Bancshares, Inc. ~~|49~~|46

Table of Contents

Results of Operations

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

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


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2022		2021		2022		2021			2023		2022
Interest income:	Interest income:									Interest income:
Loans	Loans	$	45,257	$	37,034	$	118,489	$	108,792	Loans	$	54,776	$	34,888
Taxable investment securities	Taxable investment securities	4,896		3,853		14,136		9,097		Taxable investment securities	5,712		4,608
Tax-exempt investment securities	Tax-exempt investment securities	11,482		9,649		32,306		27,787		Tax-exempt investment securities	13,916		10,219
MBS	MBS	4,770		4,405		12,025		15,140		MBS	4,329		4,017
FHLB stock and equity investments	FHLB stock and equity investments	101		111		291		355		FHLB stock and equity investments	245		113
Other interest earning assets	Other interest earning assets	374		24		606		56		Other interest earning assets	1,870		28
Total interest income	Total interest income	66,880		55,076		177,853		161,227		Total interest income	80,848		53,873
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	7,887		2,234		15,388		7,170		Deposits	19,906		3,237
FHLB borrowings	FHLB borrowings	1,078		1,865		1,668		5,590		FHLB borrowings	3,141		366
Subordinated notes	Subordinated notes	1,004		2,417		3,002		7,235		Subordinated notes	999		998
Trust preferred subordinated debentures	Trust preferred subordinated debentures	669		345		1,496		1,045		Trust preferred subordinated debentures	1,031		356
Repurchase agreements	Repurchase agreements	54		9		82		31		Repurchase agreements	492		10
Other borrowings	Other borrowings	673		—		718		—		Other borrowings	1,926		—
Total interest expense	Total interest expense	11,365		6,870		22,354		21,071		Total interest expense	27,495		4,967
Net interest income	Net interest income	$	55,515	$	48,206	$	155,499	$	140,156	Net interest income	$	53,353	$	48,906

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 ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the Federal Reserve increased the target federal funds rate by ~~300~~50 basis points to ~~325~~500 basis points and has indicated it anticipates additional rate increases during the remainder of ~~2022.~~2023. The increase in the federal funds rate ~~to date~~ has increased our net interest income. However, as the federal funds rate increases further and the yield curve remains ~~flat,~~inverted, it may be less beneficial to our net interest income.

Net interest income for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~$7.3~~$4.4 million, or ~~15.2%~~9.1%, compared to the same period in ~~2021.~~2022. The increase in net interest income for the three months ended ~~September 30, 2022~~March 31, 2023 was due to the increase in interest income, a result of ~~a combined~~the increase in the average yield as well as the average balance of interest earning assets, partially offset by an increase in interest expense on our interest bearing liabilities due to higher interest rates and ~~the change~~to a lesser extent, an increase in the ~~mix~~average balance of our interest bearing liabilities. Total interest income increased ~~$11.8~~$27.0 million, or ~~21.4%~~50.1%, to ~~$66.9~~$80.8 million for the three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$55.1~~$53.9 million during the same period in ~~2021.~~2022. Total interest expense increased ~~$4.5~~$22.5 million, or ~~65.4%~~453.6%, to ~~$11.4~~$27.5 million for the three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$6.9~~$5.0 million for the same period in ~~2021.~~2022. Our net interest margin and net interest margin (FTE), a non-GAAP measure, ~~increased~~decreased to ~~3.15%~~3.02% and ~~3.36%~~3.21%, respectively, for the three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~2.96%~~3.03% and ~~3.16%~~3.22%, respectively, for the same period in ~~2021,~~2022, and our net interest spread and net interest spread (FTE), also a non-GAAP measure, ~~increased~~decreased to ~~2.87%~~2.44% and ~~3.08%~~2.62%, respectively, compared to ~~2.79%~~2.89% and ~~3.00%~~3.09%, respectively, for the same period in ~~2021.~~2022.

Southside Bancshares, Inc. ~~|50~~|47

Table of Contents

Net interest income was $155.5 million for the nine months ended September 30, 2022 compared to $140.2 million for the same period in 2021, an increase of $15.3 million, or 10.9%. The increase in net interest income for the nine months ended September 30, 2022 was due to a result of a combined increase in the average balance as well as the average yield 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 the change in the mix of our interest bearing liabilities. Total interest income increased $16.6 million, or 10.3%, to $177.9 million for the nine months ended September 30, 2022, compared to $161.2 million for the same period in 2021. Total interest expense increased $1.3 million, or 6.1%, to $22.4 million for the nine months ended September 30, 2022, compared to $21.1 million for the same period in 2021. Our net interest margin and net interest margin (FTE), a non-GAAP measure, increased to 3.08% and 3.29%, respectively, for the nine months ended September 30, 2022, compared to 2.94% and 3.14%, respectively, for the same period in 2021, and our net interest spread and net interest spread (FTE), also a non-GAAP measure, increased to 2.90% and 3.11%, respectively, compared to 2.77% and 2.97%, respectively, for the same period in 2021. See “Non-GAAP Financial Measures” for more information and for a reconciliation to GAAP.

Quarterly Analysis of Changes in Interest Income and Interest Expense

The following table presents on a fully taxable-equivalent basis, a non-GAAP measure, the net change in net interest income and sets forth the dollar amount of increase (decrease) in the average volume of interest earning assets and interest bearing liabilities and from changes in yields/rates. Volume/Yield/Rate variances (change in volume times change in yield/rate) have been allocated to amounts attributable to changes in volumes and to changes in yields/rates in proportion to the amounts directly attributable to those changes (in thousands):


		Three Months Ended September 30, 2022 Compared to 2021							Three Months Ended March 31, 2023 Compared to 2022
		Change Attributable to				Total			Change Attributable to				Total
Fully Taxable-Equivalent Basis:	Fully Taxable-Equivalent Basis:	Average Volume		Average Yield/Rate		Change		Fully Taxable-Equivalent Basis:	Average Volume		Average Yield/Rate		Change
Interest income on:	Interest income on:							Interest income on:
Loans (1)	Loans (1)	$	3,794	$	4,454	$	8,248	Loans (1)	$	4,449	$	15,379	$	19,828
Loans held for sale	Loans held for sale	(10)		5		(5)		Loans held for sale	8		4		12
Taxable investment securities	Taxable investment securities	713		330		1,043		Taxable investment securities	346		758		1,104
Tax-exempt investment securities (1)	Tax-exempt investment securities (1)	2,465		(325)		2,140		Tax-exempt investment securities (1)	1,112		2,671		3,783
Mortgage-backed and related securities	Mortgage-backed and related securities	(1,547)		1,912		365		Mortgage-backed and related securities	(885)		1,197		312
FHLB stock, at cost, and equity investments	FHLB stock, at cost, and equity investments	(54)		44		(10)		FHLB stock, at cost, and equity investments	73		59		132
Interest earning deposits	Interest earning deposits	(19)		100		81		Interest earning deposits	45		964		1,009
Federal funds sold	Federal funds sold	269		—		269		Federal funds sold	197		636		833
Total earning assets	Total earning assets	5,611		6,520		12,131		Total earning assets	5,345		21,668		27,013
Interest expense on:	Interest expense on:							Interest expense on:
Savings accounts	Savings accounts	41		191		232		Savings accounts	6		1,034		1,040
CDs	CDs	(55)		718		663		CDs	324		4,489		4,813
Interest bearing demand accounts	Interest bearing demand accounts	399		4,359		4,758		Interest bearing demand accounts	(91)		10,907		10,816
FHLB borrowings	FHLB borrowings	(1,993)		1,206		(787)		FHLB borrowings	1,631		1,144		2,775
Subordinated notes, net of unamortized debt issuance costs	Subordinated notes, net of unamortized debt issuance costs	(1,039)		(374)		(1,413)		Subordinated notes, net of unamortized debt issuance costs	1		—		1
Trust preferred subordinated debentures, net of unamortized debt issuance costs	Trust preferred subordinated debentures, net of unamortized debt issuance costs	—		324		324		Trust preferred subordinated debentures, net of unamortized debt issuance costs	—		675		675
Repurchase agreements	Repurchase agreements	5		40		45		Repurchase agreements	57		425		482
Other borrowings	Other borrowings	673		—		673		Other borrowings	—		1,926		1,926
Total interest bearing liabilities	Total interest bearing liabilities	(1,969)		6,464		4,495		Total interest bearing liabilities	1,928		20,600		22,528
Net change	Net change	$	7,580	$	56	$	7,636	Net change	$	3,417	$	1,068	$	4,485

(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 was primarily attributable to an increase in the average yield on interest earning assets to ~~4.00%~~4.76% from ~~3.59%~~3.53% for the same period in ~~2021,~~2022, as well as an increase in the average balance of interest earning assets of ~~$532.0~~$608.1 million, or ~~8.2%~~9.3%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022. The increase in total interest expense for the three months ended ~~September 30, 2022~~March 31, 2023, was primarily attributable to the increase in interest rates on our interest bearing liabilities to 2.14% from 0.44% for ~~the three months ended September 30, 2022, when compared to~~ the same period in ~~2021.~~2022, and to a lesser extent, an increase in the average balance of our interest bearing liabilities.

