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What changed in SOUTHSIDE BANCSHARES INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of SOUTHSIDE BANCSHARES INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+461 added−402 removedSource: 10-K (2025-02-27) vs 10-K (2024-02-27)

Top changes in SOUTHSIDE BANCSHARES INC's 2024 10-K

461 paragraphs added · 402 removed · 349 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

101 edited+62 added−22 removed96 unchanged
Biggest changeUnder the BHCA, a bank holding company is generally permitted to engage in, or acquire direct or indirect control of more than five percent of the voting shares of any company engaged in, the following activities: • banking or managing or controlling banks; • furnishing services to or performing services for its subsidiaries; and • any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking, including: ◦ factoring accounts receivable; ◦ making, acquiring, brokering or servicing loans and usual related activities; ◦ leasing personal or real property; ◦ operating a nonbank depository institution, such as a savings association; ◦ performing trust company functions; ◦ conducting financial and investment advisory activities; ◦ conducting discount securities brokerage activities; 7 Table of Contents ◦ underwriting and dealing in government obligations and money market instruments; ◦ providing specified management consulting and counseling activities; ◦ performing selected data processing services and support services; ◦ acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; ◦ performing selected insurance underwriting activities; ◦ providing certain community development activities (such as making investments in projects designed primarily to promote community welfare); and ◦ issuing and selling money orders and similar consumer-type payment instruments.
Biggest changeExamples of activities the Federal Reserve has previously determined are closely related to banking include: ◦ factoring accounts receivable; ◦ making, acquiring, brokering or servicing loans and usual related activities; ◦ leasing personal or real property; 7 Table of Contents ◦ operating a nonbank depository institution, such as a savings association; ◦ performing trust company functions; ◦ conducting financial and investment advisory activities; ◦ conducting discount securities brokerage activities; ◦ underwriting and dealing in government obligations and money market instruments; ◦ providing specified management consulting and counseling activities; ◦ performing selected data processing services and support services; ◦ acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; ◦ performing selected insurance underwriting activities; ◦ providing certain community development activities (such as making investments in projects designed primarily to promote community welfare); and ◦ issuing and selling money orders and similar consumer-type payment instruments.
Significant changes to federal and state laws, changes in the interpretation or application of such laws by regulators, and/or the enactment of new legislation or adoption of new regulations could (i) materially impact the profitability of our business, the value of assets we hold, or the value of collateral available for our loans; (ii) require changes to our business practices; (iii) force us to discontinue certain businesses lines; and/or (iv) otherwise expose us to additional costs, taxes, liabilities, enforcement actions and reputational risk.
Significant changes to federal and state laws, changes in the interpretation or application of such laws by regulators, and/or the enactment of new legislation or adoption of new regulations could (i) materially impact the profitability of our business, the value of assets we hold, or the value of collateral available for our loans; (ii) require changes to our business practices; (iii) force us to discontinue certain business lines; and/or (iv) otherwise expose us to additional costs, taxes, liabilities, enforcement actions and reputational risk.
The Bank Secrecy Act, USA PATRIOT Act, and Anti-Money Laundering Act of 2020, along with the related FinCEN regulations, impose numerous requirements with respect to financial institution operations, including the following: • establishment of AML programs, including adoption of written procedures and an ongoing employee training program, designation of a compliance officer and auditing of the program; • establishment of a program specifying procedures for obtaining information from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time; 15 Table of Contents • establishment of enhanced due diligence policies, procedures and controls designed to detect and report money laundering, for financial institutions that administer, maintain or manage private bank accounts or correspondent accounts for non-U.S. persons; • prohibitions on correspondent accounts for foreign shell banks and compliance with recordkeeping obligations with respect to correspondent accounts of foreign banks; • filing of suspicious activities reports if a bank believes a customer may be violating U.S. laws and regulations; and • requirements that bank regulators consider bank holding and bank compliance with federal anti-money laundering laws in connection with proposed merger or acquisition transactions.
The Bank Secrecy Act, USA PATRIOT Act, and Anti-Money Laundering Act of 2020, along with the related FinCEN regulations, impose numerous requirements with respect to financial institution operations, including the following: • establishment of AML programs, including adoption of written procedures and an ongoing employee training program, designation of a compliance officer and auditing of the program; • establishment of a program specifying procedures for obtaining information from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time; • establishment of enhanced due diligence policies, procedures and controls designed to detect and report money laundering, for financial institutions that administer, maintain or manage private bank accounts or correspondent accounts for non-U.S. persons; • prohibitions on correspondent accounts for foreign shell banks and compliance with recordkeeping obligations with respect to correspondent accounts of foreign banks; • filing of suspicious activities reports if a bank believes a customer may be violating U.S. laws and regulations; and 17 Table of Contents • requirements that bank regulators consider bank holding and bank compliance with federal AML laws in connection with proposed merger or acquisition transactions.
A well-capitalized insured depository institution is one (1) having a total risk-based capital ratio of 10 percent or greater, (2) having a Tier 1 risk-based capital ratio of 8 percent or greater, (3) having a CET1 capital ratio of 6.5 percent or greater, (4) having a leverage capital ratio of 5 percent or greater and (5) that is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure. • Adequately Capitalized - The insured depository institution meets the required minimum level for each relevant capital measure.
A well-capitalized insured depository institution is one (1) having a total risk-based capital ratio of 10% or greater, (2) having a Tier 1 risk-based capital ratio of 8% or greater, (3) having a CET1 capital ratio of 6.5% or greater, (4) having a leverage capital ratio of 5% or greater and (5) that is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure. • Adequately Capitalized - The insured depository institution meets the required minimum level for each relevant capital measure.
Southside Bank is also subject to state and federal laws for notifying individuals and regulators in the event of a security breach affecting their personal information. Under federal law, customers must be notified when a financial institution becomes aware of unauthorized access of sensitive customer information and misuse has occurred or is reasonably possible.
The Bank is also subject to state and federal laws for notifying individuals and regulators in the event of a security breach affecting their personal information. Under federal law, customers must be notified when a financial institution becomes aware of unauthorized access of sensitive customer information and misuse has occurred or is reasonably possible.
Qualifying banks that meet these thresholds and elect the CBLR framework, are exempt from the agencies’ current capital framework, including the risk-based capital requirements and capital conservation buffer, and are deemed well-capitalized under the agencies’ prompt corrective action regulations. Southside Bank has not elected to use the CBLR framework at this time. Source of Strength .
Qualifying banks that meet these thresholds and elect the CBLR framework, are exempt from the agencies’ current capital framework, including the risk-based capital requirements and capital conservation buffer, and are deemed well-capitalized under the agencies’ prompt corrective action regulations. The Bank has not elected to use the CBLR framework at this time. Source of Strength .
The aggregate of all covered transactions is limited to 10 percent of the bank’s capital and surplus for any one affiliate and 20 percent for all affiliates. Additionally, within the foregoing limitations, each credit transaction with an affiliate must meet specified collateral requirements ranging from 100 to 130 percent of the loan amount, depending on the type of collateral.
The aggregate of all covered transactions is limited to 10% of the bank’s capital and surplus for any one affiliate and 20% for all affiliates. Additionally, within the foregoing limitations, each credit transaction with an affiliate must meet specified collateral requirements ranging from 100 to 130% of the loan amount, depending on the type of collateral.
Generally, Southside Bank must disclose its privacy policy for collecting and protecting NPI to consumers, permit consumers to “opt out” of having NPI disclosed to non-affiliated third parties, with some exceptions, and allow consumers to opt out of receiving marketing solicitations based on information about the consumer received from another affiliate.
Generally, the Bank must disclose its privacy policy for collecting and protecting NPI to consumers, permit consumers to “opt out” of having NPI disclosed to non-affiliated third parties, with some exceptions, and allow consumers to opt out of receiving marketing solicitations based on information about the consumer received from another affiliate.
Many states have also recently implemented or modified their data privacy laws and some may apply to financial institutions. For example, in California, the California Privacy Rights Act became effective on January 1, 2023, and provides new protections for those Southside Bank customers who reside in that state.
Many states have also recently implemented or modified their data privacy laws and some may apply to financial institutions. For example, in California, the California Privacy Rights Act became effective on January 1, 2023, and provides new protections for those the Bank customers who reside in that state.
Under Texas law, without the approval of the TDB and subject to certain limited exceptions for loans secured by livestock, stored agricultural products, or readily marketable collateral, the maximum aggregate amount of loans that Southside Bank is permitted to make to any one borrower is 25% of Tier 1 capital.
Under Texas law, without the approval of the TDB and subject to certain limited exceptions for loans secured by livestock, stored agricultural products, or readily marketable collateral, the maximum aggregate amount of loans that the Bank is permitted to make to any one borrower is 25% of Tier 1 capital.
An adequately-capitalized depository institution is one having (1) a total risk based capital ratio of 8 percent or more, (2) a Tier 1 capital ratio of 6 percent or more, (3) a CET1 capital ratio of 4.5 percent or more and (4) a leverage ratio of 4 percent or more. • Undercapitalized - The insured depository institution fails to meet the required minimum level for any relevant capital measure.
An adequately-capitalized depository institution is one having (1) a total risk based capital ratio of 8% or more, (2) a Tier 1 capital ratio of 6% or more, (3) a CET1 capital ratio of 4.5% or more and (4) a leverage ratio of 4% or more. • Undercapitalized - The insured depository institution fails to meet the required minimum level for any relevant capital measure.
These monetary policies influence to a significant extent the overall growth of all bank loans, investments and deposits and the interest rates charged on loans or paid on time and savings deposits. The nature of future monetary policies and the effect of such policies on Southside Bank’s future business and earnings, therefore, cannot be predicted accurately. Other Regulatory Matters .
These monetary policies influence to a significant extent the overall growth of all bank loans, investments and deposits and the interest rates charged on loans or paid on time and savings deposits. The nature of future monetary policies and the effect of such policies on the Bank’s future business and earnings, therefore, cannot be predicted accurately. Other Regulatory Matters .
The federal banking agencies also may remove a director or officer from an insured depository institution (or bar them from the industry) if a violation is willful or reckless. Bank Regulation Southside Bank is a Texas-chartered commercial bank, the deposits of which are insured up to the applicable limits by the FDIC.
The federal banking agencies also may remove a director or officer from an insured depository institution (or bar them from the industry) if a violation is willful or reckless. Bank Regulation The Bank is a Texas-chartered commercial bank, the deposits of which are insured up to the applicable limits by the FDIC.
To that end, on October 24, 2022, the FDIC adopted a final rule raising the DIF assessment rate on all insured depository institutions, including Southside Bank, by two basis points. This assessment rate became effective January 1, 2023, with the first quarterly assessment due June 30, 2023.
To that end, on October 24, 2022, the FDIC adopted a final rule raising the DIF assessment rate on all insured depository institutions, including the Bank, by two basis points. This assessment rate became effective January 1, 2023, with the first quarterly assessment due June 30, 2023.
A significantly undercapitalized institution is one having (1) a total risk-based capital ratio of less than 6 percent (2) a Tier 1 capital ratio of less than 4 percent, (3) a CET1 ratio of less than 3 percent or (4) a leverage capital ratio of less than 3 percent. • Critically Undercapitalized - The insured depository institution fails to meet a critical capital level set by the appropriate federal banking agency.
A significantly undercapitalized institution is one having (1) a total risk-based capital ratio of less than 6% (2) a Tier 1 capital ratio of less than 4%, (3) a CET1 ratio of less than 3% or (4) a leverage capital ratio of less than 3%. • Critically Undercapitalized - The insured depository institution fails to meet a critical capital level set by the appropriate federal banking agency.
Furthermore, the FDIA provides that any insured depository institution generally will be liable for any loss incurred by the FDIC in connection with the default of, or any assistance provided by the FDIC to, a commonly controlled insured depository institution. Southside Bank is an FDIC-insured depository institution and thus subject to these requirements.
Furthermore, the FDIA provides that any insured depository institution generally will be liable for any loss incurred by the FDIC in connection with the default of, or any assistance provided by the FDIC to, a commonly controlled insured depository institution. The Bank is an FDIC-insured depository institution and thus subject to these requirements.
The exact amount of future dividends paid by Southside Bank will be a function of its general profitability (which cannot be accurately estimated or assured), applicable tax rates in effect from year to year and the discretion of its board of directors. Transactions with Affiliates .
The exact amount of future dividends paid by the Bank will be a function of its general profitability (which cannot be accurately estimated or assured), applicable tax rates in effect from year to year and the discretion of its board of directors. Transactions with Affiliates .
Southside Bank is subject to sections 23A and 23B of the FRA and the Federal Reserve’s Regulation W, as made applicable to state nonmember banks by section 18(j) of the FDIA. Sections 23A and 23B of the FRA restrict a bank’s ability to engage in certain transactions with its affiliates.
The Bank is subject to sections 23A and 23B of the FRA and the Federal Reserve’s Regulation W, as made applicable to state nonmember banks by section 18(j) of the FDIA. Sections 23A and 23B of the FRA restrict a bank’s ability to engage in certain transactions with its affiliates.
An undercapitalized depository institution is one having (1) a total capital ratio of less than 8 percent, (2) a Tier 1 capital ratio of less than 6 percent, (3) a CET1 capital ratio of less than 4.5 percent or (4) a leverage ratio of less than 4 percent. • Significantly Undercapitalized - The insured depository institution is significantly below the required minimum level for any relevant capital measure.
An undercapitalized depository institution is one having (1) a total capital ratio of less than 8%, (2) a Tier 1 capital ratio of less than 6%, (3) a CET1 capital ratio of less than 4.5% or (4) a leverage ratio of less than 4%. • Significantly Undercapitalized - The insured depository institution is significantly below the required minimum level for any relevant capital measure.
Deposit and other operations also are subject to: • the Truth in Savings Act and Regulation DD, governing disclosure of deposit account terms to consumers; • the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and • the Electronic Fund Transfer Act and Regulation E, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of ATMs and other electronic banking 14 Table of Contents services, which the CFPB has expanded to include a new compliance regime that governs consumer-initiated cross border electronic transfers.
Deposit and other operations also are subject to: • the Truth in Savings Act and Regulation DD, governing disclosure of deposit account terms to consumers; • the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and 16 Table of Contents • the Electronic Fund Transfer Act and Regulation E, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of ATMs and other electronic banking services, which the CFPB has expanded to include a new compliance regime that governs consumer-initiated cross border electronic transfers.
Southside Bank’s dividend policies are subject to the discretion of its board of directors and will depend upon such factors as future earnings, financial conditions, cash needs, capital adequacy, compliance with applicable statutory and regulatory requirements and general business conditions.
The Bank’s dividend policies are subject to the discretion of its board of directors and will depend upon such factors as future earnings, financial conditions, cash needs, capital adequacy, compliance with applicable statutory and regulatory requirements and general business conditions.
We and our subsidiaries are subject to comprehensive regulation, examination and supervision by the Federal Reserve, the TDB and the FDIC and are subject to numerous laws and regulations relating to internal controls, the extension of credit, making of loans to individuals, deposits and all other facets of our operations.
We and our subsidiaries are subject to comprehensive regulation, examination and supervision by the SEC, the Federal Reserve, the TDB and the FDIC and are subject to numerous laws and regulations relating to internal controls, the extension of credit, making of loans to individuals, deposits and all other facets of our operations.
If other banks were to establish branch facilities near our facilities, it is uncertain whether these branch facilities would have a material adverse effect on our business. De novo interstate branching by Southside Bank is also subject to the Federal interstate branching rules.
If other banks were to establish branch facilities near our facilities, it is uncertain whether these branch facilities would have a material adverse effect on our business. De novo interstate branching by the Bank is also subject to the Federal interstate branching rules.
In addition, federal and state banking agencies have prescribed standards for maintaining the security and confidentiality of consumer information, to which Southside Bank is subject. Pursuant to these standards, Southside Bank is required to have an information security program to safeguard the confidentiality and security of customer information and to ensure proper disposal.
In addition, federal and state banking agencies have prescribed standards for maintaining the security and confidentiality of consumer information, to which the Bank is subject. Pursuant to these standards, the Bank is required to have an information security program to safeguard the confidentiality and security of customer information and to ensure proper disposal.
Southside Bank, and in some cases the Company and any nonbank affiliates, must undergo regular on-site examinations by the appropriate regulatory agency, which will examine for adherence to a range of legal and regulatory compliance responsibilities.
The Bank, and in some cases the Company and any nonbank affiliates, must undergo regular on-site examinations by the appropriate regulatory agency, which will examine for adherence to a range of legal and regulatory compliance responsibilities.
All branching in which Southside Bank may engage remains subject to regulatory approval and adherence to applicable legal and regulatory requirements. Consumer Protection Regulation . The activities of Southside Bank are subject to a variety of statutes and regulations designed to protect consumers.
All branching in which the Bank may engage remains subject to regulatory approval and adherence to applicable legal and regulatory requirements. Consumer Protection Regulation . The activities of the Bank are subject to a variety of statutes and regulations designed to protect consumers.
The federal and state laws applicable to banks regulate, among other things, the scope of their activities and investments, lending and deposit-taking activities, borrowings, maintenance of retained earnings and reserve accounts, distribution of earnings and payment of dividends. Permitted Activities and Investments .
The federal and state laws applicable to banks regulate, among other things, the scope of their activities and investments, lending and deposit-taking activities, borrowings, maintenance of retained earnings and reserve accounts, distribution of earnings and payment of dividends.
Southside Bank is not a member of the Federal Reserve. The Bank is subject to extensive regulation, examination and supervision by the TDB, as its chartering authority, and by the FDIC, as its primary federal regulator and deposit insurer.
The Bank is not a member of the Federal Reserve. The Bank is subject to extensive regulation, examination and supervision by the TDB, as its chartering authority, and by the FDIC, as its primary federal regulator and deposit insurer.
Our election was declared effective based in part upon a finding by the Federal Reserve that all of our depository institution subsidiaries satisfy the Federal Reserve’s “well capitalized” and “well managed” standards and have at least a satisfactory rating under the CRA (discussed below). We do not currently engage in financial activities beyond those permissible for a bank holding company.
Our election was declared effective based in part upon a finding by the Federal Reserve that all of our depository institution subsidiaries satisfy the Federal Reserve’s “well capitalized” and “well managed” standards and have at least a satisfactory rating under the CRA. We do not currently engage in financial activities beyond those permissible for a bank holding company.
We believe our compensation package and benefits are competitive with others in our industry. For additional information regarding our employee benefit plans, see “Note 10 - Employee Benefits” to our consolidated financial statements included in this report. 6 Table of Contents SUPERVISION AND REGULATION General Banking is a complex, highly regulated industry.
We believe our compensation packages and benefits are competitive with others in our industry. For additional information regarding our employee benefit plans, see “Note 10 - Employee Benefits” to our consolidated financial statements included in this report. 6 Table of Contents SUPERVISION AND REGULATION General Banking is a complex, highly regulated industry.
A critically undercapitalized institution is one having a ratio of tangible equity to total assets that is equal to or less than 2 percent.
A critically undercapitalized institution is one having a ratio of tangible equity to total assets that is equal to or less than 2%.
Most recently, the Anti-Money Laundering Act of 2020 expanded the coverage of the Bank Secrecy Act to include new categories of “financial institutions,” expanding the types of monetary transactions that must be monitored and reported, and increasing the enforcement authority of the U.S. Department of Justice with respect to federal anti-money laundering laws.
The Anti-Money Laundering Act of 2020 expanded the coverage of the Bank Secrecy Act to include new categories of “financial institutions,” expanding the types of monetary transactions that must be monitored and reported, and increasing the enforcement authority of the U.S. Department of Justice with respect to federal anti-money laundering laws.
Supervisory actions by the appropriate federal banking regulator depend upon an institution’s classification within the five capital categories. Our management believes that we and our Bank subsidiary have the requisite capital levels to qualify as well-capitalized institutions under the FDICIA regulations.
Supervisory actions by the appropriate federal banking regulator depend upon an institution’s classification within the five capital categories. As previously noted, our management believes that we and our Bank subsidiary have the requisite capital levels to qualify as well-capitalized institutions under the FDICIA regulations.
In general, a bank may not extend credit, lease, sell property, or furnish any services or fix or vary the consideration for these products or services on the condition that either: (i) the customer obtain or provide some additional credit, property, or services from or to the bank, the bank holding company or subsidiaries thereof or (ii) the customer not obtain credit, property, or service from a competitor, except to the extent reasonable conditions are imposed to assure the soundness of the credit extended.
In general, a bank may not extend credit, lease, sell property, or furnish any services or fix or vary the consideration for these products or services on the condition that either: (i) the customer obtain or provide some additional credit, property, or services from or to the bank, the bank holding company or subsidiaries thereof or (ii) the customer not obtain credit, property, or service from a competitor, except to the extent reasonable conditions 15 Table of Contents are imposed to assure the soundness of the credit extended.
More broadly, on November 23, 2021, the federal banking regulators imposed a new cybersecurity-related notification rule that would require banking organizations, including the Company and Southside Bank, to notify their primary federal regulator as soon as possible (but within 36 hours) of incidents that have materially disrupted or degraded, or are reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver services to a material portion of its customer 16 Table of Contents base, jeopardize the viability of key operations of the banking organization, or impact the stability of the financial sector.
More broadly, on November 23, 2021, the federal banking regulators imposed a new cybersecurity-related notification rule that would require banking organizations, including the Company and the Bank, to notify their primary federal regulator as soon as possible (but within 36 hours) of incidents that have materially disrupted or degraded, or are reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the banking organization, or impact the stability of the financial sector.
Under Regulation O of the Federal Reserve, as made applicable to state nonmember banks by section 18(j)(2) of the FDIA, Southside Bank is subject to quantitative restrictions on extensions of credit to its executive officers and directors, the executive officers and directors of the Company, any owner of 10% or more of its stock or the stock of Southside Bancshares, Inc. and certain entities affiliated with any such persons.
Under Regulation O of the Federal Reserve, as made applicable to state nonmember banks by section 18(j)(2) of the FDIA, the Bank is subject to quantitative restrictions on extensions of credit to its executive officers and directors, the executive officers and directors of the Company, any owner of 10% or more of its stock or the stock of the Company and certain entities affiliated with any such persons.
Under the Federal Reserve’s CBCA regulations, a rebuttable presumption of control would arise with respect to an acquisition where, after the transaction, the acquiring party owns, controls or has the power to vote at least 10% (but less than 9 Table of Contents 25%) of our voting securities.
Under the Federal Reserve’s CBCA regulations, a rebuttable presumption of control would arise with respect to an acquisition where, after the transaction, the acquiring party owns, controls or has the power to vote at least 10% (but less than 25%) of our voting securities.
The federal banking regulators are also required to take mandatory supervisory actions and are authorized to take other discretionary actions, with respect to insured depository institutions in the three undercapitalized categories, the severity of which will depend upon the capital category in which the insured depository institution is assigned.
The federal banking regulators are also required to take mandatory supervisory actions and are authorized to take other discretionary actions, with respect to insured depository institutions in the three undercapitalized categories, the severity of which will depend upon the 13 Table of Contents capital category in which the insured depository institution is assigned.
Southside Bank can be requested to search its records for any relationships or transactions with persons on those lists and be required to report any identified relationships or transactions. OFAC .
The Bank can be requested to search its records for any relationships or transactions with persons on those lists and be required to report any identified relationships or transactions. OFAC .
GENERAL Southside Bancshares, Inc., incorporated in Texas in 1982, is a bank holding company for Southside Bank, a Texas state bank headquartered in Tyler, Texas that was formed in 1960. We operate through 55 branches, 13 of which are located in grocery stores, in addition to wealth management and trust services, and/or loan production, brokerage or other financial services offices.
GENERAL Southside Bancshares, Inc., incorporated in Texas in 1982, is a bank holding company for Southside Bank, a Texas state bank headquartered in Tyler, Texas that was formed in 1960. We operate through 53 branches, 12 of which are located in grocery stores, in addition to wealth management and trust services, and/or loan production, brokerage or other financial services offices.
On December 22, 2022, the agencies extended this relief to January 1, 2024, and on December 15, 2023, the agencies extended this relief to January 1, 2025. Deposit Insurance and Assessments .
On December 22, 2022, the agencies extended this relief to January 1, 2024, on December 15, 2023, the agencies extended this relief to January 1, 2025 and on December 27, 2024, the agencies extended this relief to January 1, 2026. Deposit Insurance and Assessments .
As of December 31, 2023, the Federal Reserve and other federal banking regulators have not issued rules implementing this requirement.
As of December 31, 2024, the Federal Reserve and other federal banking regulators have not issued rules implementing this requirement.
Regulatory Examination . Federal and state banking agencies require the Company and Southside Bank to prepare annual reports on financial condition and to conduct an annual audit of financial affairs in compliance with minimum standards and procedures.
Federal and state banking agencies require the Company and the Bank to prepare annual reports on financial condition and to conduct an annual audit of financial affairs in compliance with minimum standards and procedures.
If the FDIC determines that Southside Bank fails to meet any standards prescribed by the Guidelines, it may require Southside Bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and 12 Table of Contents soundness compliance plans.
If the FDIC determines that the Bank fails to meet any standards prescribed by the guidelines, it may require the Bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and soundness compliance plans.
The Company and its affiliates are subject to oversight by the SEC, the NASDAQ Stock Market, various state securities regulators and other regulatory authorities. The Company and its subsidiaries have from time to time received requests for information from regulatory authorities in various states, including state attorneys general, securities regulators and other regulatory authorities, concerning their business practices.
The Company and its affiliates are subject to oversight by the SEC, the NYSE, various state securities regulators and other regulatory authorities. The Company and its subsidiaries have from time to time received requests for information from regulatory authorities in various states, including state attorneys general, securities regulators and other regulatory authorities, concerning their business practices.
At December 31, 2023, our wealth management and trust assets under management were approximately $1.48 billion. Our business strategy includes evaluating expansion opportunities through acquisitions of financial institutions in market areas that could complement our existing franchise.
At December 31, 2024, our wealth management and trust assets under management were approximately $1.44 billion. Our business strategy includes evaluating expansion opportunities through acquisitions of financial institutions in market areas that could complement our existing franchise.
In addition, as discussed above, a bank holding company may not become a financial holding company unless each of its subsidiary banks has a CRA rating of at least “satisfactory.” As of September 7, 2021, the most recent exam date, Southside Bank has a CRA rating of “outstanding.” On October 24, 2023, the federal banking agencies jointly issued a final rule modernizing and overhauling the prior CRA regulations.
In addition, as discussed above, a bank holding company may not become a financial holding company unless each of its subsidiary banks has a CRA rating of at least “satisfactory.” As of September 30, 2024, the most recent exam date, the Bank has a CRA rating of “satisfactory.” On October 24, 2023, the federal banking agencies jointly issued a final rule modernizing and overhauling the prior CRA regulations.
For the years ended December 31, 2023 and 2022, diluted earnings per common share was $2.82 and $3.26, respectively. We have paid a cash dividend to shareholders every year since 1970 (including dividends paid by Southside Bank prior to the incorporation of Southside Bancshares).
For the years ended December 31, 2024 and 2023, diluted earnings per common share was $2.91 and $2.82, respectively. We have paid a cash dividend to shareholders every year since 1970 (including dividends paid by Southside Bank prior to the incorporation of Southside Bancshares).
Our advertising is designed to target the market areas we serve. The type and amount of advertising in each location is directly attributable to our market share in that area, combined with overall cost. Additionally, our customers may access various banking services through a wide network of ATMs, ITMs and through automated telephone, internet and mobile banking products.
Our advertising is designed to target the market areas we serve. The type and amount of advertising in each location is determined based on our market share in that area, combined with overall cost by market. Additionally, our customers may access various banking services through a wide network of ATMs, ITMs, automated telephone, internet and mobile banking products.
The agencies also must prescribe standards for asset quality, earnings and stock valuation, as well as standards for compensation, fees and benefits. The federal banking agencies have adopted regulations and Guidelines to implement these required standards.
The agencies also must prescribe standards for asset quality, earnings and stock valuation, as well as standards for compensation, fees and benefits. The federal banking agencies have adopted regulations and Interagency Guidelines Establishing Standards for Safety and Soundness to implement these required standards.
Violations can include failure to timely file required reports, filing false or misleading information or submitting inaccurate reports. Civil penalties may be as high as $1,000,000 a day for such violations, and criminal penalties for some financial institution crimes may include imprisonment for 20 years.
Violations can include failure to timely file required reports, filing false or misleading information or submitting inaccurate reports. Civil penalties may be as high as $25,000 per day or, in especially egregious examples, $1,000,000 a day for such violations, and criminal penalties for some financial institution crimes may include imprisonment for 20 years.
The ability of the Company or Southside Bank to pay dividends, and the contents of their respective dividend policies, is subject to changes of law, as well as possible supervisory restrictions imposed by the TDB, FDIC or Federal Reserve. See also Bank Regulation - Dividends for additional information. Change in Control .
The ability of the Company or the Bank to pay dividends, and the contents of their respective dividend policies, is subject to changes of law, as well as possible supervisory restrictions imposed by the TDB, FDIC or Federal Reserve. See also Bank Regulation - Dividends for additional information. Incentive Compensation .
Our 55 branches and 38 drive-thru facilities are located in and around Arlington, Austin, Bullard, Chandler, Cleburne, Cleveland, Diboll, Euless, Fort Worth, Frisco, Granbury, Grapevine, Gresham, Gun Barrel City, Hawkins, Hemphill, Houston, Irving, Jacksonville, Jasper, Kingwood, Lindale, Longview, Lufkin, Nacogdoches, Palestine, Pineland, San Augustine, Splendora, Tyler, Watauga, Weatherford and Whitehouse.
Our 53 branches and 37 drive-thru facilities are located in and around Arlington, Austin, Bullard, Chandler, Cleburne, Cleveland, Dallas, Diboll, Euless, Fort Worth, Frisco, Granbury, Grapevine, Gresham, Gun Barrel City, Hawkins, Hemphill, Houston, Irving, Jacksonville, Jasper, Lindale, Longview, Lufkin, Nacogdoches, Palestine, Pineland, San Augustine, Splendora, The Woodlands, Tyler, Watauga, Weatherford and Whitehouse.
In 2023, we continued to focus on the health and wellness of our employees through several company-wide efforts including: a wellness program that allows employees to earn cash rewards; a three-week wellness challenge to encourage healthy habits; on-site biometric screenings, as well as wellness communications and webinars throughout the year.
In 2024, we continued to focus on the health and wellness of our employees through several company-wide efforts including: a wellness program that allows employees to earn cash rewards; a wellness challenge to encourage healthy habits; as well as wellness communications and webinars throughout the year.
The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.
These 14 Table of Contents guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.
See Holding Company Regulation - Regulatory Examination. Enforcement Authority . Southside Bank and its “institution-affiliated parties,” including management, employees, agents, independent contractors and consultants, such as attorneys and accountants and others who participate in the conduct of the institution’s affairs, are subject to potential civil and criminal penalties for violations of law, regulations or written orders of a government agency.
The Bank and its “institution-affiliated parties,” including management, employees, agents, independent contractors and consultants, such as attorneys and accountants and others who participate in the conduct of the institution’s affairs, are subject to potential civil and criminal penalties for violations of law, regulations or written orders of a government agency.
Southside Bank Common equity tier 1 risk-based capital ratio 4.50 % 6.50 % 12.28 % 14.88 % Tier 1 risk-based capital ratio 6.00 % 8.00 % 13.32 % 14.88 % Total risk-based capital ratio 8.00 % 10.00 % 15.73 % 15.62 % Leverage ratio 4.00 % 5.00 % 9.39 % 10.49 % On March 27, 2020 the federal bank agencies announced a final rule that permits banks that have adopted the CECL standard to defer recognition of the estimated impact of credit losses on regulatory capital by permitting a three-year “phase-in” approach commencing in 2022.
Southside Bank Common equity tier 1 risk-based capital ratio 4.50 % 6.50 % 13.04 % 15.35 % Tier 1 risk-based capital ratio 6.00 % 8.00 % 14.07 % 15.35 % Total risk-based capital ratio 8.00 % 10.00 % 16.49 % 16.15 % Leverage ratio 4.00 % 5.00 % 9.67 % 10.55 % On March 27, 2020, the federal bank agencies announced a final rule that permits banks that have adopted the CECL standard to defer recognition of the estimated impact of credit losses on regulatory capital by permitting a three-year “phase-in” approach commencing in 2022.
Specifically, the assessment base for the special assessment is equal to a bank’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion. As of December 31, 2022, Southside Bank had less than $5 billion in estimated uninsured deposits. Capital Adequacy. See Holding Company Regulation - Capital Adequacy .
Specifically, the assessment base for the special assessment is equal to a bank’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion. As of December 31, 2022, the Bank had less than $5 billion in estimated uninsured deposits.
The FDIC may, on a case-by-case basis, permit banks that are adequately capitalized to accept brokered deposits if the FDIC determines that acceptance of such deposits would not constitute an unsafe or unsound banking practice with respect to the bank. Undercapitalized banks generally may not accept, renew or roll over brokered deposits.
Only “well-capitalized” banks are permitted to accept, renew or roll over brokered deposits. The FDIC may, on a case-by-case basis, permit banks that are adequately capitalized to accept brokered deposits if the FDIC determines that acceptance of such deposits 12 Table of Contents would not constitute an unsafe or unsound banking practice with respect to the bank.
Additional guidance was released by the FDIC on July 15, 2022, regarding how banks should treat the placement of deposits by third-parties under “sweep arrangements” with broker-dealers. Loans to One Borrower .
On July 15, 2022, the FDIC released guidance regarding how banks should treat the placement of deposits by third parties under “sweep arrangements” with broker-dealers.
Specifically, a financial holding company and companies under its control may engage in activities that are “financial in nature,” as defined by the GLBA and Federal Reserve interpretations, and therefore may engage in a broader range of activities than those permitted for bank holding companies and their subsidiaries.
Under the BHCA, a bank holding company meeting certain eligibility requirements may elect to become a “financial holding company.” A financial holding company and companies under its control may engage in activities that are “financial in nature,” as defined by the GLBA and Federal Reserve interpretations, and therefore may engage in a broader range of activities than those permitted for bank holding companies and their subsidiaries.