Southside Bancshares, Inc. ~~|51~~|48

Table of Contents

The “Average Balances with Average Yields and Rates” table that follows shows average earning assets and interest bearing liabilities together with the average yield on the earning assets and the average rate of the interest bearing liabilities (dollars in thousands) for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. The interest and related yields presented are on a fully taxable-equivalent basis and are therefore non-GAAP measures. See “Non-GAAP Financial Measures” for more information, and for a reconciliation to GAAP.


		Average Balances with Average Yields and Rates (Annualized)													Average Balances with Average Yields and Rates (Annualized)
		(unaudited)													(unaudited)
		Three Months Ended													Three Months Ended
		September 30, 2022						September 30, 2021							March 31, 2023						March 31, 2022
		Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate			Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
ASSETS	ASSETS													ASSETS
Loans (1)	Loans (1)	$	4,012,547	$	45,992	4.55	%	$	3,662,496	$	37,744	4.09	%	Loans (1)	$	4,128,775	$	55,453	5.45	%	$	3,703,980	$	35,625	3.90	%
Loans held for sale	Loans held for sale	606		7		4.58	%	1,640		12		2.90	%	Loans held for sale	1,662		20		4.88	%	928		8		3.50	%
Securities:	Securities:													Securities:
Taxable investment securities (2)	Taxable investment securities (2)	626,136		4,896		3.10	%	532,679		3,853		2.87	%	Taxable investment securities (2)	690,864		5,712		3.35	%	644,706		4,608		2.90	%
Tax-exempt investment securities (2)	Tax-exempt investment securities (2)	1,750,952		14,455		3.28	%	1,453,275		12,315		3.36	%	Tax-exempt investment securities (2)	1,692,700		16,466		3.95	%	1,563,185		12,683		3.29	%
Mortgage-backed and related securities (2)	Mortgage-backed and related securities (2)	520,501		4,770		3.64	%	738,287		4,405		2.37	%	Mortgage-backed and related securities (2)	455,811		4,329		3.85	%	566,941		4,017		2.87	%
Total securities	Total securities	2,897,589		24,121		3.30	%	2,724,241		20,573		3.00	%	Total securities	2,839,375		26,507		3.79	%	2,774,832		21,308		3.11	%
FHLB stock, at cost, and equity investments	FHLB stock, at cost, and equity investments	24,013		101		1.67	%	39,786		111		1.11	%	FHLB stock, at cost, and equity investments	31,470		245		3.16	%	20,677		113		2.22	%
Interest earning deposits	Interest earning deposits	18,664		105		2.23	%	39,382		24		0.24	%	Interest earning deposits	87,924		1,033		4.76	%	44,642		24		0.22	%
Federal funds sold	Federal funds sold	46,106		269		2.31	%	—		—		—		Federal funds sold	72,630		837		4.67	%	8,651		4		0.19	%
Total earning assets	Total earning assets	6,999,525		70,595		4.00	%	6,467,545		58,464		3.59	%	Total earning assets	7,161,836		84,095		4.76	%	6,553,710		57,082		3.53	%
Cash and due from banks	Cash and due from banks	102,840						99,113						Cash and due from banks	107,765						107,144
Accrued interest and other assets	Accrued interest and other assets	433,532						684,917						Accrued interest and other assets	398,709						607,235
Less: Allowance for loan losses	Less: Allowance for loan losses	(35,706)						(43,052)						Less: Allowance for loan losses	(36,690)						(35,636)
Total assets	Total assets	$	7,500,191					$	7,208,523					Total assets	$	7,631,620					$	7,232,453
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY													LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings accounts	Savings accounts	$	685,947	481		0.28	%	$	598,118	249		0.17	%	Savings accounts	$	665,919	1,313		0.80	%	$	652,394	273		0.17	%
CDs	CDs	588,212		1,452		0.98	%	629,718		789		0.50	%	CDs	787,887		5,407		2.78	%	563,599		594		0.43	%
Interest bearing demand accounts	Interest bearing demand accounts	3,164,961		5,954		0.75	%	2,496,037		1,196		0.19	%	Interest bearing demand accounts	2,983,218		13,186		1.79	%	3,097,966		2,370		0.31	%
Total interest bearing deposits	Total interest bearing deposits	4,439,120		7,887		0.70	%	3,723,873		2,234		0.24	%	Total interest bearing deposits	4,437,024		19,906		1.82	%	4,313,959		3,237		0.30	%
FHLB borrowings	FHLB borrowings	173,838		1,078		2.46	%	656,474		1,865		1.13	%	FHLB borrowings	404,199		3,141		3.15	%	122,783		366		1.21	%
Subordinated notes, net of unamortized debt issuance costs	Subordinated notes, net of unamortized debt issuance costs	98,621		1,004		4.04	%	195,204		2,417		4.91	%	Subordinated notes, net of unamortized debt issuance costs	98,693		999		4.11	%	98,552		998		4.11	%
Trust preferred subordinated debentures, net of unamortized debt issuance costs	Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,263		669		4.40	%	60,258		345		2.27	%	Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,265		1,031		6.94	%	60,261		356		2.40	%
Repurchase agreements	Repurchase agreements	30,530		54		0.70	%	21,634		9		0.17	%	Repurchase agreements	65,435		492		3.05	%	21,494		10		0.19	%
Other borrowings	Other borrowings	98,174		673		2.72	%	—		—		—		Other borrowings	136,700		1,926		5.71	%	467		—		—
Total interest bearing liabilities	Total interest bearing liabilities	4,900,546		11,365		0.92	%	4,657,443		6,870		0.59	%	Total interest bearing liabilities	5,202,316		27,495		2.14	%	4,617,516		4,967		0.44	%
Noninterest bearing deposits	Noninterest bearing deposits	1,746,245						1,551,298						Noninterest bearing deposits	1,588,725						1,642,973
Accrued expenses and other liabilities	Accrued expenses and other liabilities	101,881						97,954						Accrued expenses and other liabilities	81,829						84,009
Total liabilities	Total liabilities	6,748,672						6,306,695						Total liabilities	6,872,870						6,344,498
Shareholders’ equity	Shareholders’ equity	751,519						901,828						Shareholders’ equity	758,750						887,955
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	7,500,191					$	7,208,523					Total liabilities and shareholders’ equity	$	7,631,620					$	7,232,453
Net interest income (FTE)	Net interest income (FTE)			$	59,230					$	51,594			Net interest income (FTE)			$	56,600					$	52,115
Net interest margin (FTE)	Net interest margin (FTE)					3.36	%					3.16	%	Net interest margin (FTE)					3.21	%					3.22	%
Net interest spread (FTE)	Net interest spread (FTE)					3.08	%					3.00	%	Net interest spread (FTE)					2.62	%					3.09	%

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

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

Note: As of ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ loans totaling ~~$3.0~~$3.2 million and $2.4 million, respectively were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

Southside Bancshares, Inc. ~~|52~~

~~Table of Contents~~

~~Year-to-Date Analysis of Changes in Interest Income and Interest Expense~~

Nine Months Ended September 30, 2022 Compared to 2021
Change Attributable to Total
Fully Taxable-Equivalent Basis: Average Volume Average Yield/Rate Change
Interest income on:
Loans (1)
$ 5,801 $ 3,977 $ 9,778
Loans held for sale (26) 14 (12)
Taxable investment securities 4,944 95 5,039
Tax-exempt investment securities (1)
7,012 (1,351) 5,661
Mortgage-backed and related securities (7,236) 4,121 (3,115)
Federal Home Loan Bank stock, at cost, and equity investments (191) 127 (64)
Interest earning deposits 16 182 198
Federal funds sold 352 — 352
Total earning assets 10,672 7,165 17,837
Interest expense on:
Savings accounts 146 245 391
CDs (543) 213 (330)
Interest bearing demand accounts 1,289 6,868 8,157
FHLB borrowings (6,430) 2,508 (3,922)
Subordinated notes, net of unamortized debt issuance costs (3,144) (1,089) (4,233)
Trust preferred subordinated debentures, net of unamortized debt issuance costs — 451 451
Repurchase agreements 8 43 51
Other borrowings 718 — 718
Total interest bearing liabilities (7,956) 9,239 1,283
Net change $ 18,628 $ (2,074) $ 16,554

~~(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 was attributable to the increase in average earning assets of $374.1 million, or 5.9%, for the nine months ended September 30, 2022, compared to the same period in 2021, as well as an increase in the average yield on earning assets to 3.74% from 3.58% for the same period in 2021. The increase in total interest expense for the nine months ended September 30, 2022 was primarily attributable to the increase in interest rates on our interest bearing liabilities when compared to the same period in 2021.