Some institutions we compete with offer interest rate levels on loan and deposit products that we are unwilling to offer due to interest rate risk and overall profitability concerns. We expect the level of competition to continue to increase. 5 Table of Contents HUMAN CAPITAL RESOURCES At December 31, 2023, we employed approximately 815 full time equivalent persons.
Some institutions we compete with offer interest rate levels on loan and deposit products that we are unwilling to offer due to interest rate risk and overall profitability concerns. We expect the level of competition in the financial services market to continue to increase. HUMAN CAPITAL RESOURCES At December 31, 2024, we employed approximately 778 full time equivalent persons.
The capital rules provide for a number of deductions from and adjustments to CET1, which include the requirement that mortgage servicing rights, deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. 8 Table of Contents Certain regulatory capital ratios of the Company and Southside Bank, as of December 31, 2023, are shown in the following table.
The capital rules provide for a number of deductions from and adjustments to CET1, which include the requirement that mortgage servicing rights, deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1 .
We must pay essentially all of our operating expenses from funds we receive from Southside Bank. Therefore, shareholders may receive dividends from us only to the extent that funds are available after payment of our operating expenses.
Therefore, shareholders may receive dividends from us only to the extent that funds are available after payment of our operating expenses.
Subsequent amendments to the Volcker Rule exempt from coverage those banks with (i) total consolidated assets equal to $10 billion or less; and (ii) total trading assets and liabilities equal to 5 percent or less of total consolidated assets.
Subsequent amendments to the Volcker Rule exempt from coverage those banks with (i) total consolidated assets equal to $10 billion or less; and (ii) total trading assets and liabilities equal to 5 percent or less of total consolidated assets. Based on this amendment, the Bank is exempt from the Volcker Rule’s restrictions and prohibitions. Brokered Deposits .
Under the CRA, Southside Bank has a continuing and affirmative obligation, consistent with safe and sound banking practices, to help meet the needs of our entire community, including low- and moderate-income neighborhoods.
Also, certain foreign transactions are exempt from the general rule. Community Reinvestment Act . Under the CRA, the Bank has a continuing and affirmative obligation, consistent with safe and sound banking practices, to help meet the needs of our entire community, including low- and moderate-income neighborhoods.
THE BANKING INDUSTRY IN TEXAS The banking industry is affected by general economic conditions such as interest rates, inflation, recession, unemployment and other factors beyond our control.
During 2024, we also opened loan production offices in Dallas, Texas and The Woodlands, Texas. THE BANKING INDUSTRY IN TEXAS The banking industry is affected by general economic conditions such as interest rates, inflation, recession, unemployment and other factors beyond our control.
The federal banking agencies have specified by regulation the relevant capital level for each category. 11 Table of Contents Under the regulations, all insured depository institutions are assigned to one of the following capital categories: • Well Capitalized - The insured depository institution exceeds the required minimum level for each relevant capital measure.
Under the regulations, all insured depository institutions are assigned to one of the following capital categories: • Well Capitalized - The insured depository institution exceeds the required minimum level for each relevant capital measure.
Subject to certain exceptions, deposits are “brokered” if they are placed at a bank through the intervention of a third party in the business of facilitating the placement of deposits with FDIC-insured banks. Only “well-capitalized” banks are permitted to accept, renew or roll over brokered deposits.
The Bank also may be restricted in its ability to accept, renew or roll over brokered deposits, depending on its capital classification. Subject to certain exceptions, deposits are “brokered” if they are placed at a bank through the intervention of a third party in the business of facilitating the placement of deposits with FDIC-insured banks.
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.
During the last 30 years the Texas economy has continued to diversify, decreasing the overall impact of fluctuations in oil and gas prices; however, the oil and gas industry is still a significant component of the Texas economy. The economic conditions and growth prospects for our markets continue to reflect a solid and positive overall outlook.
The BHCA provides that a bank holding company must obtain the prior approval of the Federal Reserve (i) for the acquisition of more than five percent of the voting stock in any bank or bank holding company, (ii) for the acquisition of substantially all the assets of any bank or bank holding company, or (iii) in order to merge or consolidate with another bank holding company.
The BHCA provides that a bank holding company must obtain the prior approval of the Federal Reserve to (i) acquire direct or indirect ownership or control of more than five percent of the outstanding shares of any class of voting securities of any bank or bank holding company, (ii) acquire all or substantially all of the assets of another bank or bank holding company or (iii) merge or consolidate with any other bank holding company.
Generally, subject to a narrow exception, the FDICIA requires the banking regulator to appoint a receiver or conservator for an insured depository institution that is critically undercapitalized.
Generally, subject to a narrow exception, the FDICIA requires the banking regulator to appoint a receiver or conservator for an insured depository institution that is critically undercapitalized. The federal banking agencies have specified by regulation the relevant capital level for each category.
Our public filings with the SEC may be obtained free of charge on either our website, https://investors.southside.com/ under the topic Financials, or the SEC’s website, www.sec.gov, as soon as reasonably practicable after filing with the SEC. 4 Table of Contents MARKET AREA We are headquartered in Tyler, Texas.
Our public filings with the SEC may be obtained free of charge on either our website, https://investors.southside.com/ under the topic Financials, or the SEC’s website, www.sec.gov, as soon as reasonably practicable after filing with the SEC. We include our website address throughout the filing only as textual references.
At December 31, 2023, our total assets were $8.28 billion, total loans were $4.52 billion, total deposits were $6.55 billion and total equity was $773.3 million. For the years ended December 31, 2023 and 2022, our net income was $86.7 million and $105.0 million, respectively.
At December 31, 2024, our total assets were $8.52 billion, total loans were $4.66 billion, total deposits were $6.65 billion and total equity was $811.9 million. For the years ended December 31, 2024 and 2023, our net income was $88.5 million and $86.7 million, respectively.
The ability of Southside Bank, as a Texas state bank, to pay dividends is restricted under federal and state law and regulations. The FDICIA and the regulations of the FDIC generally prohibit an insured depository institution from making a capital distribution (including payment of dividend) if, thereafter, the institution would not be at least adequately capitalized.
The FDICIA and the regulations of the FDIC generally prohibit an insured depository institution from making a capital distribution (including payment of dividend) if, thereafter, the institution would not be at least adequately capitalized. Under Texas law, the Bank generally may not pay a dividend reducing its capital and surplus without the prior approval of the Texas Banking Commissioner.
Our expectation is that our presence in all of the market areas we serve should grow in the future. In addition, we continue to explore new markets in which we believe we can successfully expand.
We consider our primary market areas to be East Texas, Southeast Texas, as well as the greater Dallas-Fort Worth, Austin and Houston, Texas areas. Our expectation is that our presence in all of the market areas we serve should grow in the future. In addition, we continue to explore new markets in which we believe we can successfully expand.
The guidance encourages banks to consider (i) the qualification of the bank’s reviewing personnel; (ii) the frequency, scope and depth of credit reviews; and (iii) appropriate internal distribution of credit review results. Dividends . All dividends paid by Southside Bank are paid to the Company, as the sole shareholder of Southside Bank.
The guidance encourages banks to consider (i) the qualification of the bank’s reviewing personnel; (ii) the frequency, scope and depth of credit reviews; and (iii) appropriate internal distribution of credit review results. Incentive Compensation. See “ Holding Company Regulation – Incentive Compensation.” Dividends .
Under the FDIA, the activities and investments of state nonmember banks are generally limited to those permissible for national banks, notwithstanding state law.
Certain of these laws and regulations are referenced above under “ Supervision and Regulation – Holding Company Regulation .” Permitted Activities and Investments . Under the FDIA, the activities and investments of state nonmember banks are generally limited to those permissible for national banks, notwithstanding state law.
We cannot predict the extent to which new or modified regulations focused on consumer financial protection, whether adopted by the TDB, the CFPB, or the federal banking agencies will have on our businesses.
The foregoing laws and regulations are amended periodically. We cannot predict the extent to which new or modified regulations focused on consumer financial protection, whether adopted by the TDB, the CFPB, or the federal banking agencies will have on our businesses. Any such new laws may materially adversely affect our business, financial condition or results of operations.
Professional development is a key priority, which is facilitated through our many corporate initiatives including extensive training programs, corporate mentoring, leadership programs, educational reimbursement and corporate and personal development coaching.
Professional development is a key priority, which is facilitated through our many corporate initiatives including extensive training programs, corporate mentoring, leadership programs, educational reimbursement and corporate and personal development coaching. We recognize and award employees through several different initiatives centered around service to Southside and initiatives that will impact their communities.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur ability to compete successfully depends on a number of factors, including: • the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; • the ability to expand our market position; • the scope, relevance and pricing of products and services offered to meet customer needs and demands; • the rate at which we introduce new products and services relative to our competitors; • our ability to invest in or partner with technology providers offering banking solutions and delivery channels at a level equal to our competitors; • customer satisfaction with our level of service; and • industry and general economic trends. 22 Table of Contents Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.
Biggest changeOur ability to compete successfully depends on a number of factors, including: • the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; • the ability to expand our market position; • the scope, relevance and pricing of products and services offered to meet customer needs and demands; • the rate at which we introduce new products and services relative to our competitors; • our ability to invest in or partner with technology providers offering banking solutions and delivery channels at a level equal to our competitors; • customer satisfaction with our level of service; and 25 Table of Contents • industry and general economic trends.
A significant decline in general economic conditions, caused by inflation, recession, crude oil prices, acts of terrorism, pandemics, natural or man-made disasters, outbreak of hostilities or other international or domestic occurrences, unemployment, plant or business closings or downsizing, changes in securities markets or other factors could impact these local economic conditions and, in turn, have a material adverse effect on our financial condition and results of operations.
A significant decline in general economic conditions, caused by inflation, recession, crude oil prices, acts of terrorism, pandemics, natural or man-made disasters, outbreak of hostilities or other international or domestic occurrences, unemployment, plant or business closings or downsizing, changes in securities markets or other factors could impact these local economic conditions and, in turn, have a material adverse effect on our business, financial condition and results of operations.
Our stock price can fluctuate significantly in response to a variety of factors including, among other things: • actual or anticipated variations in our results of operations, financial condition or asset quality; • changes in recommendations by securities analysts; • operating and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns and other issues in the financial services industry, including regulatory actions against other financial institutions; • perceptions in the marketplace regarding us and/or our competitors; • perceptions in the marketplace regarding the impact of changes in price per barrel of crude oil, real estate values and interest rates on the Texas economy; 27 Table of Contents • new technology used or services offered by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; • failure to integrate acquisitions or realize anticipated benefits from acquisitions; • future issuances of our common stock or other securities; • additions or departures of key personnel; • changes in government regulations; and • geopolitical conditions such as acts or threats of terrorism or military conflicts, health emergencies, epidemics or pandemics.
Our stock price can fluctuate significantly in response to a variety of factors including, among other things: • actual or anticipated variations in our results of operations, financial condition or asset quality; • changes in recommendations by securities analysts; • operating and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns and other issues in the financial services industry, including regulatory actions against other financial institutions; • perceptions in the marketplace regarding us and/or our competitors; • perceptions in the marketplace regarding the impact of changes in price per barrel of crude oil, real estate values and interest rates on the Texas economy; 30 Table of Contents • new technology used or services offered by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; • failure to integrate acquisitions or realize anticipated benefits from acquisitions; • future issuances of our common stock or other securities; • additions or departures of key personnel; • changes in government regulations; and • geopolitical conditions such as acts or threats of terrorism or military conflicts, health emergencies, epidemics or pandemics.
In addition, one or more of our third-party service providers may become subject to cyber-attacks or information security breaches, including as a result of increased remote working, that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary and other information, or otherwise disrupt our or our customers’ or other third parties’ business strategies, financial condition or results of operations.
In addition, one or more of our third-party service providers may become subject to cyber-attacks or information security breaches, including as a result of remote working, that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary and other information, or otherwise disrupt our or our customers’ or other third parties’ business strategies, financial condition or results of operations.
Technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks.
Technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods. For example, customers can now maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks.
Increased risk of unauthorized dissemination of confidential information, greater risk of privacy breach due to screen/voice/video conversation outside private office space, limited ability to restore the systems in the event of a system failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information, and potential impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers. 19 Table of Contents Our systems and those of our customers and third-party service providers are under constant threat, and it is possible that we could experience a significant compromise, significant data loss or material financial losses related to cyber-attacks in the future.
Increased risk of unauthorized dissemination of confidential information, greater risk of privacy breach due to screen/voice/video conversation outside private office space, limited ability to restore the systems in the event of a system failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information, and potential impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers. 21 Table of Contents Our systems and those of our customers and third-party service providers are under constant threat, and it is possible that we could experience a significant compromise, significant data loss or material financial losses related to cyber-attacks in the future.
Management and our ALCO also establish policies and monitor guidelines to diversify the Bank’s funding sources to avoid concentrations in excess of board-approved policies from any one market source. Funding sources include federal funds purchased, repurchase agreements, noncore deposits and short- and long-term debt.
Management and our ALCO also establish policies and monitor guidelines to diversify the Bank’s funding sources to avoid concentrations in excess of board-approved policies from any one market source. Funding sources include federal funds purchased, repurchase agreements, core and noncore deposits and short- and long-term debt.
Reliance on inaccurate or misleading information from our customers, counterparties and other third parties, including as a result of fraud, could have a material adverse impact on our business, financial condition and results of operations. Consumers may decide not to use banks to complete their financial transactions.
Reliance on inaccurate or misleading information from our customers, counterparties and other third parties, including as a result of fraud, could have a material adverse impact on our business, financial condition and results of operations. Customers may decide not to use banks to complete their financial transactions.
Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not shareholders. These regulations affect our lending practices, capital structure, investment practices and dividend policy and growth, among other things.
Banking laws and regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not shareholders. These laws and regulations affect our lending practices, capital structure, investment practices and dividend policy and growth, among other things.
In addition, Congress and federal and state regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways.
Congress and federal and state regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways.
Further, in the event of delinquencies, regulatory changes and policies designed to protect 18 Table of Contents borrowers may slow or prevent us from making business decisions or delay us from taking certain remediation actions, such as foreclosure. If borrowers fail to repay their loans, our financial condition and results of operations would be adversely affected.
Further, in the event of delinquencies, regulatory changes and policies designed to protect 20 Table of Contents borrowers may slow or prevent us from making business decisions or delay us from taking certain remediation actions, such as foreclosure. If borrowers fail to repay their loans, our financial condition and results of operations would be adversely affected.
The increase of “remote work” opportunities in the financial services industry means that community banks must compete more directly against larger financial institutions for qualified workers. The federal banking agencies have also issued comprehensive guidance on incentive compensation limitations, and jointly proposed additional restrictions in the future, which may impact our retention of qualified personnel.
The continuation of “remote work” opportunities in the financial services industry means that community banks must compete more directly against larger financial institutions for qualified workers. The federal banking agencies have also issued comprehensive guidance on incentive compensation limitations, and jointly proposed additional restrictions in the future, which may impact our retention of qualified personnel.
We have historically had access to a number of alternative sources of liquidity, but if there is an increase in volatility in the credit and liquidity markets similar to 2008, there is no assurance that we will be able to obtain such liquidity on terms that are favorable to us, or at all.
We have historically had access to a number of alternative sources of liquidity, but if there is an increase in volatility in the credit and liquidity markets similar to the Great Recession of 2008, there is no assurance that we will be able to obtain such liquidity on terms that are favorable to us, or at all.
Changes in monetary policy, interest rates, the yield curve, or market risk spreads, or a prolonged, flat or inverted yield curve could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect: • our ability to originate loans and obtain deposits; • our ability to retain deposits in a rising rate environment; • net interest rate spreads and net interest rate margins; • our ability to enter into instruments to hedge against interest rate risk; • the fair value of our financial assets and liabilities; and • the average duration of our loan and securities portfolio.
Changes in monetary policy, interest rates, the yield curve, or market risk spreads, or a prolonged, flat or inverted yield curve could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect: • our ability to originate loans and obtain deposits; • our ability to retain deposits in an uncertain rate environment; • net interest rate spreads and net interest rate margins; • our ability to enter into instruments to hedge against interest rate risk; • the fair value of our financial assets and liabilities; and • the average duration of our loan and securities portfolio.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report for further discussion related to our balance sheet strategy. 23 Table of Contents Our process for managing risk may not be effective in mitigating risk or losses to us. The objective of our risk management process is to mitigate risk and loss to our organization.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report for further discussion related to our balance sheet strategy. 26 Table of Contents Our process for managing risk may not be effective in mitigating risk or losses to us. The objective of our risk management process is to mitigate risk and loss to our organization.
A prolonged period of low oil prices could also have a negative impact on the 25 Table of Contents U.S. economy and, in particular, the economies of energy-dominant states such as Texas, which in turn could have a material adverse effect on our business, financial condition and results of operations.
A prolonged period of low oil prices could also have a 28 Table of Contents negative impact on the U.S. economy and, in particular, the economies of energy-dominant states such as Texas, which in turn could have a material adverse effect on our business, financial condition and results of operations.