~~Southside Bancshares, Inc. |53~~

~~Table of Contents~~

The “Average Balances with Average Yields and Rates” table that follows shows average earning assets and interest bearing liabilities together with the average yield on the earning assets and the average rate of the interest bearing liabilities (dollars in thousands) for the nine months ended September 30, 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.

Average Balances with Average Yields and Rates (Annualized)
(unaudited)
Nine Months Ended
September 30, 2022 September 30, 2021
Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
ASSETS
Loans (1)
$ 3,855,844 $ 120,705 4.19 % $ 3,667,941 $ 110,927 4.04 %
Loans held for sale 1,102 33 4.00 % 2,092 45 2.88 %
Securities:
Taxable investment securities (2)
629,413 14,136 3.00 % 409,251 9,097 2.97 %
Tax-exempt investment securities (2)
1,656,691 40,737 3.29 % 1,373,206 35,076 3.42 %
Mortgage-backed and related securities (2)
501,330 12,025 3.21 % 841,361 15,140 2.41 %
Total securities 2,787,434 66,898 3.21 % 2,623,818 59,313 3.02 %
FHLB stock, at cost, and equity investments 20,796 291 1.87 % 37,116 355 1.28 %
Interest earning deposits 46,972 254 0.72 % 37,939 56 0.20 %
Federal funds sold 30,837 352 1.53 % — — —
Total earning assets 6,742,985 188,533 3.74 % 6,368,906 170,696 3.58 %
Cash and due from banks 103,390 92,206
Accrued interest and other assets 492,173 672,558
Less: Allowance for loan losses (35,746) (44,664)
Total assets $ 7,302,802 $ 7,089,006
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings accounts $ 669,632 1,080 0.22 % $ 562,699 689 0.16 %
CDs 556,728 2,624 0.63 % 674,452 2,954 0.59 %
Interest bearing demand accounts 3,146,350 11,684 0.50 % 2,433,120 3,527 0.19 %
Total interest bearing deposits 4,372,710 15,388 0.47 % 3,670,271 7,170 0.26 %
FHLB borrowings 117,724 1,668 1.89 % 684,280 5,590 1.09 %
Subordinated notes, net of unamortized debt issuance costs 98,587 3,002 4.07 % 196,572 7,235 4.92 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,262 1,496 3.32 % 60,257 1,045 2.32 %
Repurchase agreements 27,393 82 0.40 % 22,387 31 0.19 %
Other borrowings 35,421 718 2.71 % — — —
Total interest bearing liabilities 4,712,097 22,354 0.63 % 4,633,767 21,071 0.61 %
Noninterest bearing deposits 1,697,779 1,475,828
Accrued expenses and other liabilities 92,161 94,536
Total liabilities 6,502,037 6,204,131
Shareholders’ equity 800,765 884,875
Total liabilities and shareholders’ equity $ 7,302,802 $ 7,089,006
Net interest income (FTE) $ 166,179 $ 149,625
Net interest margin (FTE) 3.29 % 3.14 %
Net interest spread (FTE) 3.11 % 2.97 %

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

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

Note: As of September 30, 2022 and 2021, loans totaling $3.0 million were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

~~Southside Bancshares, Inc. |54~~|49

Table of Contents

Noninterest Income

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

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


		Three Months Ended September 30,						2022							Three Months Ended March 31,			2023
							Change From						Three Months Ended March 31,	Change From
				2022			2021			2021						2023				2022			2022
Deposit services	Deposit services	$	6,241		$	6,779		$	(538)		(7.9)	%					Deposit services	$	6,422		$	6,628		$	(206)	(3.1)	%
Net gain (loss) on sale of securities AFS	Net gain (loss) on sale of securities AFS	(99)			1,381			(1,480)			(107.2)	%					Net gain (loss) on sale of securities AFS	(2,146)			(1,543)			(603)		(39.1)	%
Net gain on sale of equity securities																	Net gain on sale of equity securities	2,416			—			2,416		100.0	%
Gain on sale of loans	Gain on sale of loans	109			299			(190)			(63.5)	%					Gain on sale of loans	104			178			(74)		(41.6)	%
Trust fees	Trust fees	1,407			1,494			(87)			(5.8)	%					Trust fees	1,467			1,494			(27)		(1.8)	%
BOLI	BOLI	720			637			83			13.0	%					BOLI	1,675			691			984		142.4	%
Brokerage services	Brokerage services	701			846			(145)			(17.1)	%					Brokerage services	697			809			(112)		(13.8)	%
Other noninterest income	Other noninterest income	1,190			1,333			(143)			(10.7)	%					Other noninterest income	1,398			2,468			(1,070)		(43.4)	%
Total noninterest income	Total noninterest income	$	10,269		$	12,769		$	(2,500)		(19.6)	%					Total noninterest income	$	12,033		$	10,725		$	1,308	12.2	%

Nine Months Ended
September 30, 2022
Change From
2022 2021 2021
Deposit services $ 19,365 $ 19,513 $ (148) (0.8) %
Net gain (loss) on sale of securities AFS (3,819) 3,399 (7,218) (212.4) %
Gain on sale of loans 495 1,285 (790) (61.5) %
Trust fees 4,421 4,373 48 1.1 %
BOLI 2,131 1,908 223 11.7 %
Brokerage services 2,608 2,476 132 5.3 %
Other noninterest income 4,890 4,371 519 11.9 %
Total noninterest income $ 30,091 $ 37,325 $ (7,234) (19.4) %

The ~~19.6% decrease~~12.2% increase in noninterest income for the three months ended ~~September 30, 2022,~~March 31, 2023, when compared to the same period in ~~2021,~~2022, was due ~~primarily~~ to a net gain on sale of equity securities and an increase in BOLI income, partially offset by a decrease in other noninterest income and an increase in net loss on sale of securities AFS and decreases in deposit services income, gain on sale of loans, brokerage services income and other noninterest income. The 19.4% decrease in noninterest income for the nine months ended September 30, 2022, when compared to the same period in 2021, was due to a net loss on sale of securities AFS and a decrease in gain on sale of loans, partially offset by an increase in other noninterest income.AFS.

The decrease in deposit services income for the three months ended ~~September 30, 2022,~~March 31, 2023, when compared to the same period in ~~2021,~~2022, was primarily due to a decrease in overdraft ~~and non-sufficient fund fees and debit card income.~~fees.

During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, we sold ~~U.S. Treasury securities,~~ MBS and municipal securities that resulted in a net loss on sale of AFS securities of ~~$99,000 and $3.8 million, respectively.~~$2.1 million.

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

Gain on sale of loans decreased for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, when compared to the same period in ~~2021,~~2022, due to a decrease in the volume of loans ~~sold.~~sold and a decrease in margins on loan sales as interest rates continued to increase in 2023.

The increase in BOLI income for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, when compared to the same ~~periods~~period in ~~2021,~~2022, was primarily due to ~~$13.0 million~~a death benefit of $951,000 realized in ~~additional BOLI purchased during~~ the ~~third~~first quarter of ~~2021.~~2023 for a former covered officer.

Brokerage services income decreased for the three months ended ~~September 30, 2022,~~March 31, 2023, when compared to the same period in ~~2021,~~2022, due to a decrease in ~~production and~~assets under management due to the downturn in the market.

Other noninterest income decreased for the three months ended ~~September 30, 2022,~~March 31, 2023, when compared to the same period in ~~2021,~~2022, primarily due to a decrease in ~~equity investment income. For the nine months ended September 30, 2022, noninterest income increased when compared to same period in 2021, primarily due to increases in~~ investment income and mortgage servicing ~~fee income, mortgage derivative income and credit card fee~~ income, partially offset by ~~decreases~~an increase in ~~swap fee income and~~ equity investment income.

Southside Bancshares, Inc. ~~|55~~|50

Table of Contents

Noninterest Expense

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


		Three Months Ended September 30,						2022							Three Months Ended March 31,			2023
							Change From						Three Months Ended March 31,	Change From
				2022			2021			2021						2023				2022			2022
Salaries and employee benefits	Salaries and employee benefits	$	21,368		$	19,777		$	1,591		8.0	%					Salaries and employee benefits	$	21,856		$	19,969		$	1,887	9.4	%
Net occupancy	Net occupancy	3,847			3,532			315			8.9	%					Net occupancy	3,734			3,656			78		2.1	%

Advertising, travel & entertainment	Advertising, travel & entertainment	789			579			210			36.3	%					Advertising, travel & entertainment	1,050			737			313		42.5	%
ATM expense	ATM expense	317			311			6			1.9	%					ATM expense	355			281			74		26.3	%
Professional fees	Professional fees	1,412			1,135			277			24.4	%					Professional fees	1,372			927			445		48.0	%
Software and data processing	Software and data processing	1,736			1,503			233			15.5	%					Software and data processing	2,055			1,631			424		26.0	%
Communications	Communications	497			552			(55)			(10.0)	%					Communications	327			503			(176)		(35.0)	%
FDIC insurance	FDIC insurance	485			454			31			6.8	%					FDIC insurance	544			472			72		15.3	%
Amortization of intangibles	Amortization of intangibles	550			695			(145)			(20.9)	%					Amortization of intangibles	478			622			(144)		(23.2)	%
Loss on redemption of subordinated notes		—			1,118			(1,118)			(100.0)	%

Other noninterest expense	Other noninterest expense	2,463			2,107			356			16.9	%					Other noninterest expense	3,078			2,397			681		28.4	%
Total noninterest expense	Total noninterest expense	$	33,464		$	31,763		$	1,701		5.4	%					Total noninterest expense	$	34,849		$	31,195		$	3,654	11.7	%

Nine Months Ended
September 30, 2022
Change From
2022 2021 2021
Salaries and employee benefits $ 61,666 $ 59,825 $ 1,841 3.1 %
Net occupancy 11,157 10,698 459 4.3 %
Advertising, travel & entertainment 2,242 1,491 751 50.4 %
ATM expense 954 821 133 16.2 %
Professional fees 3,486 3,166 320 10.1 %
Software and data processing 5,106 4,221 885 21.0 %
Communications 1,509 1,689 (180) (10.7) %
FDIC insurance 1,434 1,343 91 6.8 %
Amortization of intangibles 1,758 2,191 (433) (19.8) %
Loss on redemption of subordinated notes — 1,118 (1,118) (100.0) %
Other noninterest expense 7,453 7,133 320 4.5 %
Total noninterest expense $ 96,765 $ 93,696 $ 3,069 3.3 %

The primary increase in noninterest expense for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, when compared to the same ~~periods~~period in ~~2021,~~2022, was in salaries and employee benefits. Several additional expense categories increased during the three months ended ~~September 30, 2022,~~March 31, 2023, including other noninterest ~~expense, net occupancy~~ expense, professional fees, software and data processing expense and advertising, travel and entertainment expense, however when combined, such expenses were partially offset by the loss on the redemption of subordinated notes recorded in the third quarter of 2021. Several additional expense categories also increased during the nine months ended September 30, 2022, including software and data processing expense, advertising, travel and entertainment expense and net occupancy expense, however when combined, such expenses were partially offset by the loss on the redemption of subordinated notes recorded in the third quarter of 2021.expense.

Salaries and employee benefits increased for the three months ended ~~September 30, 2022,~~March 31, 2023, when compared to the same period in ~~2021,~~2022, due to an increase in direct salary expense and health insurance expense, partially offset by a decrease in retirement expense. ~~Salaries and employee benefits increased for~~

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, direct salary expense increased $1.5 million, or 8.7%, when compared to the same period in ~~2021, due to an increase in direct salary expense, partially offset by decreases in retirement expense and health insurance expense.~~

~~Southside Bancshares, Inc. |56~~

~~Table of Contents~~

~~For the three and nine months ended September 30,~~ 2022, ~~direct salary expense increased $1.6 million, or 9.6%, and $3.0 million, or 6.0%, respectively, when compared to the same periods in 2021,~~ primarily due to normal salary increases effective in the first quarter of ~~2022~~2023 and market increases in the second quarter of 2022.

Health and life insurance expense, included in salaries and employee benefits, increased ~~$229,000,~~$383,000, or ~~10.0%, and decreased $507,000, or 7.6%~~22.1%, for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, when compared to the same ~~periods~~period in ~~2021.~~2022. We have a self-insured health plan which is supplemented with a stop loss insurance policy.

Retirement expense, included in salaries and employee benefits, decreased ~~$203,000,~~$20,000, or ~~18.5%, and $654,000, or 20.7%~~2.8%, for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, when compared to the same ~~periods~~period in ~~2021.~~2022. This decrease was primarily due to a decrease in our ~~split dollar agreement expense and~~ deferred compensation expense.

Net occupancy expense increased for the three and nine months ended September 30, 2022, when compared to the same periods in 2021, due to increased depreciation, rent expense and other occupancy related expenses.

Advertising, travel and entertainment expense increased for the three ~~and nine~~ months ended ~~September 30, 2022, when compared to the same periods in 2021, primarily due to increases in donations, travel related expenses and media advertising.~~

~~ATM expense increased for the nine months ended September 30, 2022,~~March 31, 2023, when compared to the same period in ~~2021,~~2022, primarily due to increases in media advertising, travel related expenses and conference registrations fees.

ATM expense increased for the three months ended March 31, 2023, when compared to the same period in 2022, due primarily to ~~higher armored car expense.~~an increase in maintenance expense related to new ITM machines placed into service.

Professional fees increased for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, when compared to the same period in ~~2021,~~2022, due to an increase in consulting and legal fees.

Software and data processing expense increased for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, when compared to the same ~~periods~~period in ~~2021,~~2022, due to new software contracts and increases in existing contract renewal costs.

Communications expense decreased for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, when compared to the same ~~periods~~period in ~~2021,~~2022, driven by a decrease in phone and internet ~~costs.~~costs due to a change in vendors.

FDIC insurance increased for the three months ended March 31, 2023, when compared to the same period in 2022, due to an increase in our assessment base resulting from an increase in our total assets.

Amortization of intangibles decreased for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, when compared to the same ~~periods~~period in ~~2021,~~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.

~~Loss on redemption~~

Southside Bancshares, Inc. |51

Table of ~~subordinated notes consisted of the remaining unamortized discount of $856,000 and debt issuance costs of $251,000 associated with the notes at the time of redemption on September 30, 2021.~~Contents

Other noninterest expense increased for the three months ended ~~September 30, 2022,~~March 31, 2023, when compared to the same period in ~~2021,~~2022, primarily due to increases in ~~losses on other real estate owned~~non-service cost retirement expense related to the Retirement Plan and ~~losses on retired assets.~~the Restoration Plan.

Income Taxes

Pre-tax income for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was ~~$30.8~~$30.6 million, ~~and $87.7 million, respectively, a decrease~~an increase of ~~10.1% and 9.9%,~~8.7% compared to ~~$34.3 million and $97.3~~$28.1 million for the same ~~periods~~period in ~~2021.~~2022. We recorded income tax expense of ~~$3.9 million and $10.3~~$4.5 million for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to income tax expense of ~~$5.0 million and $12.6~~$3.1 million for the same ~~periods~~period in ~~2021.~~2022. The ETR as a percentage of pre-tax income was ~~12.6% and 11.8%~~14.9% for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, compared to an ETR as a percentage of pre-tax income of ~~14.5% and 13.0%~~11.2% for the same ~~periods~~period in ~~2021.~~2022. The ~~decrease~~increase in the income tax expense for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was a result of a decrease ~~in pre-tax income and the ETR. The decrease in the ETR for the three and nine months ended September 30, 2022 is primarily due to an increase~~ in tax-exempt income as a percentage of pre-tax income as compared to the same periods in ~~2021.~~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 ~~$46.0~~$33.8 million at ~~September 30, 2022~~March 31, 2023 as compared to ~~a net deferred tax liability of $17.8~~$34.7 million at December 31, ~~2021.~~2022. The ~~increase~~decrease in the net deferred tax asset is primarily the result of ~~an increase~~a decrease in unrealized losses in the AFS securities portfolio.

See “Note 11 – Income Taxes” to our consolidated financial statements included in this report. No valuation allowance was recorded at ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021,~~2022, as management believes it is more likely than not that all of the deferred tax asset items will be realized in future years.

Southside Bancshares, Inc. ~~|57~~|52

Table of Contents

Composition of Loans

One of our main objectives is to seek attractive lending opportunities in Texas, primarily in the market areas in which we operate. Refer to “Part I - Item 1. Business - Market Area” in the ~~2021~~2022 Form 10-K for a discussion of our primary market area and the geographic concentration of our loan portfolio as of December 31, ~~2021.~~2022. There were no substantial changes in these concentrations during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. The majority of our loan originations are made to borrowers who live in and/or conduct business in the market areas of Texas in which we operate or adjoin, with the exception of municipal loans, which are made primarily throughout the state of Texas. Municipal loans are made to municipalities, counties, school districts and colleges.