For example, because of our location and the location of the market areas we serve, severe weather is more likely than in other areas of the country.
For example, severe weather is more likely in our location and the market areas we serve than in other areas of the country.
Other sources of liquidity include sales or securitizations of loans, our ability to acquire additional national market, noncore deposits, additional collateralized borrowings such as FHLB advance agreements, the issuance and sale of debt securities and the issuance and sale 24 Table of Contents of preferred or common securities in public or private transactions.
Other sources of liquidity include sales or securitizations of loans, our ability to acquire additional national market, noncore deposits, additional 27 Table of Contents collateralized borrowings such as FHLB advance agreements, the issuance and sale of debt securities and the issuance and sale of preferred or common securities in public or private transactions.
Business - Supervision and Regulation - Regulatory Examination” in this report. 26 Table of Contents Financial services companies depend on the accuracy and completeness of information about customers and counterparties and inaccuracies in such information, including as a result of fraud, could adversely impact our business, financial condition and results of operations.
Business - Supervision and Regulation - Regulatory Examination” in this report. 29 Table of Contents Financial services companies depend on the accuracy and completeness of information about customers and counterparties and inaccuracies in such information, including as a result of fraud, could adversely impact our business, financial condition and results of operations.
If one or more of these analysts cease to cover us or fail to publish regular reports 28 Table of Contents on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our common stock to decline.
If one or more of these analysts cease to cover us or fail to publish regular reports 31 Table of Contents on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our common stock to decline.
If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses as a result of the negative impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital.
If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses as a result of the negative impact of elevated interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital.
In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event the Bank is unable to pay dividends to us, we may not be able to service debt, pay obligations or pay dividends to our shareholders.
In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s 24 Table of Contents creditors. In the event the Bank is unable to pay dividends to us, we may not be able to service debt, pay obligations or pay dividends to our shareholders.
Decreased market oil prices compressed margins for many U.S. and Texas-based oil producers, as well as oilfield service providers, energy equipment manufacturers and transportation suppliers, among others. As of December 31, 2023, energy loans comprised approximately 2.09% of our loan portfolio. Energy production and related industries represent a significant part of the economies in our primary markets.
Decreased market oil prices compressed margins for many U.S. and Texas-based oil producers, as well as oilfield service providers, energy equipment manufacturers and transportation suppliers, among others. As of December 31, 2024, energy loans comprised approximately 2.51% of our loan portfolio. Energy production and related industries represent a significant part of the economies in our primary markets.
These increased interest rates and uncertainty regarding future rates could negatively impact our cost of borrowing and reduce the amount of money our customers borrow or adversely affect their ability to repay outstanding loan balances that may increase due to adjustments in their variable rates.
Uncertainty regarding future rates could negatively impact our cost of borrowing and reduce the amount of money our customers borrow or adversely affect their ability to repay outstanding loan balances that may increase due to adjustments in their variable rates.
If we were unable to access any of these funding sources when needed, we might be unable to meet customers’ needs, which could adversely impact our financial condition, results of operations, cash flows and liquidity and level of regulatory-qualifying capital.
If we are unable to access any of these funding sources when needed, we might be unable to meet customers’ needs, which could adversely impact our business, financial condition, results of operations, cash flows and liquidity and level of regulatory-qualifying capital.
As a result, the Bank could continue to face increased scrutiny or be viewed as higher risk by regulators and the investor community. Rising interest rates have decreased the value of a portion of the Company’s securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs.
As a result, the Bank could continue to face increased scrutiny or be viewed as higher risk by regulators and the investor community. 23 Table of Contents Elevated 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.
In addition to the importance of the financial strength and cash flow characteristics of the borrower, loans are also often secured with real estate collateral. As of December 31, 2023, approximately 80.8% of our loans have real estate as a primary or secondary component of collateral.
In addition to the importance of the financial strength and cash flow characteristics of the borrower, loans are also often secured with real estate collateral. As of December 31, 2024, approximately 82.8% of our loans have real estate as a primary or secondary component of collateral.
The state of the economy and various economic, social and political factors, including inflation, recession, pandemics, unemployment, social unrest/civil disorder, interest rates, declining oil prices and the level of U.S. debt, as well as governmental action and uncertainty resulting from U.S. and global political trends, including weakness in foreign sovereign debt and currencies, hostile actions of foreign governments (including the Russian-Ukranian War and the Israel/Hamas conflict), may directly and indirectly have a destabilizing effect on our financial condition and results of operations.
The state of the economy and various economic, social and political factors, including inflation, recession, pandemics, unemployment, social unrest/civil disorder, interest rates, declining oil prices and the level of U.S. debt, as well as governmental action and uncertainty resulting from U.S. and global political trends, including tariffs, trade policies, weakness in foreign sovereign debt and currencies, hostile actions of foreign governments may directly and indirectly have a destabilizing effect on our financial condition and results of operations.
Further, ineffective internal controls could cause our investors to lose confidence in our financial information, which could affect the trading price of our common stock. The value of our goodwill and other intangible assets may decline in the future. As of December 31, 2023, we had $204.0 million of goodwill and other intangible assets.
Further, ineffective internal controls could cause our investors to lose confidence in our financial information, which could affect the trading price of our common stock. The value of our goodwill and other intangible assets may decline in the future. As of December 31, 2024, we had $202.9 million of goodwill and other intangible assets.
However, consumer technology in employees’ homes may not provide similar performance or security as commercial-grade technology in our offices. This, along with reliance on employees’ residential internet, could cause network, system, application, and communication limitations or instability, affecting customer experience for some departments. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk.
However, consumer technology in employees’ homes may not provide similar performance or security as commercial-grade technology in our offices. This, along with reliance on employees’ residential internet, could cause network, system, application, and communication limitations or instability, affecting customer experience for some departments. Remote work also introduces additional operational risk, including increased cybersecurity risk.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices insufficient to recover the full amount of the loan or derivative exposure due to us. There is no assurance that any such losses would not materially and adversely affect our results of operations or earnings.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices insufficient to recover the full amount of the loan or derivative exposure due to us. Any such losses could materially and adversely affect our results of operations or earnings.
Although our common stock is listed for trading on the NASDAQ Global Select Market, the trading volume for our common stock is low relative to other larger financial services companies, and you are not assured liquidity with respect to transactions in our common stock.
Although our common stock is listed for trading on the NYSE, the trading volume for our common stock is low relative to other larger financial services companies, and you are not assured liquidity with respect to transactions in our common stock.
The inability to receive dividends from the Bank could have a material adverse effect on our 21 Table of Contents business, financial condition and results of operations. See the section captioned “Supervision and Regulation” in “Item 1. Business” and “Note 13 – Shareholders’ Equity” to our consolidated financial statements included in this report.
The inability to receive dividends from the Bank could have a material adverse effect on our business, financial condition and results of operations. See the section captioned “Supervision and Regulation” in “Item 1. Business” and “Note 13 – Shareholders’ Equity” to our consolidated financial statements included in this report. You may not receive dividends on our common stock.
Unlike larger national or other regional banks that are more geographically diversified, we provide banking and financial services to customers primarily in the State of Texas and the local markets in which we operate within Texas.
Our success depends primarily on the general economic conditions in the State of Texas and the local markets within Texas in which we operate. Unlike larger national or other regional banks that are more geographically diversified, we provide banking and financial services to customers primarily in the State of Texas and our local markets.
Since 2022, the market price of a barrel of West Texas Intermediate crude oil fluctuated from a low of approximately $65 to a high of approximately $89. To partially mitigate this volatility, oil producers continue to find ways to control production costs.
Since the beginning of 2023, the market price of a barrel of West Texas Intermediate crude oil fluctuated from a low of approximately $66 to a high of approximately $91. To partially mitigate this volatility, oil producers continue to find ways to control production costs.
The statutory and regulatory framework under which we operate has changed substantially as the result of the enactment of the Dodd-Frank Act and the Regulatory Relief Act, and the adoption of the Basel III Capital Rules, the European Union’s General Data Protection Regulations and data protection laws enacted by several U.S states.
The statutory and regulatory framework under which we operate has changed substantially over the past several years (as the result of the enactment of the Dodd-Frank Act and the Regulatory Relief Act, and the adoption of the Basel III Capital Rules, the European Union’s General Data Protection Regulations and data protection laws enacted by several U.S states), and will likely continue to change substantially in the coming years.
We also anticipate increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks similar to our size, designed to address the negative developments in the banking industry in 2023, all of which may increase our costs of doing business and reduce our profitability.
We also anticipate continued regulatory scrutiny – in the course of routine examinations and otherwise – and we may be subject to new regulations directed towards banks similar to our size, all of which may increase our costs of doing business and reduce our profitability.
You may not receive dividends on our common stock. Although we have historically declared quarterly cash dividends on our common stock, we are not required to do so and may reduce or cease to pay common stock dividends to our shareholders in the future.
Although we have historically declared quarterly cash dividends on our common stock, we are not required to do so and may reduce or cease to pay dividends to our shareholders in the future. If we reduce or cease to pay cash dividends on our common stock, the market price of our common stock could be adversely affected.
On September 19, 2016, we issued $100.0 million of 5.50% fixed-to-floating subordinated notes, which we redeemed on September 30, 2021. On September 4, 2003, we issued $20.6 million of floating rate junior subordinated debentures in connection with a $20.0 million trust preferred securities issuance by our subsidiary Southside Statutory Trust III. These junior subordinated debentures mature in September 2033.
On September 4, 2003, we issued $20.6 million of floating rate junior subordinated debentures in connection with a $20.0 million trust preferred securities issuance by our subsidiary Southside Statutory Trust III. These junior subordinated debentures mature in September 2033.
The holders of our subordinated notes and junior subordinated debentures have rights that are senior to those of our common stock shareholders. On November 6, 2020, we issued $100.0 million of 3.875% fixed-to-floating rate subordinated notes, which mature in November 2030.
The holders of our subordinated notes and junior subordinated debentures have rights that are senior to those of our common stock shareholders. On November 6, 2020, we issued $100.0 million of 3.875% fixed-to-floating rate subordinated notes, with an outstanding balance, net of unamortized debt issuance costs, of $92.0 million as of December 31, 2024, which mature in November 2030.
Interest rates are highly sensitive to many factors that are beyond our control, including the rate of inflation, general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve.
Interest rates are highly sensitive to many factors that are beyond our control, including the rate of inflation, general economic conditions and policies of various governmental and regulatory agencies (in particular, the Federal Reserve). From July 2023 through August of 2024, the federal funds rate remained steady at 5.25% to 5.50%.
In developing and marketing new delivery systems and/or new products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible.
Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible.
However, as with any risk management process, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. The ongoing developments in the financial institutions industry continue to highlight both the importance and some of the limitations of managing unanticipated risks.
However, as with any risk management process, there are inherent limitations to our risk management strategies as there may exist or develop in the future, and there may be risks that we have not appropriately anticipated or identified.
The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present and forecasted economic, political and regulatory conditions, including inflation and recessionary concerns; the Federal Reserve’s aggressive raising of the federal funds rate throughout 2022 and most of 2023; and unidentified losses expected in the current loan portfolio.
The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present and forecasted economic, political and regulatory conditions, including inflation and recessionary concerns; and interest rate trends.
Bank failures in the first half of 2023 and related negative media attention have generated significant market trading volatility among publicly traded bank holding companies like the Company and, in particular, regional and community banks like the Bank.
Negative developments in the banking industry could adversely affect our current and projected business operations and our financial condition and results of operations. Bank failures in the first half of 2023 and related negative media attention generated significant market trading volatility among publicly traded bank holding companies like the Company and, in particular, regional and community banks like the Bank.
If we reduce or cease to pay common stock dividends, the market price of our common stock could be adversely affected. As noted above, our ability to pay dividends depends primarily upon the receipt of dividends or other capital distributions from the Bank.
As noted above, our ability to pay dividends depends primarily upon the receipt of dividends or other capital distributions from the Bank.
We employ an in-depth, layered, defense approach that leverages people, processes and technology to manage and maintain cybersecurity controls. Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe as attacks are sophisticated, and attackers respond rapidly to changes in defensive measures.
Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe as attacks are sophisticated, and attackers respond rapidly to changes in defensive measures.
As a result of inflationary pressures and the resulting rapid increases in interest rates in 2022 and the first half of 2023, the fair value of our securities classified as available for sale and held-to-maturity has declined.
As a result of inflationary pressures and elevated interest rates over the past two years, the fair value of our securities classified as available for sale and held-to-maturity has declined. This has resulted in unrealized losses on AFS securities embedded in other comprehensive income as a part of shareholders’ equity.
If our risk management processes prove ineffective, we could suffer unexpected losses and could be materially adversely affected. New lines of business or new products and services may subject us to additional risks. From time to time, we may implement new delivery systems, such as internet banking, or offer new products and services within existing lines of business.
New lines of business or new products and services may subject us to additional risks. From time to time, we may implement new delivery systems, or offer new products and services within existing lines of business. In developing and marketing new delivery systems and/or new products and services, we may invest significant time and resources.
The Bank also can borrow from the FRDW and request advances from the BTFP through March 11, 2024.
The Bank also can borrow from the FRDW.
These risks also include possible business interruption, including the inability to access critical information and systems. General political or economic conditions in the United States could adversely affect our financial condition and results of operations.
Any of these risks could expose the Company to liability or adverse legal or regulatory consequences and harm the Company’s reputation and the public perception of its business or the effectiveness of its security measures. General political or economic conditions in the United States could adversely affect our financial condition and results of operations.
Removed
Since the beginning of 2022, the Federal Reserve has raised interest rates 11 times, to a federal funds rate of 5.25% – 5.50% as of July 31, 2023. In December 2023, the Federal Reserve held the federal funds rate steady for the third consecutive meeting and indicated it may likely decrease the rate in 2024 and beyond.
Added
In each of the third and fourth quarter of 2024, the Federal Reserve reduced the target federal funds rate by 50 basis points to 4.25% to 4.50%. The Federal Reserve held the target federal funds rate steady in January 2025.
Removed
Any of the foregoing could adversely affect our financial condition and results of operations. Negative developments in the banking industry could adversely affect our current and projected business operations and our financial condition and results of operations.
Added
Criminals are turning to new sources, including artificial intelligence, to steal personally identifiable information in order to impersonate our clients to commit fraud. We employ an in-depth, layered, defense approach that leverages people, processes and technology to manage and maintain cybersecurity controls.
Removed
This has resulted in unrealized 20 Table of Contents losses on AFS securities embedded in other comprehensive income as a part of shareholders’ equity.
Added
These risks also include possible business interruption, including the inability to access critical information and systems. The development and use of artificial intelligence presents risks and challenges that may adversely impact our business. The Company or its third-party (or fourth party) vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products.
Removed
Our accounting estimates and risk management processes rely on analytical and forecasting models.
Added
The development and use of AI presents a number of risks and challenges to the Company’s business.
Removed
Our success depends primarily on the general economic conditions in the State of Texas and the specific local markets within Texas in which we operate.
Added
The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI.
Removed
The Dodd-Frank Act represents a significant overhaul of many aspects of the regulation of the financial services industry, addressing, among other things, systemic risk, capital adequacy, deposit insurance assessments, consumer financial protection (as implemented through the CFPB), interchange fees, derivatives, lending limits, mortgage lending practices, registration of investment advisors and changes among bank regulatory authorities.
Added
These evolving laws and regulations could require changes in the Company’s implementation of AI technology and increase the Company’s compliance costs and the risk of non-compliance.
Added
AI models, particularly generative AI models, may produce output or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful.
Added
In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs.
Added
This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made.
Added
Further, the Company may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which the Company may have limited visibility.
Added
In addition, the Trump administration may seek to implement a regulatory reform agenda that is different than that of the Biden administration, impacting the rulemaking, supervision, examination and enforcement priorities of the federal banking agencies and potentially resulting in uncertainty.
Added
Any of the foregoing could adversely affect our financial condition and results of operations. 22 Table of Contents Societal, legislative and regulatory responses to ESG concerns, "anti ESG" concerns, as well as DEI and anti-DEI concerns, could adversely affect our business and performance, including indirectly through impacts on our customers.
Added
Our business faces increasing public, investor, activist, legislative and regulatory scrutiny related to ESG, “anti-ESG”, DEI and anti-DEI developments.
Added
We risk damage to our brand and reputation in certain sectors if we fail to act in response to ESG concerns, such as diversity, equity and inclusion, environmental stewardship, human capital management, support for our local communities, corporate governance and transparency, or fail to consider ESG factors in our business operations.
Added
Concerns over the long-term impacts of climate change have led and will likely continue to lead to global governmental efforts to mitigate those impacts. Consumers and businesses also may change their behavior and operations as a result of these concerns.
Added
The Company and its customers may need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. We and our customers may face cost increases, asset value reductions and operating process changes.
Added
The impact on our customers will likely vary depending on their specific circumstances, including a significant presence in areas that are vulnerable to natural and man-made disasters that may be exacerbated by climate change, or reliance upon or a role in carbon intensive activities.
Added
Among the impacts to the Company could be a drop in demand for our products and services, particularly in certain sectors. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans.
Added
Our efforts to take these risks into account may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.
Added
Furthermore, as a result of our diverse base of clients and business partners, we may face potential negative publicity based on the identity of our clients or business partners and the public’s (or certain segments of the public’s) view of those entities.
Added
Such publicity may arise from traditional media sources or from social media and may increase rapidly in size and scope. If our client or business partner relationships were exposed to negative publicity, our ability to attract and retain clients, business partners, and employees may be negatively impacted, and our stock price may also be negatively impacted.
Added
Additionally, we may face pressure to not do business in certain industries that are viewed as harmful to the environment or are otherwise negatively perceived, which could impact our growth.
Added
Certain investors and shareholder advocates are placing increasing emphasis on how corporations address ESG issues in their business strategy when making investment decisions and when developing their investment strategies and proxy recommendations. We may incur increased costs with respect to our ESG efforts and if such efforts are negatively perceived, our reputation and stock price may suffer.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

9 edited+0 added−0 removed7 unchanged
Biggest changeResults are presented to and approved by the Board; • Ransomware Assessment Toolkit (developed by the Bankers Electronic Crimes Task Force, state bank regulators and the U.S.
Biggest changeResults are presented to and approved by the Board. We are currently in the process of transitioning to the Cybersecurity Framework developed by the National Institute of Standards and Technology as the FFEIC Cybersecurity Assessment Toolkit will sunset on August 31, 2025; • Ransomware Assessment Toolkit (developed by the Bankers Electronic Crimes Task Force, state bank regulators and the U.S.
The notable security event briefings by the CISO are intended to create discussion that allows Board members to understand the impact, controls and risk. The Risk Committee receives annual reports from the CISO on risk assessments and reports on key risk indicators at least quarterly.
The notable security event briefings by the CISO are intended to create discussion that allows Board members to understand the impact, controls and risk. The Risk Committee receives, from the CISO, annual reports on risk assessments and at least quarterly reports on key risk indicators.
He has 18 years of experience, involving both information technology and information security. He has a Master of Business Administration in Cybersecurity, graduate studies certificate in cybersecurity and has achieved four certifications, including Certified Information Security Manager, Certified Information Systems Auditor, Certified Data Privacy Solutions Engineer and Cisco Certified Network Associate.
He has over two decades of experience, involving both information technology and information security. He has a Master of Business Administration in Cybersecurity, graduate studies certificate in cybersecurity and has achieved four certifications, including Certified Information Security Manager, Certified Information Systems Auditor, Certified Data Privacy Solutions Engineer and Cisco Certified Network Associate.
Secret Service) is assessed biannually to capture any gaps and address any potential control deficiencies; • training and awareness programs for employees that include periodic and ongoing assessments to drive adoption and awareness of cybersecurity processes and controls; • the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; • a cybersecurity incident response plan that includes procedures for responding to a cybersecurity incident; and 29 Table of Contents • a third-party risk management process for service providers, suppliers, and vendors, including those external service providers we engage in our cybersecurity risk management processes.
Secret Service) is assessed biannually to capture any gaps and address any potential control deficiencies; • training and awareness programs for employees that include periodic and ongoing assessments to drive adoption and awareness of cybersecurity processes and controls; 32 Table of Contents • the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; • a cybersecurity incident response plan that includes procedures for responding to a cybersecurity incident; and defines escalations to senior management and the Board, as well as required notifications and timeframes to customers and regulatory authorities, • a third-party risk management process for service providers, suppliers, and vendors, including those external service providers we engage in our cybersecurity risk management processes.
The Company’s Risk Committee receives at least one annual training from the CISO on the information security program, cybersecurity controls or cybersecurity threats. Both the Bank’s internal Risk Committee and the Company’s Risk Committee review all risk assessments and remediations annually.
The Risk Committee receives at least one annual training from the CISO on the information security program, cybersecurity controls or cybersecurity threats. Both the Bank’s management level Risk Committee and the Risk Committee of the Board review all risk assessments and remediations annually.
We also have a trained response team lead by the CISO, consisting of key individuals from our finance, operations, risk, compliance, communications, human resources, banking and information technology departments, that is engaged for cybersecurity related incidents where necessary and as appropriate.
We also have a trained response team lead by the CISO, consisting of key individuals from executive management, finance, operations, risk, compliance, communications, human resources, banking and information technology departments, that is engaged for cybersecurity related incidents where necessary and as appropriate. Additionally, we engage a third party that offers cybersecurity solutions, monitoring and incident response services for additional support.
Board Oversight of Cybersecurity The Company’s Audit and Risk Committees oversee cybersecurity risk and the information security program which includes overseeing management’s actions to identify, assess, mitigate and remediate or prevent material cybersecurity risks. The Audit Committee receives an annual report of the information security program and monthly reports from the CISO on notable security events for the period.
Board Oversight of Cybersecurity The Audit and Risk Committees of the Board oversee cybersecurity risk and the information security program which includes overseeing management’s actions to identify, assess, mitigate and remediate or prevent material cybersecurity risks.
The information security program includes policies and standards that define the risk assessment procedures, reporting and an incident response plan. The incident response plan defines escalations to senior management and the Board, as well as required notifications and timeframes to customers and regulatory authorities.
The information security program includes policies and standards that define the risk assessment procedures, reporting and an incident response plan.
The CISO provides an annual report of the information security program and monthly reports to the Audit Committee, including any security incident or notable security event for the period. The CISO also reports to the Company’s Risk Committee on risk assessments annually and key risk indicators at least quarterly.
The Audit Committee receives, from the CISO, an annual report of the information security program and monthly reports of any security incident or on notable security events for the period. The Board Chairman and Vice Chairman are notified of any high criticality security incidents within 24 hours.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed2 unchanged
Biggest changeAs of December 31, 2023, Southside operated 55 branches which includes traditional full service branches and full service branches within grocery stores. These branches are located in the state of Texas in the Dallas/Fort Worth, East Texas, Southeast Texas, Austin and Houston regions. Of the 55 branches, 36 are owned and 19 are leased.
Biggest changeAs of December 31, 2024, Southside operated 53 branches, which includes traditional full service branches and full service branches within grocery stores. These branches are located within the state of Texas in the Dallas/Fort Worth, East Texas, Southeast Texas, Austin and Houston regions. Of the 53 branches, 35 are owned and 18 are leased.
For additional information concerning our properties, refer to “Note 6 – Premises and Equipment” and “Note 16 – Leases” to our consolidated financial statements included in this report. 30
For additional information concerning our properties, refer to “Note 6 – Premises and Equipment” and “Note 16 – Leases” to our consolidated financial statements included in this report.
In addition to our branches, Southside also operates drive-thrus, wealth management and trust services or other financial services offices which Southside owns. Southside also owns 73 ATMs/ITMs located throughout our market areas.
In addition to our branches, Southside also operates drive-thrus, wealth management 33 Table of Contents and trust services or other financial services offices which Southside owns. Southside also owns 72 ATMs/ITMs located throughout our market areas.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+1 added−2 removed2 unchanged
Biggest changeDuring 2023, we repurchased a total of 1,435,193 shares at an average price per share of $31.44. Repurchases may be carried out in open market purchases, privately negotiated transactions or pursuant to any trading plan that might be adopted in accordance with Rule 10b5-1 of the Exchange Act, as amended.
Biggest changeRepurchases may be carried out in open market purchases, privately negotiated transactions or pursuant to any trading plan that might be adopted in accordance with Rule 10b5-1 of the Exchange Act, as amended. The Company has no obligation to repurchase any shares under the Stock Repurchase Plan and may modify, suspend or discontinue the plan at any time.
RECENT SALES OF UNREGISTERED SECURITIES There were no equity securities sold by us during the years ended December 31, 2023, 2022 or 2021 that were not registered under the Securities Act of 1933. 31 Table of Contents FINANCIAL PERFORMANCE The following performance graph compares the returns for the indexes indicated assuming that $100 was invested on December 31, 2018 and that all dividends are reinvested.
RECENT SALES OF UNREGISTERED SECURITIES There were no equity securities sold by us during the years ended December 31, 2024, 2023 or 2022 that were not registered under the Securities Act of 1933. 35 Table of Contents FINANCIAL PERFORMANCE The following performance graph compares the returns for the indexes indicated assuming that $100 was invested on December 31, 2019 and that all dividends are reinvested.
The following table provides information with respect to purchases made by or on behalf of any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act), of our common stock during the three months ended December 31, 2023: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Number of Shares That May Yet Be Purchased Under the Stock Repurchase Plan at the End of the Period October 1, 2023 - October 31, 2023 146,580 $ 28.54 146,580 641,032 November 1, 2023 - November 30, 2023 — — — 641,032 December 1, 2023 - December 31, 2023 — — — 641,032 Total 146,580 $ 28.54 146,580 We have not purchased any common stock pursuant to the Stock Repurchase Plan subsequent to December 31, 2023.
The following table provides information with respect to purchases made by or on behalf of any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act), of our common stock during the three months ended December 31, 2024: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Number of Shares That May Yet Be Purchased Under the Stock Repurchase Plan at the End of the Period October 1, 2024 - October 31, 2024 — $ — — 583,066 November 1, 2024 - November 30, 2024 — — — 583,066 December 1, 2024 - December 31, 2024 — — — 583,066 Total — $ — — 34 Table of Contents We have not purchased any common stock pursuant to the Stock Repurchase Plan subsequent to December 31, 2024.
DIVIDENDS See the section captioned “Item 8. Financial Statements and Supplementary Data - Note 13 – Shareholders’ Equity” in our consolidated financial statements included in this report for the amount of cash dividends we paid.
Financial Statements and Supplementary Data - Note 13 – Shareholders’ Equity” in our consolidated financial statements included in this report for the amount of cash dividends we paid.
(PB), Texas Capital Bancshares, Inc. (TCBI) and Veritex Holdings, Inc. (VBTX). Source: S&P Global Market Intelligence © 2024 32 Table of Contents ITEM 6. [ RESERVED]
(TCBI) and Veritex Holdings, Inc. (VBTX). Source: S&P Global Market Intelligence © 2025 36 Table of Contents ITEM 6. [ RESERVED]
During the first six months of 2023, all remaining authorized shares under the Stock Repurchase Plan were repurchased. On July 20, 2023, our board of directors approved a Stock Repurchase Plan authorizing the repurchase of up to 1.0 million shares of the Company’s outstanding common stock.
ISSUER SECURITY REPURCHASES On July 20, 2023, our board of directors approved a Stock Repurchase Plan authorizing the repurchase of up to 1.0 million shares of the Company’s outstanding common stock. During 2024, we repurchased a total of 57,966 shares at an average price per share of $25.96.
Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Southside Bancshares, Inc. 100.00 121.32 105.86 147.74 131.71 120.00 Russell 2000 Index 100.00 125.53 150.58 172.90 137.56 160.85 SBSI Peer Group* 100.00 120.20 122.26 155.72 143.05 133.25 *Peer group includes Cullen/Frost Bankers, Inc.(CFR), First Financial Bankshares, Inc.(FFIN), Hilltop Holdings (HTH), Independent Bank Group, Inc. (IBTX), Prosperity Bancshares, Inc.
Period Ending Index 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 Southside Bancshares, Inc. 100.00 87.26 121.77 108.56 98.91 105.10 Russell 2000 Index 100.00 119.96 137.74 109.59 128.14 142.93 SBSI Peer Group* 100.00 100.23 128.78 119.21 111.63 131.64 *Peer group includes Cullen/Frost Bankers, Inc.(CFR), First Financial Bankshares, Inc.(FFIN), Hilltop Holdings (HTH), Prosperity Bancshares, Inc. (PB), Texas Capital Bancshares, Inc.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION Our common stock trades on the NASDAQ Global Select Market under the symbol “SBSI.” SHAREHOLDERS There were approximat e ly 1,400 holders of record of our common stock, the only class of equity securities currently issued and outstanding, as of February 23, 2024.
SHAREHOLDERS There were approximat e ly 1,300 holders of record of our common stock, the only class of equity securities currently issued and outstanding, as of February 24, 2025. DIVIDENDS See the section captioned “Item 8.
Removed
ISSUER SECURITY REPURCHASES On December 13, 2022, our board of directors increased its authorization under the Company’s Stock Repurchase Plan, previously authorized in March 2022, by an additional 1.0 million shares, for a total authorization to repurchase up to 2.0 million shares of Southside common stock.
Added
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION Our common stock trades on the NYSE under the symbol “SBSI.” On November 14, 2024, Southside voluntarily withdrew the listing of our common stock from NASDAQ and transferred the listing to NYSE.
Removed
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.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 6. [Reserved] 33 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 63 Item 8. Financial Statements and Supplementary Data 64 Report of Independent Registered Public Accounting Firm 65 Consolidated Financial Statements 67 Notes to Consolidated Financial Statements 73
Biggest changeItem 6. [Reserved] 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 67 Item 8. Financial Statements and Supplementary Data 68 Report of Independent Registered Public Accounting Firm 69 Consolidated Financial Statements 71 Notes to Consolidated Financial Statements 77

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

171 edited+22 added−22 removed88 unchanged
Biggest changeThe information should be reviewed in conjunction with the consolidated financial statements for the same years then ended (dollars in thousands): Average Balances with Average Yields and Rates Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Average Balance Interest Avg Yield/Rate Average Balance Interest Avg Yield/Rate Average Balance Interest Avg Yield/Rate ASSETS Loans (1) $ 4,300,138 $ 247,431 5.75 % $ 3,918,249 $ 173,355 4.42 % $ 3,668,149 $ 147,667 4.03 % Loans held for sale 1,681 96 5.71 % 1,098 48 4.37 % 2,063 56 2.71 % Securities: Taxable investment securities (2) 845,907 31,186 3.69 % 627,546 18,940 3.02 % 454,836 13,312 2.93 % Tax-exempt investment securities (2) 1,554,519 64,568 4.15 % 1,675,227 56,389 3.37 % 1,407,231 47,775 3.39 % Mortgage-backed and related securities (2) 470,692 19,450 4.13 % 496,940 16,639 3.35 % 793,300 19,534 2.46 % Total securities 2,871,118 115,204 4.01 % 2,799,713 91,968 3.28 % 2,655,367 80,621 3.04 % FHLB stock, at cost, and equity investments 24,971 1,185 4.75 % 21,255 503 2.37 % 37,549 530 1.41 % Interest earning deposits 83,343 4,364 5.24 % 37,898 362 0.96 % 39,426 78 0.20 % Federal funds sold 79,948 4,124 5.16 % 44,454 1,126 2.53 % — — — Total earning assets 7,361,199 372,404 5.06 % 6,822,667 267,362 3.92 % 6,402,554 228,952 3.58 % Cash and due from banks 107,018 104,602 94,959 Accrued interest and other assets 397,860 457,782 670,062 Less: Allowance for loan losses (37,890) (35,962) (43,064) Total assets $ 7,828,187 $ 7,349,089 $ 7,124,511 LIABILITIES AND SHAREHOLDERS’ EQUITY Savings accounts $ 636,603 5,633 0.88 % $ 671,402 1,838 0.27 % $ 578,245 953 0.16 % CDs 862,211 30,906 3.58 % 579,223 5,659 0.98 % 663,789 3,635 0.55 % Interest bearing demand accounts 3,122,319 71,618 2.29 % 3,139,628 21,578 0.69 % 2,464,670 4,816 0.20 % Total interest bearing deposits 4,621,133 108,157 2.34 % 4,390,253 29,075 0.66 % 3,706,704 9,404 0.25 % FHLB borrowings 276,584 6,777 2.45 % 135,926 3,291 2.42 % 665,384 7,348 1.10 % Subordinated notes, net of unamortized debt issuance costs 96,024 3,920 4.08 % 98,604 4,015 4.07 % 171,857 8,246 4.80 % Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,267 4,504 7.47 % 60,262 2,397 3.98 % 60,258 1,390 2.31 % Repurchase agreements 91,132 3,431 3.76 % 29,919 199 0.67 % 22,257 42 0.19 % Other borrowings 345,544 17,925 5.19 % 47,926 1,663 3.47 % — — — Total interest bearing liabilities 5,490,684 144,714 2.64 % 4,762,890 40,640 0.85 % 4,626,460 26,430 0.57 % Noninterest bearing deposits 1,485,896 1,712,849 1,516,682 Accrued expenses and other liabilities 97,509 90,988 93,136 Total liabilities 7,074,089 6,566,727 6,236,278 Shareholders’ equity 754,098 782,362 888,233 Total liabilities and shareholders’ equity $ 7,828,187 $ 7,349,089 $ 7,124,511 Net interest income (FTE) $ 227,690 $ 226,722 $ 202,522 Net interest margin (FTE) 3.09 % 3.32 % 3.16 % Net interest spread (FTE) 2.42 % 3.07 % 3.01 % (1) Interest on loans includes net fees on loans that are not material in amount.