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


								Compared to											Compared to
								December 31, 2021		September 30, 2021										December 31, 2022		March 31, 2022
		September 30, 2022		December 31, 2021		September 30, 2021		Change (%)		Change (%)			March 31, 2023		December 31, 2022		March 31, 2022			Change (%)		Change (%)

Real estate loans:	Real estate loans:											Real estate loans:
Construction	Construction	$	554,345	$	447,860	$	422,095	23.8	%	31.3	%	Construction	$	591,894	$	559,681	$	490,166		5.8	%	20.8	%
1-4 family residential	1-4 family residential	646,692		651,140		660,689		(0.7)	%	(2.1)	%	1-4 family residential	672,595		663,519		647,837			1.4	%	3.8	%
Commercial	Commercial	1,901,921		1,598,172		1,605,132		19.0	%	18.5	%	Commercial	1,990,861		1,987,707		1,722,577			0.2	%	15.6	%
Commercial loans	Commercial loans	433,538		418,998		443,708		3.5	%	(2.3)	%	Commercial loans	388,182		412,064		401,144			(5.8)	%	(3.2)	%
Municipal loans	Municipal loans	449,219		443,078		427,259		1.4	%	5.1	%	Municipal loans	438,566		450,067		455,155			(2.6)	%	(3.6)	%
Loans to individuals	Loans to individuals	77,780		85,914		88,702		(9.5)	%	(12.3)	%	Loans to individuals	70,546		74,653		84,037			(5.5)	%	(16.1)	%
Total loans	Total loans	$	4,063,495	$	3,645,162	$	3,647,585	11.5	%	11.4	%	Total loans	$	4,152,644	$	4,147,691	$	3,800,916		0.1	%	9.3	%

Our total loan portfolio increased ~~$418.3~~$5.0 million, or ~~11.5%~~0.1%, at ~~September 30, 2022~~March 31, 2023 compared to December 31, ~~2021. For the nine months ended September 30,~~ 2022, ~~our PPP~~with increases in construction loans, ~~decreased $30.7~~1-4 family residential loans and commercial real estate loans, partially offset by decreases in commercial loans, municipal loans and loans to individuals.

Total loans increased $351.7 million, or ~~99.0%~~9.3%, ~~from $31.0 million at December~~compared to March 31, ~~2021, primarily due to forgiveness payments received from loans funded under the CARES Act. Excluding PPP loans, total loans increased $449.1 million, or 12.4%,~~2022, with increases in commercial real estate loans, construction loans ~~commercial loans~~ and ~~municipal~~1-4 family residential loans, partially offset by decreases in municipal loans, loans to individuals and ~~1-4 family residential~~commercial loans.

Excluding a $67.2 million year-over-year decrease in PPP loans, total loans increased $483.1 million, or 13.5%, compared to September 30, 2021, with increases in commercial real estate loans, construction loans, commercial loans and municipal loans, partially offset by decreases in 1-4 family residential loans and loans to individuals.

At ~~September 30, 2022,~~March 31, 2023, our real estate loans represented ~~76.4%~~78.4% of our loan portfolio and were comprised of commercial real estate loans of ~~61.3%~~61.1%, 1-4 family residential loans of ~~20.8%~~20.7% and construction loans of ~~17.9%~~18.2%. Commercial real estate loans primarily include loans collateralized by retail, commercial office buildings, multi-family residential buildings, medical facilities and offices, senior living, assisted living and skilled nursing facilities, warehouse facilities, hotels and churches. Our 1-4 family residential loans consist primarily of loans secured by first mortgages on owner occupied 1-4 family residences. Our construction loans are collateralized by property located primarily in or near the market areas we serve. A number of our construction loans will be owner occupied upon completion. Construction loans for non-owner occupied projects are financed, but these typically have cash flows from leases with tenants, secondary sources of repayment, and in some cases, additional collateral.

~~Loan Portfolios Most at Risk due to Economic Stress~~

The banking industry is affected by general economic conditions such as interest rates, inflation, recession, unemployment and other factors beyond our control, including the ongoing impact of the COVID-19 pandemic. 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. Oil prices have increased significantly during 2022 as a result of strong demand, global supply disruptions and the Ukraine/Russia conflict. We cannot predict whether current economic conditions or oil prices will improve, remain the same or decline.

As of September 30, 2022, the Company’s exposure to the oil and gas industry totaled $117.5 million, or 2.89% of gross loans, an increase of $47.8 million, or 68.7%, from December 31, 2021, and consisted primarily of (i) support/service loans of 2.28%, (ii) upstream of 0.45%, (iii) midstream of 0.12% and (iv) downstream of 0.04%. Expanded monitoring and analysis of these loans has been implemented to address the uncertainty in oil and gas prices as needed.

~~Southside Bancshares, Inc. |58~~

~~Table of Contents~~

~~The following table sets forth our oil and gas information for the periods presented (dollars in thousands):~~

September 30, 2022 December 31, 2021 September 30, 2021
Oil and gas related loans $ 117,529 $ 69,688 $ 70,685
Oil and gas related loans as a % of loans 2.89 % 1.91 % 1.94 %
Classified oil and gas related loans $ 389 $ 4,104 $ 4,418
Classified oil and gas related loans as a % of oil and gas related loans 0.33 % 5.89 % 6.25 %
Nonaccrual oil and gas related loans $ 231 $ 334 $ 342
Net (recoveries) charge-offs for oil and gas related loans $ — $ (7) $ (7)
Allowance for oil and gas related loans as a % of oil and gas loans 0.57 % 1.19 % 1.24 %

As of September 30, 2022, while elevated inflation and recessionary concerns persist, overall economic activity in Texas has returned close to pre-pandemic levels. Commercial activity has resumed to levels close to those existing prior to the outbreak of the pandemic. When the pandemic occurred, in addition to the oil and gas industry, we considered the sectors set forth in the table below to be most vulnerable to financial risks from business disruptions caused by the pandemic mitigation efforts based on North American Industry Classification System categories as of September 30, 2022 (dollars in thousands). At September 30, 2022, the percent of loans classified in the hotel sector increased to 34.78%, from 14.33% compared to December 31, 2021, a direct result of payoffs in this category of approximately 58.8%, reducing the remaining balance of loans held in the hotel sector. No additional loans in the hotel sector have been classified since December 31, 2021. As of September 30, 2022, our customers in these industries have not experienced long-term business disruptions initially thought possible. We are, however, continuing to monitor these customers closely.

September 30, 2022
Loans
Percent of
Total Loans
Percent
Classified (1)
Retail commercial real estate (2)
$ 527,126 12.97 % —
Retail goods and services 46,113 1.13 % 0.14 %
Hotels 25,535 0.63 % 34.78 %
Food services 52,897 1.30 % 6.77 %
Arts, entertainment and recreation 7,642 0.19 % 1.72 %
Total $ 659,313 16.22 % 1.92 %

December 31, 2021
Loans
Percent of
Total Loans
Percent
Classified (1)
Retail commercial real estate (2)
$ 384,381 10.54 % —
Retail goods and services 72,650 1.99 % 0.20 %
Hotels 61,992 1.70 % 14.33 %
Food services 45,019 1.24 % 4.33 %
Arts, entertainment and recreation 6,039 0.17 % 2.95 %
Total $ 570,081 15.64 % 1.96 %

September 30, 2021
Loans
Percent of
Total Loans
Percent
Classified (1)
Retail commercial real estate (2)
$ 338,123 9.27 % —
Retail goods and services 72,166 1.98 % 0.27 %
Hotels 62,677 1.72 % 14.17 %
Food services 46,731 1.28 % —
Arts, entertainment and recreation 6,480 0.18 % 2.88 %
Total $ 526,177 14.43 % 1.76 %

~~(1) Sector classified loans as a percentage of sector total loans.~~

~~(2) Loans in the retail commercial real estate sector are included in our commercial real estate portfolio.~~

~~Southside Bancshares, Inc. |59~~

~~Table of Contents~~

PCD Loans

We have purchased certain loans that as of the date of purchase have experienced more-than-insignificant deterioration in credit quality since origination. Management evaluates these loans against a probability threshold to determine if substantially all of the contractually required payments will be received. PCD loans are recorded at the purchase price plus an allowance for credit losses which becomes the PCD loan's initial amortized cost. The non-credit related discount or premium, the difference between the initial amortized cost and the par value, will be amortized into interest income over the life of the loan. Any further changes to the allowance for credit losses are recorded through provision expense. In accordance with the adoption of ASU 2016-13, management did not reassess whether PCI assets met the criteria of PCD assets and elected to not maintain pools of loans as of the date of adoption. All PCD loans are evaluated based upon product type within the underlying segment.

Nonperforming Assets

Nonperforming assets consist of delinquent loans 90 days or more past due, nonaccrual loans, OREO, repossessed assets and ~~TDR~~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

Southside Bancshares, Inc. |53

Table of Contents

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 ~~renegotiated~~modified due to provide a below market interest rate or deferral of interest or principal because of deterioration in the financial position of the borrowers. The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial ~~difficulties and (ii) the creditor has granted a concession. Concessions may include~~difficulty to provide interest rate reductions or below market interest rates, restructuring amortization schedules and other actions intended to minimize potential losses. Categorization of a loan as nonperforming is not in itself a reliable indicator of potential loan loss. Other factors, such as the value of collateral securing the loan and the financial condition of the borrower are considered in judgments as to potential loan loss.

~~Southside Bancshares, Inc. |60~~

~~Table of Contents~~

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


								Compared to											Compared to
								December 31, 2021		September 30, 2021									December 31, 2022		March 31, 2022
		September 30, 2022		December 31, 2021		September 30, 2021		Change (%)		Change (%)			March 31, 2023		December 31, 2022		March 31, 2022		Change (%)		Change (%)

Nonaccrual loans	Nonaccrual loans	$	3,039	$	2,536	$	3,013	19.8	%	0.9	%	Nonaccrual loans	$	3,169	$	2,846	$	2,357	11.3	%	34.5	%
Accruing loans past due more than 90 days	Accruing loans past due more than 90 days	—		—		—		—		—		Accruing loans past due more than 90 days	—		—		—		—		—
TDR loans		8,481		9,073		9,371		(6.5)	%	(9.5)	%
Restructured loans (1)												Restructured loans (1)	—		7,849		9,098		(100.0)	%	(100.0)	%
OREO	OREO	162		—		25		100.0	%	548.0	%	OREO	—		93		—		(100.0)	%	—
Repossessed assets	Repossessed assets	35		—		15		100.0	%	133.3	%	Repossessed assets	11		74		—		(85.1)	%	100.0	%
Total nonperforming assets	Total nonperforming assets	$	11,717	$	11,609	$	12,424	0.9	%	(5.7)	%	Total nonperforming assets	$	3,180	$	10,862	$	11,455	(70.7)	%	(72.2)	%

Total loans	Total loans	$	4,063,495	$	3,645,162	$	3,647,585					Total loans	$	4,152,644	$	4,147,691	$	3,800,916
Allowance for loan losses at end of period	Allowance for loan losses at end of period	36,506		35,273		38,022						Allowance for loan losses at end of period	36,332		36,515		35,524


Ratio of nonaccruing loans to:	Ratio of nonaccruing loans to:							Ratio of nonaccruing loans to:
Total loans	Total loans	0.07	%	0.07	%	0.08	%	Total loans	0.08	%	0.07	%	0.06	%
Ratio of nonperforming assets to:	Ratio of nonperforming assets to:							Ratio of nonperforming assets to:
Total assets	Total assets	0.16	%	0.16	%	0.17	%	Total assets	0.04	%	0.14	%	0.16	%
Total loans	Total loans	0.29	%	0.32	%	0.34	%	Total loans	0.08	%	0.26	%	0.30	%
Total loans and OREO	Total loans and OREO	0.29	%	0.32	%	0.34	%	Total loans and OREO	0.08	%	0.26	%	0.30	%
Total loans, excluding PPP loans, and OREO		0.29	%	0.32	%	0.35	%
Ratio of allowance for loan losses to:	Ratio of allowance for loan losses to:							Ratio of allowance for loan losses to:
Nonaccruing loans	Nonaccruing loans	1,201.25	%	1,390.89	%	1,261.93	%	Nonaccruing loans	1,146.48	%	1,283.03	%	1,507.17	%
Nonperforming assets	Nonperforming assets	311.56	%	303.84	%	306.04	%	Nonperforming assets	1,142.52	%	336.17	%	310.12	%
Total loans	Total loans	0.90	%	0.97	%	1.04	%	Total loans	0.87	%	0.88	%	0.93	%
Total loans, excluding PPP loans		0.90	%	0.98	%	1.06	%
Net charge-offs to average loans outstanding	Net charge-offs to average loans outstanding	0.01	%	0.02	%	0.03	%	Net charge-offs to average loans outstanding	0.03	%	0.02	%	—

(1) 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 March 31, 2023 exclude any loan modifications that are performing but would have previously required disclosure as troubled debt restructures.

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

Allowance for Credit Losses - Loans

In accordance with ASC 326, the allowance for credit losses on loans is estimated and recognized upon origination of the loan based on expected credit losses. The CECL model uses historical experience and current conditions for homogeneous pools of loans, and reasonable and supportable forecasts about future events. The impact of varying economic conditions and portfolio stress factors are a component of the credit loss models applied to each portfolio. Reserve factors are specific to the loan segments that share similar risk characteristics based on the probability of default assumptions and loss given default assumptions, over the contractual term. The forecasted periods gradually mean-revert the economic inputs to their long-run historical trends. Management evaluates the economic data points used in the Moody’s forecasting scenarios on a quarterly basis to determine the most appropriate impact to the various portfolio characteristics based on management’s view and applies

Southside Bancshares, Inc. |54

Table of Contents

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 ~~improved asset quality, offset slightly by~~ continued economic uncertainty related to inflation and recessionary concerns, as based on known and knowable information as of ~~September 30, 2022.~~March 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.

~~Southside Bancshares, Inc. |61~~

~~Table of Contents~~

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 covered by the PPP may be eligible for loan forgiveness. The remaining loan balance after forgiveness of any amount is still fully guaranteed by the SBA and therefore does not have an associated allowance.

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

As of ~~September 30, 2022,~~March 31, 2023, our review of the loan portfolio indicated that an allowance for loan losses of ~~$36.5~~$36.3 million was appropriate to cover expected losses in the portfolio. Changes in economic and other conditions, including the application of the CECL model, rising interest rates and heightened inflation, may require future adjustments to the allowance for loan losses.

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the allowance for loan losses ~~increased $1.2~~decreased $183,000, or 0.5%, to $36.3 million, or ~~3.5%, to $36.5 million, or 0.90%~~0.87% of total loans, when compared to ~~$35.3~~$36.5 million, or ~~0.97%~~0.88% of total loans at December 31, ~~2021.~~2022.

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, loan charge-offs were $633,000, and recoveries were $362,000. For the three months ended March 31, 2022, loan charge-offs were ~~$686,000 and $1.7 million, respectively,~~$555,000, and recoveries were $449,000 and $1.5 million, respectively. For the three and nine months ended September 30, 2021, loan charge-offs were $940,000 and $2.3 million, respectively, and recoveries were $437,000 and $1.5 million, respectively. For the three and nine months ended September 30, 2022, we$540,000. We recorded a provision for credit losses for loans of ~~$1.3 million~~$88,000 and ~~$1.4 million, respectively. For~~$266,000 for the three ~~and nine~~ months ended ~~September 30, 2021, we recorded a reversal of provision for credit losses for loans of $4.4 million~~March 31, 2023 and ~~$10.2 million,~~2022, respectively.

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

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022

Balance at beginning of period	Balance at beginning of period	$	1,891	$	3,773	$	2,384	$	6,386	Balance at beginning of period	$	3,687	$	2,384

Provision for (reversal of) off-balance-sheet credit exposures	Provision for (reversal of) off-balance-sheet credit exposures	200		(683)		(293)		(3,296)		Provision for (reversal of) off-balance-sheet credit exposures	(128)		28
Balance at end of period	Balance at end of period	$	2,091	$	3,090	$	2,091	$	3,090	Balance at end of period	$	3,559	$	2,412

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 three and nine months ended September 30, 2022, we recorded a provision for credit losses for off-balance-sheet exposures of $200,000 and a reversal of provision of $293,000, respectively, compared to a reversal of $683,000 and $3.3 million, for the three and nine months ended September 30, 2021, respectively. For additional information regarding our methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures, see “Note 12 - Off-Balance-Sheet Arrangements, Commitments and Contingencies” to our consolidated financial statements included in this report.

Southside Bancshares, Inc. ~~|62~~|55

Table of Contents

Capital Resources and Liquidity

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

Tier 1 capital includes Common Equity Tier 1 capital and additional Tier 1 capital. For the Company, additional Tier 1 capital at ~~September 30, 2022~~March 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 ~~September 30, 2022.~~March 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 ~~$98.6~~$98.7 million of qualified subordinated debt as of ~~September 30, 2022.~~March 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 ~~$6.1~~$4.1 million has been added back to CET1 as of ~~September 30, 2022,~~March 31, 2023, representing ~~75%~~50% of the $8.2 million transitional amount at December 31, ~~2021.~~

Also in April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA. Federal bank regulatory agencies have issued an interim final rule that permits banks to neutralize the regulatory capital effects of participating in the Paycheck Protection Program Lending Facility and clarify that PPP loans have a zero percent risk weight under applicable risk-based capital rules. Specifically, a bank may exclude all PPP loans pledged as collateral to the PPP Facility from its average total consolidated assets for the purposes of calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included. Our PPP loans are included in the calculation of our leverage ratio as of ~~September 30, 2022, as we did not utilize the PPP Facility for funding purposes.~~2022.