Biggest changeThe information should be reviewed in conjunction with the consolidated financial statements for the same years then ended (dollars in thousands): Average Balances with Average Yields and Rates Year ended December 31, 2024 December 31, 2023 December 31, 2022 Average Balance Interest Avg Yield/Rate (3) Average Balance Interest Avg Yield/Rate (3) Average Balance Interest Avg Yield/Rate (3) ASSETS Loans (1) $ 4,593,280 $ 281,790 6.13 % $ 4,300,138 $ 247,431 5.75 % $ 3,918,249 $ 173,355 4.42 % Loans held for sale 3,179 76 2.39 % 1,681 96 5.71 % 1,098 48 4.37 % Securities: Taxable investment securities (2) 785,145 28,075 3.58 % 845,907 31,186 3.69 % 627,546 18,940 3.02 % Tax-exempt investment securities (2) 1,212,844 48,547 4.00 % 1,554,519 64,568 4.15 % 1,675,227 56,389 3.37 % Mortgage-backed and related securities (2) 878,623 45,222 5.15 % 470,692 19,450 4.13 % 496,940 16,639 3.35 % Total securities 2,876,612 121,844 4.24 % 2,871,118 115,204 4.01 % 2,799,713 91,968 3.28 % FHLB stock, at cost, and equity investments 39,688 2,079 5.24 % 24,971 1,185 4.75 % 21,255 503 2.37 % Interest earning deposits 308,628 16,265 5.27 % 83,343 4,364 5.24 % 37,898 362 0.96 % Federal funds sold 53,709 2,855 5.32 % 79,948 4,124 5.16 % 44,454 1,126 2.53 % Total earning assets 7,875,096 424,909 5.40 % 7,361,199 372,404 5.06 % 6,822,667 267,362 3.92 % Cash and due from banks 106,965 107,018 104,602 Accrued interest and other assets 443,733 397,860 457,782 Less: Allowance for loan losses (43,428) (37,890) (35,962) Total assets $ 8,382,366 $ 7,828,187 $ 7,349,089 LIABILITIES AND SHAREHOLDERS’ EQUITY Savings accounts $ 600,375 5,824 0.97 % $ 636,603 5,633 0.88 % $ 671,402 1,838 0.27 % CDs 1,059,793 48,155 4.54 % 862,211 30,906 3.58 % 579,223 5,659 0.98 % Interest bearing demand accounts 3,503,878 99,678 2.84 % 3,122,319 71,618 2.29 % 3,139,628 21,578 0.69 % Total interest bearing deposits 5,164,046 153,657 2.98 % 4,621,133 108,157 2.34 % 4,390,253 29,075 0.66 % FHLB borrowings 601,366 24,450 4.07 % 276,584 6,777 2.45 % 135,926 3,291 2.42 % Subordinated notes, net of unamortized debt issuance costs 92,478 3,774 4.08 % 96,024 3,920 4.08 % 98,604 4,015 4.07 % Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,272 4,621 7.67 % 60,267 4,504 7.47 % 60,262 2,397 3.98 % Repurchase agreements 86,071 3,603 4.19 % 91,132 3,431 3.76 % 29,919 199 0.67 % Other borrowings 119,672 8,104 6.77 % 345,544 17,925 5.19 % 47,926 1,663 3.47 % Total interest bearing liabilities 6,123,905 198,209 3.24 % 5,490,684 144,714 2.64 % 4,762,890 40,640 0.85 % Noninterest bearing deposits 1,353,065 1,485,896 1,712,849 Accrued expenses and other liabilities 102,778 97,509 90,988 Total liabilities 7,579,748 7,074,089 6,566,727 Shareholders’ equity 802,618 754,098 782,362 Total liabilities and shareholders’ equity $ 8,382,366 $ 7,828,187 $ 7,349,089 Net interest income (FTE) $ 226,700 $ 227,690 $ 226,722 Net interest margin (FTE) 2.88 % 3.09 % 3.32 % Net interest spread (FTE) 2.16 % 2.42 % 3.07 % (1) Interest on loans includes net fees on loans that are not material in amount.
These include payments related to (i) borrowings presented in “Note 8 - Borrowing Arrangements” and “Note 9 – Long-Term Debt,” (ii) operating leases presented in “Note 16 - Leases,” (iii) time deposits with stated maturity dates presented in “Note 7 – Deposits” and (iv) commitments to extend credit and standby letters of credit as presented in “Note 17 - Off-Balance-Sheet Arrangements, Commitments and Contingencies.” Management continually evaluates our liquidity position and currently believes the Company has adequate funding to meet our financial needs. 62 Table of Contents
These include payments related to (i) borrowings presented in “Note 8 - Borrowing Arrangements” and “Note 9 – Long-Term Debt,” (ii) operating leases presented in “Note 16 - Leases,” (iii) time deposits with stated maturity dates presented in “Note 7 – Deposits” and (iv) commitments to extend credit and standby letters of credit as presented in “Note 17 - Off-Balance-Sheet Arrangements, Commitments and Contingencies.” 66 Table of Contents Management continually evaluates our liquidity position and currently believes the Company has adequate funding to meet our financial needs.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Allowance for Credit Losses - Loans and Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures,” “Note 1 – Summary of Significant Accounting and Reporting Policies,” “Note 5 – Loans and Allowance for Loan Losses” and “Note 17 - Off-Balance-Sheet Arrangements, Commitments and Contingencies” to our consolidated financial statements included in this report for a detailed description of our estimation process and methodology related to the allowance for loan losses. 35 Table of Contents NON-GAAP FINANCIAL MEASURES Certain non-GAAP measures are used by management to supplement the evaluation of our performance.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Allowance for Credit Losses - Loans and Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures,” “Note 1 – Summary of Significant Accounting and Reporting Policies,” “Note 5 – Loans and Allowance for Loan Losses” and “Note 17 - Off-Balance-Sheet Arrangements, Commitments and Contingencies” to our consolidated financial statements included in this report for a detailed description of our estimation process and methodology related to the allowance for loan losses. 39 Table of Contents NON-GAAP FINANCIAL MEASURES Certain non-GAAP measures are used by management to supplement the evaluation of our performance.
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. 41 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.
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. 45 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.
For additional information regarding our methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures, see “Note 17 – Off-Balance-Sheet Arrangements, Commitments and Contingencies” to our consolidated financial statements included in this report. 55 Table of Contents SECURITIES ACTIVITY Our securities portfolio plays a primary role in the management of our interest rate sensitivity and liquidity and, therefore, is managed in the context of the overall balance sheet.
For additional information regarding our methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures, see “Note 17 – Off-Balance-Sheet Arrangements, Commitments and Contingencies” to our consolidated financial statements included in this report. 59 Table of Contents SECURITIES ACTIVITY Our securities portfolio plays a primary role in the management of our interest rate sensitivity and liquidity and, therefore, is managed in the context of the overall balance sheet.
Prompt corrective action and other discretionary actions could have a direct material effect on our financial statements. Management believes that, as of December 31, 2023, we met all capital adequacy requirements to which we were subject. It is management’s intention to maintain our capital at a level acceptable to all regulatory authorities and future dividend payments will be determined accordingly.
Prompt corrective action and other discretionary actions could have a direct material effect on our financial statements. Management believes that, as of December 31, 2024, we met all capital adequacy requirements to which we were subject. It is management’s intention to maintain our capital at a level acceptable to all regulatory authorities and future dividend payments will be determined accordingly.
No valuation allowance was recorded at December 31, 2023 or December 31, 2022, as management believes it is more likely than not that all of the deferred tax asset items will be realized in future years. LENDING ACTIVITIES One of our main objectives is to seek attractive lending opportunities in Texas, primarily in the market areas in which we operate.
No valuation allowance was recorded at December 31, 2024 or December 31, 2023, as management believes it is more likely than not that all of the deferred tax asset items will be realized in future years. LENDING ACTIVITIES One of our main objectives is to seek attractive lending opportunities in Texas, primarily in the market areas in which we operate.
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. 39 Table of Contents BALANCE SHEET STRATEGY Determining the appropriate size of the balance sheet is one of the critical decisions any bank makes.
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. 43 Table of Contents BALANCE SHEET STRATEGY Determining the appropriate size of the balance sheet is one of the critical decisions any bank makes.
See “Non-GAAP Financial Measures” for more information and for a reconciliation to GAAP. 42 Table of Contents 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.
See “Non-GAAP Financial Measures” for more information and for a reconciliation to GAAP. 46 Table of Contents 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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Balance Sheet Strategy.” Our MBS are all insured or guaranteed by U.S. government agencies and corporations. Our MBS include CMOs, which were developed in response to investor concerns regarding the uncertainty of cash flows associated with the prepayment option of the underlying mortgages.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Balance Sheet Strategy.” Our MBS are all insured or guaranteed by U.S. government agencies and corporations. Our MBS include pools and CMOs. CMOs were developed in response to investor concerns regarding the uncertainty of cash flows associated with the prepayment option of the underlying mortgages.
These funds are invested primarily in U.S. agency MBS and long-term municipal securities and to a lesser extent, U.S. Treasury Bills and corporate securities. Although the securities purchased often carry lower yields than loans we make, these securities generally (i) increase the overall quality of our assets because of either the implicit or explicit guarantees of the U.S.
These funds are invested primarily in U.S. agency MBS and long-term municipal securities and to a lesser extent, U.S. Treasury Bills and corporate securities. Although the securities purchased often carry lower yields than loans, these securities generally (i) increase the overall quality of our assets because of either the implicit or explicit guarantees of the U.S.
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.
The instruments are designated as fair value hedges as the changes in the fair value of the interest rate swap are expected to partially offset changes in the fair value of the hedged item attributable to changes in the SOFR swap rate, the designated benchmark interest rate.
MBS generally may be prepaid at any time without penalty and can result in significantly increased price and yield volatility. Most of our MBS were purchased at a premium and should they prepay at a faster rate, our yield on these securities will decrease. Conversely, as prepayments slow, the yield on these MBS will increase.
MBS generally may be prepaid at any time without penalty and can result in significantly increased price and yield volatility. Several of our MBS were purchased at a premium and should they prepay at a faster rate, our yield on these securities will decrease. Conversely, as prepayments slow, the yield on these MBS will increase.
This discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2022 Form 10-K for a discussion and analysis of the more significant factors that affected periods prior to 2022.
This discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Form 10-K for a discussion and analysis of the more significant factors that affected periods prior to 2023.
Future changes in applicable law, regulations or government policies may also have a material impact on us. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2022 Form 10-K for a discussion and analysis of the periods prior to 2022.
Future changes in applicable law, regulations or government policies may also have a material impact on us. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Form 10-K for a discussion and analysis of the periods prior to 2023.
Common Equity Tier 1 for both the Company and the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. Tier 1 capital includes Common Equity Tier 1 capital and additional Tier 1 capital. For the Company, additional Tier 1 capital at December 31, 2023 included $58.5 million of trust preferred securities.
Common Equity Tier 1 for both the Company and the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. Tier 1 capital includes Common Equity Tier 1 capital and additional Tier 1 capital. For the Company, additional Tier 1 capital at December 31, 2024 included $58.5 million of trust preferred securities.
The Bank did not have any additional Tier 1 capital beyond Common Equity Tier 1 at December 31, 2023. Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital for both the Company and the Bank includes a permissible portion of the allowance for credit losses on loans and off-balance sheet exposures.
The Bank did not have any additional Tier 1 capital beyond Common Equity Tier 1 at December 31, 2024. Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital for both the Company and the Bank includes a permissible portion of the allowance for credit losses on loans and off-balance sheet exposures.
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.
We believe that this measure is 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.
Amortization of intangibles decreased for the year ended December 31, 2023, compared to the same period in 2022, due primarily to a decrease in core deposit intangible amortization which is recognized on an accelerated method resulting in a decline in expense over the amortization period.
Amortization of intangibles decreased for the year ended December 31, 2024, compared to the same period in 2023, due primarily to a decrease in core deposit intangible amortization which is recognized on an accelerated method resulting in a decline in expense over the amortization period.
The amounts of these loans outstanding at December 31, 2023, which, based on maturity, are due in (1) one year or less, (2) after one but within five years, (3) after five years but within 15 years, and (4) after 15 years, are shown in the following table.
The amounts of these loans outstanding at December 31, 2024, which, based on maturity, are due in (1) one year or less, (2) after one but within five years, (3) after five years but within 15 years, and (4) after 15 years, are shown in the following table.
Most of our municipal bonds were issued by the State of Texas or political subdivisions or agencies within the State of Texas and are highly rated. Our corporate bonds consist of investment grade bonds, private placement bonds and two bonds totaling approximately $6.4 million, rated one grade below investment grade.
Most of our municipal bonds were issued by the State of Texas or political subdivisions or agencies within the State of Texas and are highly rated. Our corporate bonds consist of investment grade bonds, private placement bonds and two bonds totaling approximately $6.8 million, rated one grade below investment grade.
As of December 31, 2023, Southside Bancshares and Southside Bank met all capital adequacy requirements under the Basel III Capital Rules that became fully phased-in as of January 1, 2019. See the section captioned “Supervision and Regulation” in “Item 1.
As of December 31, 2024, Southside Bancshares and Southside Bank met all capital adequacy requirements under the Basel III Capital Rules that became fully phased-in as of January 1, 2019. See the section captioned “Supervision and Regulation” in “Item 1.
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. 34 Table of Contents CRITICAL ACCOUNTING ESTIMATES Our accounting and reporting estimates conform with U.S. GAAP and general practices within the financial services industry.
We disclaim any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments, unless otherwise required by law. CRITICAL ACCOUNTING ESTIMATES Our accounting and reporting estimates conform with U.S. GAAP and general practices within the financial services industry.
The internal loan review department maintains a list of all loans or loan relationships that are graded as having more than the normal degree of risk 53 Table of Contents associated with them.
The internal loan review department maintains a list of all loans or loan relationships that are graded as having more than the normal degree of risk 57 Table of Contents associated with them.
Software and data processing expense increased for the year ended December 31, 2023, compared to the same period in 2022, due to new software contracts and increases in existing contract renewal costs.
Software and data processing expense increased for the year ended December 31, 2024, compared to the same period in 2023, due to new software contracts and increases in existing contract renewal costs.
Until municipal loan pricing improves, we do not anticipate originating municipal loans and as a result, expect this portfolio will decline as maturities and scheduled payments occur. LOANS TO INDIVIDUALS Substantially all originations of our loans to individuals are made to consumers in our market areas.
Until municipal loan pricing improves, we do not anticipate originating many, if any municipal loans and as a result, expect this portfolio will decline as maturities and scheduled payments occur. LOANS TO INDIVIDUALS Substantially all originations of our loans to individuals are made to consumers in our market areas.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides a comparison of our results of operations for the years ended December 31, 2023 and 2022 and financial condition as of December 31, 2023 and 2022.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides a comparison of our results of operations for the years ended December 31, 2024 and 2023 and financial condition as of December 31, 2024 and 2023.
MUNICIPAL LOANS We have made loans to municipalities and school districts primarily throughout the state of Texas, with a small percentage originating outside of the state. The majority of the loans to municipalities and school districts have tax or revenue 49 Table of Contents pledges and in some cases are additionally supported by collateral.
MUNICIPAL LOANS We have made loans to municipalities and school districts primarily throughout the state of Texas, with a small percentage originating outside of the state. The majority of the loans to municipalities and school districts have tax or revenue pledges and in some cases are additionally supported by collateral.
Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate. 44 Table of Contents PROVISION FOR CREDIT LOSSES For the year ended December 31, 2023, there was a provision for credit losses of $9.2 million, compared to $3.2 million for the year ended December 31, 2022.
Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate. 48 Table of Contents PROVISION FOR CREDIT LOSSES For the year ended December 31, 2024, there was a provision for credit losses of $3.3 million, compared to $9.2 million for the year ended December 31, 2023.
With respect to funding sources, we primarily utilize deposits and to a lesser extent, wholesale funding to achieve our strategy of minimizing cost while achieving overall interest rate risk objectives as well as the liability management objectives of the ALCO. Our primary wholesale funding sources are brokered deposits, FHLB and borrowings from the Federal Reserve through the FRDW and BTFP.
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 FHLB, brokered deposits and borrowings from the FRDW.
Potential higher interest expense and lack of customer loyalty are risks associated with the use of brokered deposits. 43 Table of Contents AVERAGE BALANCES WITH AVERAGE YIELDS AND RATES The following table presents average earning assets and interest bearing liabilities together with the average yield on the earning assets and the average rate of the interest bearing liabilities for the years ended December 31, 2023, 2022 and 2021.
Potential higher interest expense and lack of customer loyalty are risks associated with the use of brokered deposits. 47 Table of Contents AVERAGE BALANCES WITH AVERAGE YIELDS AND RATES The following table presents average earning assets and interest bearing liabilities together with the average yield on the earning assets and the average rate of the interest bearing liabilities for the years ended December 31, 2024, 2023 and 2022.
Please refer to the accompanying notes to these consolidated financial statements for the expected timing of such cash payments as of December 31, 2023.
Please refer to the accompanying notes to these consolidated financial statements for the expected timing of such cash payments as of December 31, 2024.
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.
Some 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.
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.
For example, 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 and our expectations regarding rate changes, 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.
The balance of the allowance for off-balance-sheet credit exposures at December 31, 2023 and 2022, was $3.9 million and $3.7 million, respectively, and is included in other liabilities. See the section captioned “Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures” elsewhere in this discussion for further analysis of the provision for credit losses for off-balance-sheet credit exposures.