Management believes that, as of ~~September 30, 2022,~~March 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 of directors.

Southside Bancshares, Inc. ~~|63~~|56

Table of Contents

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


		Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Actions Provisions					Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Actions Provisions
September 30, 2022		Amount		Ratio		Amount		Ratio		Amount		Amount
March 31, 2023														March 31, 2023	Amount		Ratio		Amount		Ratio		Amount		Amount
Common Equity Tier 1 (to Risk-Weighted Assets)	Common Equity Tier 1 (to Risk-Weighted Assets)													Common Equity Tier 1 (to Risk-Weighted Assets)
Consolidated	Consolidated	$	692,139	12.98	%	$	239,985	4.50	%	N/A		N/A		Consolidated	$	686,939	12.73	%	$	242,870	4.50	%	N/A		N/A
Bank Only	Bank Only	$	837,461	15.71	%	$	239,953	4.50	%	$	346,599	6.50	%	Bank Only	$	825,764	15.30	%	$	242,853	4.50	%	$	350,787	6.50	%

Tier 1 Capital (to Risk-Weighted Assets)	Tier 1 Capital (to Risk-Weighted Assets)													Tier 1 Capital (to Risk-Weighted Assets)
Consolidated	Consolidated	$	750,592	14.07	%	$	319,980	6.00	%	N/A		N/A		Consolidated	$	745,394	13.81	%	$	323,827	6.00	%	N/A		N/A
Bank Only	Bank Only	$	837,461	15.71	%	$	319,937	6.00	%	$	426,583	8.00	%	Bank Only	$	825,764	15.30	%	$	323,804	6.00	%	$	431,738	8.00	%

Total Capital (to Risk-Weighted Assets)	Total Capital (to Risk-Weighted Assets)													Total Capital (to Risk-Weighted Assets)
Consolidated	Consolidated	$	880,090	16.50	%	$	426,640	8.00	%	N/A		N/A		Consolidated	$	878,843	16.28	%	$	431,769	8.00	%	N/A		N/A
Bank Only	Bank Only	$	868,320	16.28	%	$	426,583	8.00	%	$	533,229	10.00	%	Bank Only	$	860,503	15.94	%	$	431,738	8.00	%	$	539,673	10.00	%

Tier 1 Capital (to Average Assets) (1)	Tier 1 Capital (to Average Assets) (1)													Tier 1 Capital (to Average Assets) (1)
Consolidated	Consolidated	$	750,592	10.09	%	$	297,635	4.00	%	N/A		N/A		Consolidated	$	745,394	9.83	%	$	303,439	4.00	%	N/A		N/A
Bank Only	Bank Only	$	837,461	11.26	%	$	297,524	4.00	%	$	371,905	5.00	%	Bank Only	$	825,764	10.89	%	$	303,343	4.00	%	$	379,178	5.00	%


		Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Actions Provisions					Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Actions Provisions
December 31, 2021		Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2022														December 31, 2022	Amount		Ratio		Amount		Ratio		Amount		Ratio

Common Equity Tier 1 (to Risk-Weighted Assets)	Common Equity Tier 1 (to Risk-Weighted Assets)													Common Equity Tier 1 (to Risk-Weighted Assets)
Consolidated	Consolidated	$	657,043	14.17	%	$	208,616	4.50	%	N/A		N/A		Consolidated	$	687,686	12.63	%	$	245,107	4.50	%	N/A		N/A
Bank Only	Bank Only	$	793,271	17.11	%	$	208,576	4.50	%	$	301,277	6.50	%	Bank Only	$	823,323	15.12	%	$	245,085	4.50	%	$	354,012	6.50	%

Tier 1 Capital (to Risk-Weighted Assets)	Tier 1 Capital (to Risk-Weighted Assets)													Tier 1 Capital (to Risk-Weighted Assets)
Consolidated	Consolidated	$	715,492	15.43	%	$	278,155	6.00	%	N/A		N/A		Consolidated	$	746,140	13.70	%	$	326,809	6.00	%	N/A		N/A
Bank Only	Bank Only	$	793,271	17.11	%	$	278,102	6.00	%	$	370,803	8.00	%	Bank Only	$	823,323	15.12	%	$	326,780	6.00	%	$	435,707	8.00	%

Total Capital (to Risk-Weighted Assets)	Total Capital (to Risk-Weighted Assets)													Total Capital (to Risk-Weighted Assets)
Consolidated	Consolidated	$	841,300	18.15	%	$	370,874	8.00	%	N/A		N/A		Consolidated	$	877,281	16.11	%	$	435,746	8.00	%	N/A		N/A
Bank Only	Bank Only	$	820,545	17.70	%	$	370,803	8.00	%	$	463,503	10.00	%	Bank Only	$	855,790	15.71	%	$	435,707	8.00	%	$	544,633	10.00	%

Tier 1 Capital (to Average Assets) (1)	Tier 1 Capital (to Average Assets) (1)													Tier 1 Capital (to Average Assets) (1)
Consolidated	Consolidated	$	715,492	10.33	%	$	277,065	4.00	%	N/A		N/A		Consolidated	$	746,140	9.96	%	$	299,511	4.00	%	N/A		N/A
Bank Only	Bank Only	$	793,271	11.46	%	$	276,932	4.00	%	$	346,165	5.00	%	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 ~~September 30, 2022,~~March 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. Refer to the Supervision and Regulation section in the ~~2021~~2022 Form 10-K for further discussion of our capital requirements.

Southside Bancshares, Inc. ~~|64~~|57

Table of Contents

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


		Three Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Return on average assets	Return on average assets	1.43	%	1.61	%	Return on average assets	1.38	%	1.40	%
Return on average shareholders’ equity	Return on average shareholders’ equity	14.23	%	12.89	%	Return on average shareholders’ equity	13.92	%	11.42	%
Dividend payout ratio – Basic	Dividend payout ratio – Basic	40.48	%	36.67	%	Dividend payout ratio – Basic	42.17	%	44.16	%
Dividend payout ratio – Diluted	Dividend payout ratio – Diluted	40.48	%	36.67	%	Dividend payout ratio – Diluted	42.17	%	44.16	%
Average shareholders’ equity to average total assets	Average shareholders’ equity to average total assets	10.02	%	12.51	%	Average shareholders’ equity to average total assets	9.94	%	12.28	%
		Nine Months Ended September 30,
		2022		2021
Return on average assets		1.42	%	1.60	%
Return on average shareholders’ equity		12.92	%	12.80	%
Dividend payout ratio – Basic		42.50	%	37.69	%
Dividend payout ratio – Diluted		42.68	%	37.84	%
Average shareholders’ equity to average total assets		10.97	%	12.48	%

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 ~~September 30, 2022,~~March 31, 2023, these investments were ~~2.6%~~7.5% of total assets, as compared with ~~5.9%~~2.4% for December 31, ~~2021~~2022 and ~~4.8%~~4.4% for ~~September 30, 2021.~~March 31, 2022. The ~~decrease~~increase to ~~2.6%~~7.5% at ~~September 30, 2022~~March 31, 2023 as compared to December 31, ~~2021~~2022 and ~~September 30, 2021,~~March 31, 2022, is reflective of ~~the increase in total assets combined with decreases~~increases in the short-term investment portfolio and interest earning ~~deposits.~~deposits, 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 ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022. To provide more liquidity in response to the economic impact of the COVID-19 pandemic, the Federal Reserve took steps to encourage broader use of the discount window. At ~~September 30, 2022,~~March 31, 2023, the amount of additional funding the Bank could obtain from the FRDW, collateralized by securities, was approximately ~~$505.8~~$282.8 million. There were ~~$34.0~~$350.0 million and $188.0 million in borrowings from the FRDW at ~~September 30, 2022.~~March 31, 2023 and December 31, 2022, respectively. To provide more stability and to assure banks have the ability to meet the needs of all their depositors, the Federal Reserve created the BTFP in the first quarter of 2023. At March 31, 2023, the amount of additional funding the Bank could obtain from the BTFP, collateralized by securities, was approximately $3.1 million. There were no$198.4 million in borrowings from the ~~FRDW~~BTFP at ~~December~~March 31, ~~2021.~~2023. At ~~September 30, 2022,~~March 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 ~~$1.62~~$1.53 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 ~~September 30, 2022,~~March 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.