The balance of the allowance for off-balance-sheet credit exposures at December 31, 2024 and 2023, was $3.1 million and $3.9 million, respectively, and is included in other liabilities. See the section captioned “Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures” elsewhere in this discussion for further analysis of the provision for credit losses for off-balance-sheet credit exposures.
The 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.
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, interest rate fluctuations 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, labor shortages and changes in interest rates by the Federal Reserve.
There were $300.0 million in borrowings from the FRDW at December 31, 2023, and $188.0 million at December 31, 2022. To provide more stability and to assure banks have the ability to meet the needs of all of their depositors, the Federal Reserve created the BTFP in the first quarter of 2023.
There were no borrowings from the FRDW at December 31, 2024, and $300.0 million at December 31, 2023. To provide more stability and to assure banks have the ability to meet the needs of all of their depositors, the Federal Reserve created the BTFP in the first quarter of 2023.
There were $300.0 million in borrowings from the FRDW at December 31, 2023 and $188.0 million at December 31, 2022. To provide more stability and to assure banks have the ability to meet the needs of all of their depositors, the Federal Reserve created the BTFP in the first quarter of 2023.
There were no borrowings from the FRDW at December 31, 2024 and $300.0 million at December 31, 2023. To provide more stability and to assure banks have the ability to meet the needs of all of their depositors, the Federal Reserve created the BTFP in the first quarter of 2023.
We utilize wholesale funding and securities to enhance overall profitability to determine the appropriate leverage of our capital, determining acceptable levels of credit, interest rate and liquidity risk consistent with prudent capital management. This balance sheet strategy currently consists of borrowing funds from the brokered market, FHLB and the Federal Reserve through the FRDW and BTFP.
We utilize wholesale funding and securities to enhance overall profitability, to determine the appropriate leverage of our capital and to determine acceptable levels of credit, interest rate and liquidity risk consistent with prudent capital management. This balance sheet strategy currently consists of borrowing funds from the brokered market, FHLB and the FRDW.
We also make home equity loans, which are included as part of the 1-4 family residential loans, and at December 31, 2023, these loans totaled $98.5 million. Under Texas law, these loans, when combined with all other mortgage indebtedness for the property, are capped at 80% of appraised value.
We also make home equity loans, which are included as part of the 1-4 family residential loans, and at December 31, 2024, these loans totaled $95.1 million. Under Texas law, these loans, when combined with all other mortgage indebtedness for the property, are capped at 80% of appraised value.
Other factors that could cause actual results to differ materially from those indicated by forward-looking statements include, but are not limited to, the following: • general (i) political conditions, including, without limitation, governmental action and uncertainty resulting from U.S. and global political trends and (ii) economic conditions, either globally, nationally, in the State of Texas, or in the specific markets in which we operate, including, without limitation, the deterioration of the commercial real estate, residential real estate, construction and development, energy, oil and gas, credit or liquidity markets, which could cause an adverse change in our net interest margin, or a decline in the value of our assets, which could result in realized losses, as well as the risk of an economic slowdown or recession; • current or future legislation, regulatory changes or changes in monetary or fiscal policy that adversely affect the businesses in which we or our customers or our borrowers are engaged, including the impact of the Dodd-Frank Act, the Federal Reserve’s actions to increase interest rates, the capital requirements promulgated by the Basel Committee, the CARES Act, the Economic Aid Act and other regulatory responses to economic conditions; • economic or other disruptions caused by acts of terrorism, war or other conflicts, including the Russia-Ukraine and Israeli-Hamas conflicts, natural disasters, such as hurricanes, freezes, flooding and other man-made disasters, such as oil spills or power outages, health emergencies, epidemics or pandemics, climate change or other catastrophic events; • potential impacts of the adverse developments in the banking industry highlighted by high-profile bank failures, including impacts on customer confidence, deposit outflows, liquidity and the regulatory response thereto; • technological changes, including potential cyber-security incidents and other disruptions, or innovations to the financial services industry, including as a result of the increased telework environment; • our ability to identify and address cyber-security risks such as data security breaches, malware, “denial of service” attacks, “hacking” and identity theft, which may be exacerbated by recent developments in generative artificial intelligence and which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage of our systems, increased costs, significant losses, or adverse effects to our reputation; 33 Table of Contents • changes in the interest rate yield curve such as flat, inverted or steep yield curves, or changes in the interest rate environment that impact net interest margins and may impact prepayments on our MBS portfolio; • the risk that our enterprise risk management framework, compliance program or our corporate governance and supervisory oversight functions may not identify or address risks adequately, which may result in unexpected losses; • the effect of compliance with legislation or regulatory changes; • credit risks of borrowers, including any increase in those risks due to changing economic conditions; • increases in our nonperforming assets; • risks related to environmental liability as a result of certain lending activity; • our ability to maintain adequate liquidity to fund operations and growth; • our ability to control interest rate risk; • any applicable regulatory limits or other restrictions on the Bank and its ability to pay dividends to us; • the failure of our assumptions underlying our allowance for credit losses and other estimates; • the failure to maintain an effective system of controls and procedures, including internal control over financial reporting; • the effectiveness of our derivative financial instruments and hedging activities to manage risk; • unexpected outcomes of, and the costs associated with, existing or new litigation involving us; • potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions; • changes impacting our balance sheet strategy; • risks related to actual mortgage prepayments diverging from projections; • risks related to fluctuations in the price per barrel of crude oil; • significant increases in competition in the banking and financial services industry; • changes in consumer spending, borrowing and saving habits, including as a result of rising inflation and recessionary concerns; • execution of future acquisitions, reorganization or disposition transactions, including the risk that the anticipated benefits of such transactions are not realized; • our ability to increase market share and control expenses; • our ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by our customers; • the effect of changes in federal or state tax laws; • the effect of changes in accounting policies and practices; • adverse changes in the status or financial condition of the GSEs which impact the GSEs’ guarantees or ability to pay or issue debt; • adverse changes in the credit portfolios of other U.S. financial institutions relative to the performance of certain of our investment securities; • risks related to actual U.S. agency MBS prepayments exceeding projected prepayment levels; • risks related to U.S. agency MBS prepayments increasing due to U.S. government programs designed to assist homeowners to refinance their mortgage that might not otherwise have qualified; • risks related to loans secured by real estate, including the risk that the value and marketability of collateral could decline; • risks associated with our common stock and our other securities, including fluctuations in our stock price and general volatility in the stock market; and • the risks identified in “Part I - Item 1A.
Other factors that could cause actual results to differ materially from those indicated by forward-looking statements include, but are not limited to, the following: • general (i) political conditions, including, without limitation, governmental action and uncertainty resulting from U.S. and global political trends and (ii) economic conditions, either globally, nationally, in the State of Texas, or in the specific markets in which we operate, including, without limitation, the deterioration of the commercial real estate, residential real estate, construction and development, energy, oil and gas, credit or liquidity markets, which could cause an adverse change in our net interest margin, or a decline in the value of our assets, which could result in realized losses, as well as the risk of an economic slowdown or recession; • inflation and fluctuations in interest rates that reduce our margins and yields, the fair value of financial instruments, the level of loan originations or prepayments on loans we have made and make, and the cost we pay to retain and attract deposits and secure other types of funding; • current or future legislation, regulatory changes or changes in monetary or fiscal policy that adversely affect the businesses in which we or our customers or our borrowers are engaged, including the impact of the Dodd-Frank Act, the Federal Reserve’s actions to manage interest rates, the capital requirements promulgated by the Basel Committee, the CARES Act, the Economic Aid Act, tariffs, trade policies and other regulatory responses to economic conditions; • the impact of interest rate fluctuations on our financial projections, models and guidance; • acts of terrorism, war or other conflicts, natural disasters, such as hurricanes, freezes, flooding and other man-made disasters, such as oil spills or power outages, health emergencies, epidemics or pandemics, climate change or other catastrophic events that may affect general economic conditions or cause other disruptions and/or increase costs, including, but not limited to, property and casualty and other insurance costs; • potential impacts of the adverse developments in the banking industry highlighted by high-profile bank failures, including impacts on customer confidence, deposit outflows, liquidity and the regulatory response thereto; • technological changes, including potential cyber-security incidents and other disruptions, or innovations to the financial services industry, including as a result of the increased telework environment; 37 Table of Contents • our ability to identify and address cyber-security risks such as data security breaches, malware, “denial of service” attacks, “hacking” and identity theft, which may be exacerbated by developments in generative artificial intelligence and which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage of our systems, increased costs, significant losses, or adverse effects to our reputation; • changes in the interest rate yield curve such as flat, inverted or steep yield curves, or changes in the interest rate environment that impact net interest margins and may impact prepayments on our MBS portfolio; • the risk that our enterprise risk management framework, compliance program or our corporate governance and supervisory oversight functions may not identify or address risks adequately, which may result in unexpected losses; • the effect of compliance with legislation or regulatory changes; • the potential implementation under the new presidential administration of a regulatory reform agenda that is different than that of the prior administration, impacting the rulemaking, supervision, examination and enforcement priorities of the federal banking agencies; • credit risks of borrowers, including any increase in those risks due to changing economic conditions; • increases in our nonperforming assets; • risks related to environmental liability as a result of certain lending activity; • our ability to maintain adequate liquidity to fund operations and growth; • our ability to control interest rate risk; • any applicable regulatory limits or other restrictions on the Bank and its ability to pay dividends to us; • the failure of our assumptions underlying our allowance for credit losses and other estimates; • the failure to maintain an effective system of controls and procedures, including internal control over financial reporting; • the effectiveness of our derivative financial instruments and hedging activities to manage risk; • unexpected outcomes of, and the costs associated with, existing or new litigation involving us; • potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions; • changes impacting our balance sheet strategy; • risks related to actual mortgage prepayments diverging from projections; • risks related to fluctuations in the price per barrel of crude oil; • significant increases in competition in the banking and financial services industry; • changes in consumer spending, borrowing and saving habits, including as a result of inflation, fluctuating interest rates and recessionary concerns; • execution of future acquisitions, reorganization or disposition transactions, including the risk that the anticipated benefits of such transactions are not realized; • our ability to increase market share and control expenses; • our ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by our customers; • the effect of changes in federal or state tax laws; • the effect of changes in accounting policies and practices; • adverse changes in the status or financial condition of the GSEs which impact the GSEs’ guarantees or ability to pay or issue debt; • adverse changes in the credit portfolios of other U.S. financial institutions relative to the performance of certain of our investment securities; • risks related to actual U.S. agency MBS prepayments exceeding projected prepayment levels; • risks related to U.S. agency MBS prepayments increasing due to U.S. government programs designed to assist homeowners to refinance their mortgage that might not otherwise have qualified; • risks related to loans secured by real estate, including the risk that the value and marketability of collateral could decline; 38 Table of Contents • risks associated with our common stock and our other securities, including fluctuations in our stock price and general volatility in the stock market; and • the risks identified in “Part I - Item 1A.
Our wholesale funding policy currently allows for maximum brokered deposits of the lesser of $1.20 billion, or 20% of total deposits. Potential higher interest expense and lack of customer loyalty are risks associated with the use of brokered deposits.
Our wholesale funding policy currently allows for maximum brokered deposits of the lesser of $1.05 billion, or 12% of total assets. Potential higher interest expense and lack of customer loyalty are risks associated with the use of brokered deposits.
At December 31, 2023, the combined investment securities, MBS, FHLB stock and other investments as a percentage of total assets was 31.7% compared to loans, which were 54.7% of total assets. For a discussion of our strategy in relation to the securities portfolio, see “Item 7.
At December 31, 2024, the combined investment securities, MBS, FHLB stock and other investments as a percentage of total assets was 33.5% compared to loans, which were 54.8% of total assets. For a discussion of our strategy in relation to the securities portfolio, see “Item 7.
Construction loans to individuals are typically priced and made with the intention of granting the permanent loan on the completed property. Commercial construction loans are subject to underwriting standards similar to that of the commercial real estate loan portfolio.
Construction loans to individuals are typically priced and made with the intention of granting the permanent loan on the completed property. Commercial construction loans typically have adjustable interest rates and are subject to underwriting standards similar to that of the commercial real estate loan portfolio.
At December 31, 2023, the amount of additional funding Southside Bank could obtain from FHLB, collateralized by securities, FHLB stock and nonspecified loans and securities, was approximately $1.95 billion, net of FHLB stock purchases required.
At December 31, 2024, the amount of additional funding Southside Bank could obtain from FHLB, collateralized by securities, FHLB stock and nonspecified loans and securities, was approximately $1.72 billion, net of FHLB stock purchases required.
As of December 31, 2023, and 2022, our reviews of the loan portfolio indicated that loan loss allowances of $42.7 million and $36.5 million, respectively, were appropriate to cover expected credit losses in the portfolio. See the section captioned “Allowance for Credit Losses - Loans” elsewhere in this discussion for further analysis of the provision for credit losses for loans.
As of December 31, 2024, and 2023, our reviews of the loan portfolio indicated that loan loss allowances of $44.9 million and $42.7 million, respectively, were appropriate to cover expected credit losses in the portfolio. See the section captioned “Allowance for Credit Losses - Loans” elsewhere in this discussion for further analysis of the provision for credit losses for loans.
During the years ended December 31, 2023 and December 31, 2022, we sold MBS, U.S. Treasury securities and municipal securities that resulted in net losses on sale of AFS securities of $16.0 million and $3.8 million, respectively. During the year ended December 31, 2023, we sold equity securities that resulted in a net gain of $5.1 million.
During the year ended December 31, 2023, we sold municipal securities, MBS, and U.S. Treasury securities that resulted in net losses on sale of AFS securities of $16.0 million. During the year ended December 31, 2023, we sold equity securities that resulted in a net gain of $5.1 million.
At December 31, 2023, the majority of the securities portfolio was funded by non-maturity deposits, some of which are included in wholesale funding that accounts for approximately 55% of the funding source, of which approximately 69% is swapped at a fixed rate, providing protection from rising interest rates.
At December 31, 2024, the majority of the securities portfolio was funded by non-maturity deposits, some of which are included in wholesale funding that accounts for approximately 51% of the funding source, of which approximately 54% is swapped at a fixed rate, providing protection from rising interest rates.
We utilize Moody’s Analytics economic forecast scenarios and assign probability weighting to those scenarios which best reflect management’s views on the economic forecast. The probability weighting and scenarios utilized for the estimate of the allowance were generally reflective of increased economic and repricing concerns forecasted in our CECL model as of December 31, 2023.
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 continued economic and repricing uncertainty forecasted in our CECL model as of December 31, 2024.
There were $1.31 billion and $1.33 billion of securities classified as HTM at December 31, 2023 and 2022, respectively. 56 Table of Contents The maturities classified according to the sensitivity to changes in interest rates of the December 31, 2023 AFS and HTM investment securities and MBS portfolio and the weighted yields are presented below (dollars in thousands).
There were $1.28 billion and $1.31 billion of securities classified as HTM at December 31, 2024 and 2023, respectively. 60 Table of Contents The maturities classified according to the sensitivity to changes in interest rates of the December 31, 2024 AFS and HTM investment securities and MBS portfolio and the weighted yields are presented below (dollars in thousands).
To provide more liquidity in response to economic conditions in recent years, the Federal Reserve has encouraged broader use of the discount window. At December 31, 2023, the amount of additional funding the Bank could obtain from the FRDW, collateralized by securities, was approximately $213.1 million.
To provide more liquidity in response to economic conditions in recent years, the Federal Reserve has encouraged broader use of the discount window. At December 31, 2024, the amount of additional funding the Bank could obtain from the FRDW, collateralized by securities, was approximately $431.7 million.
To provide more liquidity in response to economic conditions in recent years, the Federal Reserve has encouraged broader use of the discount window. At December 31, 2023, the amount of additional funding the Bank could obtain from the FRDW, collateralized by securities, was approximately $213.1 million.
To provide more liquidity in response to economic conditions in recent years, the Federal Reserve has encouraged broader use of the discount window. At December 31, 2024, the amount of additional funding the Bank could obtain from the FRDW, collateralized by securities, was approximately $431.7 million.
The total net unamortized premium for our MBS increased to $9.5 million at December 31, 2023 compared to $1.3 million at December 31, 2022. Our investment securities consist primarily of state and political subdivision (municipal bonds) and to a lesser extent, U.S. Treasury Bills and corporate bonds.
The total net unamortized premium for our MBS decreased to $5.9 million at December 31, 2024 compared to $9.5 million at December 31, 2023. Our investment securities consist primarily of state and political subdivision (municipal bonds) and to a lesser extent, U.S. Treasury Bills and corporate bonds.
During the year ended December 31, 2023, the composition of the securities portfolio continued to change as U.S. Treasury Bills and MBS increased while the remaining categories in the portfolio decreased. The increase in MBS was attributable to purchases of U.S. Agency MBS, partially offset by MBS sales and principal payments.
During the year ended December 31, 2024, we continued to adjust the composition of the securities portfolio as U.S. Treasury Bills and MBS increased while the remaining categories in the portfolio decreased. The increase in MBS was attributable to purchases of U.S. Agency MBS, partially offset by MBS principal payments.
As of December 31, 2023, our review of the loan portfolio indicated that an allowance for loan losses of $42.7 million was appropriate to cover expected losses in the portfolio. Changes in economic and other conditions, including the application of the CECL model, may require future adjustments to the allowance for loan losses.
As of December 31, 2024, our review of the loan portfolio indicated that an allowance for loan losses of $44.9 million was appropriate to cover expected losses in the portfolio. Changes in economic and other conditions, including the application of the CECL model, may require future adjustments to the allowance for loan losses.
Business” included in this report. 61 Table of Contents The table below summarizes our key equity ratios: Years Ended December 31, 2023 2022 2021 Return on average assets 1.11 % 1.43 % 1.59 % Return on average shareholders’ equity 11.50 % 13.42 % 12.77 % Dividend payout ratio – Basic 50.35 % 42.81 % 39.37 % Dividend payout ratio – Diluted 50.35 % 42.94 % 39.48 % Average shareholders’ equity to average total assets 9.63 % 10.65 % 12.47 % EFFECTS OF INFLATION Our consolidated financial statements and their related notes have been prepared in accordance with GAAP which requires the measurement of financial position and operating results in terms of historical dollars, without considering the change in the relative purchasing power of money over time and due to inflation.
Business” included in this report. 65 Table of Contents The table below summarizes our key equity ratios: Years Ended December 31, 2024 2023 2022 Return on average assets 1.06 % 1.11 % 1.43 % Return on average shareholders’ equity 11.03 % 11.50 % 13.42 % Dividend payout ratio – Basic 49.32 % 50.35 % 42.81 % Dividend payout ratio – Diluted 49.48 % 50.35 % 42.94 % Average shareholders’ equity to average total assets 9.58 % 9.63 % 10.65 % EFFECTS OF INFLATION Our consolidated financial statements and their related notes have been prepared in accordance with GAAP which requires the measurement of financial position and operating results in terms of historical dollars, without considering the change in the relative purchasing power of money over time and due to inflation.
See “Note 5 – Loans and Allowance for Loan Losses” in our consolidated financial statements included in this report. 54 Table of Contents ALLOWANCE FOR CREDIT LOSSES – OFF-BALANCE-SHEET CREDIT EXPOSURES Allowance for off-balance-sheet credit exposures were as follows (in thousands): Years Ended December 31, 2023 2022 2021 Balance at beginning of period $ 3,687 $ 2,384 $ 6,386 Provision for (reversal of) off-balance-sheet credit exposures 245 1,303 (4,002) Balance at end of period $ 3,932 $ 3,687 $ 2,384 Our off-balance-sheet credit exposures include contractual commitments to extend credit and standby letters of credit.
See “Note 5 – Loans and Allowance for Loan Losses” in our consolidated financial statements included in this report. 58 Table of Contents ALLOWANCE FOR CREDIT LOSSES – OFF-BALANCE-SHEET CREDIT EXPOSURES Allowance for off-balance-sheet credit exposures were as follows (in thousands): Years Ended December 31, 2024 2023 2022 Balance at beginning of period $ 3,932 $ 3,687 $ 2,384 Provision for (reversal of) off-balance-sheet credit exposures (791) 245 1,303 Balance at end of period $ 3,141 $ 3,932 $ 3,687 Our off-balance-sheet credit exposures include contractual commitments to extend credit and standby letters of credit.
Our balance sheet management strategy is dynamic and is continually evaluated as market conditions warrant. During the year ended 2022, we entered into partial term fair value hedges for certain of our fixed rate callable AFS municipal securities.
Our balance sheet management strategy is dynamic and is continually evaluated as market conditions warrant. 44 Table of Contents During 2022, we entered into partial term fair value hedges for certain of our fixed rate callable AFS municipal securities.
Our cost of total deposits increased 129 basis points, from 0.48% for the year ended December 31, 2022, to 1.77% for the year ended December 31, 2023. CAPITAL RESOURCES AND LIQUIDITY Our capital ratios and contingent liquidity sources remain solid. We utilized the Federal Reserve’s BTFP to reduce our overall funding costs and to enhance our interest rate risk position.
Our cost of total deposits increased 59 basis points, from 1.77% for the year ended December 31, 2023, to 2.36% for the year ended December 31, 2024. CAPITAL RESOURCES AND LIQUIDITY Our capital ratios and contingent liquidity sources remain solid. We utilized the Federal Reserve’s BTFP to reduce our overall funding costs and to enhance our interest rate risk position.
Southside Bank has three unsecured lines of credit for the purchase of overnight federal funds at prevailing rates with Frost Bank, TIB – The Independent Bankers Bank and Comerica Bank for $40.0 million, $15.0 million and $7.5 million, respectively. There were no federal funds purchased at December 31, 2023 or December 31, 2022.
Southside Bank has three unsecured lines of credit for the purchase of overnight federal funds at prevailing rates with Frost Bank, Amegy Bank, TIB – The Independent Bankers Bank for $40.0 million, $25.0 million and $15.0 million, respectively. There were no federal funds purchased at December 31, 2024 or 2023.
The increase in average earning assets was primarily the result of the increase in loans and taxable investment securities, partially offset by the decrease in tax-exempt investment securities.
The increase in average earning assets was primarily the result of the increase in MBS, loans and interest earning deposits, partially offset by the decrease in tax-exempt investment securities.
The Bank has three unsecured lines of credit for the purchase of overnight federal funds at prevailing rates with Frost Bank, TIB – The Independent Bankers Bank and Comerica Bank for $40.0 million, $15.0 million and $7.5 million, respectively. There were no federal funds purchased at December 31, 2023 or 2022.
The Bank has three unsecured lines of credit for the purchase of overnight federal funds at prevailing rates with Frost Bank, Amegy Bank and TIB – The Independent Bankers Bank for $40.0 million, $25.0 million and $15.0 million, respectively. There were no federal funds purchased at December 31, 2024 or 2023.
Other factors, such as the value of collateral securing the loan and the financial condition of the borrower are considered in judgments as to potential loan loss. Total nonperforming assets at December 31, 2023 were $4.0 million, representing a decrease of $6.9 million, or 63.2%, from $10.9 million at December 31, 2022.
Other factors, such as the value of collateral securing the loan and the financial condition of the borrower are considered in judgments as to potential loan loss. Total nonperforming assets at December 31, 2024 were $3.6 million, representing a decrease of $412,000, or 10.3%, from $4.0 million at December 31, 2023.
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. 36 Table of Contents OVERVIEW ECONOMIC CONDITIONS The economic conditions and growth prospects for our markets, even against the headwinds of inflation and potential recessionary concerns, continue to reflect a solid and positive overall outlook.
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. 40 Table of Contents OVERVIEW ECONOMIC CONDITIONS The economic conditions and growth prospects for our markets continue to reflect a solid and positive overall outlook.
Tier 2 capital for the Company also includes $93.9 million of qualified subordinated debt as of December 31, 2023. The permissible portion of qualified subordinated notes decreases 20% per year during the final five years of the term of the notes.
Tier 2 capital for the Company also includes $92.0 million of qualified subordinated debt as of December 31, 2024. The permissible portion of qualified subordinated notes decreases 20% per year during the final five years of the term of the notes.
These loans totaled $13.7 million and $14.2 million and represented 1.8% and 1.9% of shareholders’ equity as of December 31, 2023 and 2022, respectively. NONPERFORMING ASSETS Nonperforming assets consist of delinquent loans 90 days or more past due, nonaccrual loans, OREO, repossessed assets and restructured loans.
These loans totaled $12.1 million and $13.7 million and represented 1.5% and 1.8% of shareholders’ equity as of December 31, 2024 and 2023, respectively. NONPERFORMING ASSETS Nonperforming assets consist of delinquent loans 90 days or more past due, nonaccrual loans, OREO, repossessed assets and restructured loans.
At December 31, 2023, the amount of additional funding Southside Bank could obtain from FHLB, collateralized by securities, FHLB stock and nonspecified loans and securities, was approximately $1.95 billion, net of FHLB stock purchases required. 59 Table of Contents CAPITAL RESOURCES AND LIQUIDITY Our total shareholders’ equity at December 31, 2023 increased 3.7%, or $27.3 million, to $773.3 million, or 9.3% of total assets, compared to $746.0 million, or 9.9% of total assets, at December 31, 2022.
At December 31, 2024, the amount of additional funding Southside Bank could obtain from FHLB, collateralized by securities, FHLB stock and nonspecified loans and securities, was approximately $1.72 billion, net of FHLB stock purchases required. 63 Table of Contents CAPITAL RESOURCES AND LIQUIDITY Our total shareholders’ equity at December 31, 2024 increased 5.0%, or $38.7 million, to $811.9 million, or 9.5% of total assets, compared to $773.3 million, or 9.3% of total assets, at December 31, 2023.
We ended the fourth quarter of 2023 with approximately $213.1 million in available liquidity between the FRDW and the BTFP in addition to the approximately $1.95 billion credit line available from FHLB due primarily to the blanket lien on our loan portfolio and to a lesser extent, securities available as collateral.
We ended the fourth quarter of 2024 with approximately $431.7 million in available liquidity from the FRDW, in addition to the approximately $1.72 billion available from the credit line with FHLB due primarily to the blanket lien on our loan portfolio and to a lesser extent, securities available as collateral.
In connection with $1.01 billion of our wholesale funds, the Bank has entered into various variable rate agreements and fixed or variable rate short-term pay agreements with an interest rate tied to overnight SOFR.
In connection with $790.0 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 SOFR.
In our commercial loan underwriting, we assess the creditworthiness, ability to repay and the value and liquidity of the collateral being offered. Terms of commercial loans are generally commensurate with the useful life of the collateral offered. Commercial loans decreased $45.2 million, or 11.0%, to $366.9 million as of December 31, 2023, when compared to 2022.
In our commercial loan underwriting, we assess the creditworthiness, ability to repay and the value and liquidity of the collateral being offered. Terms of commercial loans are generally commensurate with the useful life of the collateral offered. Commercial loans decreased $3.7 million, or 1.0%, to $363.2 million as of December 31, 2024, when compared to 2023.
Southside Bank enters into sales of securities under repurchase agreements. These repurchase agreements totaled $92.1 million at December 31, 2023 and $33.2 million at December 31, 2022, and had maturities of less than two years. Repurchase agreements are secured by investment and MBS securities and are stated at the amount of cash received in connection with the transaction.
Southside Bank enters into sales of securities under repurchase agreements. These repurchase agreements totaled $76.4 million at December 31, 2024, and $92.1 million at December 31, 2023, and had maturities of less than one year. Repurchase agreements are secured by investment and MBS securities and are stated at the amount of cash received in connection with the transaction.
We reversed $89,000 of interest income on nonaccrual loans during the year ended December 31, 2023.
We reversed $72,000 of interest income on nonaccrual loans during the year ended December 31, 2024.
Our ability to liquidate certain types of properties that may be obtained through foreclosure could adversely affect the volume of our nonperforming real estate loans. Construction Real Estate Loans Our construction loans are collateralized by property located primarily in or near the market areas we serve. A number of our construction loans will be owner occupied upon completion.
Our ability to liquidate certain types of properties that may be obtained through foreclosure could adversely affect the volume of our nonperforming real estate loans. 52 Table of Contents Construction Real Estate Loans Our construction loans are collateralized by property located primarily in or near the market areas we serve.
The majority of our loan originations are made to borrowers who live in and/or conduct business in the market areas of Texas in which we operate or adjoin. Total loans as of December 31, 2023 increased $376.8 million, or 9.1%, and the average loan balance outstanding for the year increased $381.9 million, or 9.7%, compared to 2022.
The majority of our loan originations are made to borrowers who live in and/or conduct business in the market areas of Texas in which we operate or adjoin. Total loans as of December 31, 2024 increased $137.1 million, or 3.0%, and the average loan balance outstanding for the year increased $293.1 million, or 6.8%, compared to 2023.
Earnings per diluted common share decreased $0.44, or 13.5%, to $2.82 for the year ended December 31, 2023, compared to $3.26 for the same period in 2022. 37 Table of Contents The following table sets forth selected financial data regarding our results of operations and financial position for, and as of the end of, each of the fiscal years in the three-year period ended December 31, 2023.
Earnings per diluted common share increased $0.09, or 3.2%, to $2.91 for the year ended December 31, 2024, compared to $2.82 for the same period in 2023. 41 Table of Contents The following table sets forth selected financial data regarding our results of operations and financial position for, and as of the end of, each of the fiscal years in the three-year period ended December 31, 2024.
The increase in total interest income for the year ended December 31, 2023 was attributable to the increase in average yield on interest earning assets to 5.06% from 3.92% for the year ended December 31, 2022, as well as a $538.5 million, or 7.9%, increase in the average balance of interest earning assets for the year ended December 31, 2023, compared to the year ended December 31, 2022.
The increase in total interest income for the year ended December 31, 2024, was attributable to the increase in the average balance of interest earning assets of $513.9 million, or 7.0%, compared to the year ended December 31, 2023, as well as the increase in the average yield on interest earning assets to 5.40% from 5.06% for the year ended December 31, 2023.
We elected to adopt the five-year transition option. In accordance with CECL guidance, a CECL transitional amount totaling $4.1 million has been added back to CET1 as of December 31, 2023, representing 50% of the $8.2 million transitional amount at December 31, 2022.
We elected to adopt the five-year transition option. In accordance with CECL guidance, a CECL transitional amount totaling $2.0 million has been added back to CET1 as of December 31, 2024, representing 25% of the $8.2 million transitional amount at December 31, 2021.
Southside Bank has a $5.0 million line of credit with Frost Bank to be used to issue letters of credit, and at December 31, 2023, the line had one outstanding letter of credit for $155,000. Southside Bank currently has no outstanding letters of credit from FHLB held as collateral for its public fund deposits.
Southside Bank has a $5.0 million line of credit with Frost Bank to be used to issue letters of credit, and at December 31, 2024, the line had one outstanding letter of credit for $155,000. Southside Bank currently has one outstanding letter of credit from FHLB held as collateral for a loan for $6.1 million.
FHLB borrowings represent borrowings with fixed interest rates ranging from 0.57% to 4.80% and with remaining maturities of 22 days to 4.5 years at December 31, 2023. FHLB borrowings may be collateralized by FHLB stock, nonspecified loans and/or securities.
FHLB borrowings represent borrowings with fixed interest rates ranging from 0.27% to 4.80% and with remaining maturities of 2 days to 3.8 years at December 31, 2024. FHLB borrowings may be collateralized by FHLB stock, nonspecified loans and/or securities.
At December 31, 2023, loans collateralized by titled equipment, which are primarily automobiles, accounted for approximately $35.0 million, or 56.8%, of total loans to individuals. Home equity loans, which are included in 1-4 family residential loans, have replaced some of the traditional loans to individuals.
At December 31, 2024, loans collateralized by titled equipment, which are primarily automobiles, accounted for approximately $25.5 million, or 51.6%, of total loans to individuals. Home equity loans, which are included in 1-4 family residential loans, have replaced some of the traditional loans to individuals.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeBy 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. 63 Table of Contents
Biggest changeIn 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 could be made to the asset and liability mix to mitigate the change in net interest income under these various interest rate scenarios. 67 Table of Contents
We continue to monitor interest rates and anticipate additional rate changes during 2024. The following table reflects the noted increases and decreases in interest rates under the model simulations and the anticipated impact on net interest income relative to the base case over the next 12 months for the periods presented.
We continue to monitor interest rates and anticipate rate changes during 2025. 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.
Ongoing elevated inflation levels and higher interest rates could have a negative impact on the financial condition of both our consumer and commercial borrowers. The ALCO monitors various liquidity ratios to ensure a satisfactory liquidity position for us.
Higher inflation levels and elevated interest rates could have a negative impact on the financial condition of both our consumer and commercial borrowers. The ALCO monitors various liquidity ratios to ensure a satisfactory liquidity position.
Assumptions are based on management’s best estimates but may not accurately reflect actual results under certain changes in interest rates. Economic conditions and growth prospects are currently impacted by record inflation and potential recessionary concerns. Furthermore, worker shortages, supply chain disruptions and inflationary conditions, have had some impact on the level of economic growth in our market areas.
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 high inflation, elevated interest rates and potential recessionary concerns. Furthermore, worker shortages and inflationary conditions have had some impact on the level of economic growth in our market areas.
Anticipated impact over the next 12 months December 31, Rate projections: 2023 2022 Increase: 100 basis points 2.49 % 7.92 % 200 basis points 5.49 % 12.90 % Decrease: 50 basis points (0.80) % (2.96) % 100 basis points (1.82) % (6.16) % 200 basis points (3.85) % (12.34) % As part of the overall assumptions, certain assets and liabilities are given reasonable floors.
Anticipated impact over the next 12 months December 31, Rate projections: 2024 2023 Increase: 100 basis points 1.93 % 2.49 % 200 basis points 3.85 % 5.49 % Decrease: 50 basis points (1.18) % (0.80) % 100 basis points (1.55) % (1.82) % 200 basis points (1.80) % (3.85) % As part of the overall assumptions, certain assets and liabilities are given reasonable floors.
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In addition, as described above, we utilize a simulation model to determine the impact of net interest income under several different interest rate scenarios.

Other SBSI 10-K year-over-year comparisons