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

~~Southside Bancshares, Inc. |65~~

~~Table of Contents~~

Branch Closure

~~In September 2022,~~On January 6, 2023, we ~~announced our plans to close~~closed one traditional branch location in Lufkin ~~on January 6, 2023,~~ due to its close proximity to another Southside branch and a shift in customer preferences and their transition from in-branch banking to digital banking.

Recent Accounting Pronouncements

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

Subsequent Events

Subsequent to ~~September 30, 2022 on October 27, 2022,~~March 31, 2023 thru April 25, 2023, we purchased ~~21,935~~197,345 shares of common stock at an average price of ~~$33.37~~$32.99 pursuant to the Stock Repurchase Plan.

Southside Bancshares, Inc. ~~|66~~|58

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Refer to the discussion of market risks included in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the ~~2021~~2022 Form 10-K.

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

In an attempt to manage our exposure to changes in interest rates, management closely monitors our exposure to interest rate risk through our ALCO. Our ALCO meets regularly and reviews our interest rate risk position and makes recommendations to our board for adjusting this position. In addition, our board regularly reviews our asset/liability position. We primarily use two methods for measuring and analyzing interest rate risk: net income simulation analysis and MVPE modeling. We utilize the net income simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. This model quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next 12 months. The model is used to measure the impact on net interest income relative to a base case scenario of rates immediately increasing 100 and 200 basis points or decreasing 50, 100 and 200 basis points over the next 12 months. These simulations incorporate assumptions regarding balance sheet growth and mix, pricing and the repricing and maturity characteristics of the existing and projected balance sheet. The impact of interest rate-related risks such as prepayment, basis and option risk are also considered. The model has interest rate floors and no interest rates are assumed to go negative. The interest rate environment in 2020 and much of 2021 was at a point where most treasury terms were under 100 basis points; therefore, we did not believe an analysis of an assumed decrease in interest rates beyond 50 basis points would provide meaningful results. We have resumed the simulation of rates decreasing 100 and 200 basis ~~points.~~points as a result of the Federal Reserve’s ongoing interest rate increases in 2022 and 2023. We are continuing to monitor interest rates and anticipate additional rate increases during the remainder of ~~2022.~~2023.

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


		Anticipated impact over the next 12 months					Anticipated impact over the next 12 months
		September 30,					March 31,
Rate projections:	Rate projections:	2022		2021		Rate projections:	2023		2022
Increase:	Increase:					Increase:
100 basis points	100 basis points	4.26	%	2.03	%	100 basis points	5.44	%	2.50	%
200 basis points	200 basis points	7.19	%	4.58	%	200 basis points	10.50	%	5.29	%

Decrease:	Decrease:					Decrease:
50 basis points	50 basis points	(2.13)	%	(1.47)	%	50 basis points	(3.17)	%	(2.45)	%
100 basis points	100 basis points	(4.54)	%	N/A		100 basis points	(6.68)	%	N/A
200 basis points	200 basis points	(10.28)	%	N/A		200 basis points	(13.65)	%	N/A

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 recessionary concerns. Increasing interest rates and high building costs have caused a slowdown in the single family housing market. Furthermore, worker shortages, ~~especially in the restaurant, hospitality and retail industries, combined with~~ supply chain disruptions ~~impacting numerous industries~~ and inflationary conditions, ~~has~~have had some impact on the level of economic ~~growth.~~growth in our

Southside Bancshares, Inc. |59

Table of Contents

market areas. Ongoing higher inflation levels and higher interest rates could have a negative impact on the financial condition of both our consumer and commercial borrowers.

~~Southside Bancshares, Inc. |67~~

~~Table of Contents~~

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.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

No changes were made to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended ~~September 30, 2022~~March 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

~~There have been no~~The following represents a material ~~changes~~change in our risk factors from those disclosed in Part I – “Item 1A. Risk Factors” in the ~~risk factors previously disclosed~~2022 Form 10-K.

Recent negative developments in the ~~2021 Form 10-K~~banking industry could adversely affect our current and projected business operations and our financial condition and results of operations.

The recent bank failures and related negative media attention have generated significant market trading volatility among publicly traded bank holding companies and, in particular, regional, as well as community banks like the Company. These developments have negatively impacted customer confidence in regional and community banks, which could prompt customers to maintain their deposits with 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, including 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 improve our funding, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.

Southside Bancshares, Inc. |60

.Table of Contents

We also anticipate increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Bank, designed to address the recent negative developments in the banking industry, all of which may increase our costs of doing business and reduce our profitability. Among other things, there may be 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 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 over the last year, the fair value of our securities classified as available for sale and held-to-maturity has declined. These securities make up a majority of the securities portfolio of the Company, resulting in unrealized losses 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. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

Southside Bancshares, Inc. ~~|68~~|61

Table of Contents

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

Issuer Purchases of Equity Securities

On March 1, 2022, our board of directors approved a Stock Repurchase Plan, authorizing the repurchase, from time to time, of up to 1.0 million shares of the Company’s outstanding common stock. On December 13, 2022, the board of directors increased its authorization under the Company’s Stock Repurchase Plan by an additional 1.0 million shares for a total authorization to repurchase up to 2.0 million shares.

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.~~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 ~~September 30, 2022:~~March 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
July 1, 2022 - July 31, 2022 8,613 $ 35.93 8,613 685,201
August 1, 2022 - August 31, 2022 — — — 685,201
September 1, 2022 - September 30, 2022 — — — 685,201
Total 8,613 $ 35.93 8,613


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Number of Shares That May Yet Be Purchased Under the Stock Repurchase Plan at the End of the Period
January 1, 2023 - January 31, 2023	173,670	$	36.08	173,670	902,555
February 1, 2023 - February 28, 2023	—	—		—	902,555
March 1, 2023 - March 31, 2023	283,724	34.16		283,724	618,831
Total	457,394	$	34.89	457,394

Subsequent to ~~September 30, 2022, on~~March 31, 2023, and through ~~October 27, 2022~~April 25, 2023, we purchased ~~21,935~~197,345 shares of common stock at an average price of ~~$33.37~~$32.99 pursuant to the Stock Repurchase Plan.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

Southside Bancshares, Inc. ~~|69~~|62

Table of Contents

ITEM 6. EXHIBITS

Exhibit Index

Incorporated by Reference

Exhibit Number

Exhibit Description

Filed Herewith

Exhibit

Form

Filing Date

File No.

(3)

Articles of Incorporation and Bylaws

3.1

Restated Certificate of Formation of Southside Bancshares, Inc.

3.1

8-K

05/14/2018

0-12247

3.2

Amended and Restated Bylaws of Southside Bancshares, Inc.

3.1

8-K

02/22/2018

0-12247

(31)

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

31.1

Certification of Chief Executive Officer

31.2

Certification of Chief Financial Officer

(32)

Section 1350 Certification

†32

Certification of Executive Officer and Chief Financial Officer

(101)

Interactive Date File

101.INS

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

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

104

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

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

Southside Bancshares, Inc. ~~|70~~|63

Table of Contents

SIGNATURES

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


		SOUTHSIDE BANCSHARES, INC.

DATE:	~~October~~April 28, ~~2022~~2023	BY:	/s/ Lee R. Gibson
			Lee R. Gibson, CPA
			President and Chief Executive Officer
			(Principal Executive Officer)




DATE:	~~October~~April 28, ~~2022~~2023	BY:	/s/ Julie N. Shamburger
			Julie N. Shamburger, CPA
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

Southside Bancshares, Inc. ~~|71~~|64



	Nine Months Ended September 30, 2022
	Extend Amortization Period		Interest Rate Reductions		Combination		Total Modifications		Number of Loans
Real estate loans:

1-4 family residential	$	—	$	—	$	307	$	307	4

Commercial loans	—		—		5		5		1

Loans to individuals	—		—		9		9		2
Total	$	—	$	—	$	321	$	321	7



	Nine Months Ended September 30,
	Defined Benefit Pension Plan				Defined Benefit Pension Plan Acquired				Restoration Plan
	2022		2021		2022		2021		2022		2021

Interest cost	$	2,056	$	1,927	$	76	$	69	$	433	$	390
Expected return on assets	(4,384)		(4,065)		(174)		(158)		—		—
Net loss amortization	480		752		—		4		191		192


Net periodic benefit cost (income)	$	(1,848)	$	(1,386)	$	(98)	$	(85)	$	624	$	582


	September 30, 2022
	Loans		Percent of Total Loans		Percent Classified (1)
Retail commercial real estate (2)	$	527,126	12.97	%	—
Retail goods and services	46,113		1.13	%	0.14	%
Hotels	25,535		0.63	%	34.78	%
Food services	52,897		1.30	%	6.77	%
Arts, entertainment and recreation	7,642		0.19	%	1.72	%
Total	$	659,313	16.22	%	1.92	%