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YoY shift: Lean -
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.26pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.44pp
Lean -
Net-tone change vs last year's 10-K.
MD&A
-0.08pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
fraud+16
losses+11
negatively+10
incidents+8
incident+7
Positive rising
profitability+3
able+2
successfully+2
stability+2
successful+1
Risk Factors (Item 1A)
12,443 words
ITEM 1A. RISK FACTORS
In addition to the other information contained in this Form 10-K, you should carefully consider the risks described below, as well as the risk factors and uncertainties discussed in our other public filings with the SEC under the caption “Risk Factors” in evaluating us and our business and making or continuing an investment in our stock. Set forth below are the material risks and uncertainties that, if they were to occur, could materially and adversely affect our business, financial condition, results of operations and the trading price of our common stock. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our financial condition and business operations. The trading price of our securities could decline due to the materialization of any of these risks, and our shareholders may lose all or part of their investment. This Form 10-K also contains forward-looking statements that may not be realized as a result of certain factors, including, but not limited to, the risks described herein and in our other public filings with the SEC. Please refer to the section in this Form 10-K entitled “Cautionary Notice Regarding Forward-Looking Statements” for additional information regarding forward-looking statements.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
loss+4
restructured+3
disruptions+3
stress+2
adverse+1
Positive rising
benefit+1
improvements+1
improved+1
efficiency+1
MD&A (Item 7)
17,582 words
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, 2025 and 2024 and financial condition as of December 31, 2025 and 2024. 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 2024 Form 10-K for a discussion and analysis of the more significant factors that affected periods prior to 2024.
Certain statements of other than historical fact that are contained in this report may be considered to be “forward-looking statements” within the meaning of and subject to the safe harbor protections of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. These statements may include words such as “expect,” “estimate,” “project,” “anticipate,” “appear,” “believe,” “could,” “should,” “may,” “might,” “will,” “would,” “seek,” “intend,” “probability,” “risk,” “goal,” “target,” “objective,” “plans,” “potential,” and similar expressions. Forward-looking statements are statements with respect to our beliefs, plans, expectations, objectives, goals, anticipations, assumptions, estimates, intentions and future performance and are subject to significant known and unknown risks and uncertainties, which could cause our actual results to differ materially from the results discussed in the forward-looking statements. For example, trends in asset quality, capital, liquidity, our ability to sell assets, expense reductions, planned operational 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 . By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future. Accordingly, our results could materially differ from those that have been estimated. The most significant factors that could cause future results to differ materially from those anticipated by our forward-looking statements include general economic conditions in our markets, including the impact of changes in interest rates on our financial projections, models and guidance, as well as the effects of in the real estate market, tariffs or trade wars (including reduced consumer spending, lower economic growth or , reduced demand for U.S. exports, to supply chains and decreased demand for other banking products and services), high and increasing insurance costs, as well as the financial to borrowers as a result of the foregoing, 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 and our ability to manage liquidity in a rapidly changing and market. 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:
Our earnings and cash flows are largely dependent upon our net interest income. Net interest income is the difference between interest income earned on interest earning assets such as loans and securities and interest expense paid on interest bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond our control, including the rate of inflation, general economic conditions and policies of various governmental and regulatory agencies (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 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%. In the third and fourth quarters of 2025, the Federal Reserve reduced the target federal funds rate by 25 basis points and 50 basis points, respectively, to 3.50% to 3.75%. We are currently operating in an environment in which the Federal Reserve has continued to reduce interest rates, although modestly, with six cuts implemented in 2024 and 2025. However, the inflationary outlook remains uncertain and if the Federal Reserve were to reverse course and rapidly increase the target federal funds rate, the increase in rates could continue to constrain our interest rate spread and may adversely affect our business forecasts. On the other hand, further rapid decreases in interest rates may result in a change in the mix of noninterest and interest-bearing accounts. New appointments to the Board of Governors at the Federal Reserve could result in a change in monetary policy and interest rates. We are unable to predict changes in interest rates, which are affected by factors beyond our control, including inflation, deflation, recession, unemployment, money supply, the impact of tariff and trade policies, increased levels of government debt, and other changes in financial markets. Uncertainty regarding future rates could negatively impact our cost of borrowing and reduce the amount of money our customers borrow or adversely affect their ability to repay outstanding loan balances that may increase due to adjustments in their variable rates.
Changes in monetary policy, interest rates, the yield curve, or market risk spreads, or a prolonged, flat or inverted yield curve could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect:
• our ability to originate loans and obtain deposits;
• our ability to retain deposits in 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.
If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.
Any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations. See the section captioned “Net Interest Income” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report for further discussion related to our management of interest rate risk.
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We are subject to credit quality risks and our credit policies may not be sufficient to avoid losses.
We are subject to the risk of losses resulting from the failure of borrowers, guarantors and related parties to pay us the interest and principal amounts due on their loans. Although we maintain well-defined credit policies and credit underwriting and monitoring and collection procedures, these policies and procedures may not prevent losses, particularly during periods in which the local, regional or national economy suffers a general decline. The effects of inflation, tariffs, trade wars and recessionaryconcerns on economic activity could negatively affect the collateral values associated with our existing loans, our ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers. Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making business decisions or delay us from taking certain remediation actions, such as foreclosure. If borrowers fail to repay their loans, our financial condition and results of operations would be adversely affected.
Unstable economic conditions may have seriousadverse consequences on our business, financial condition, and operations.
We are operating in an uncertain economic environment. Global trade tensions, AI impacts, and inflation risks continue to affect the global economic environment. The 2025 U.S. government shutdown has negatively impacted U.S. economic growth, and the suspension of government data collection and publication left policymakers without access to the latest data on employment, inflation, and economic growth, increasing the risk that a wrong decision will be made. An unpredictable or volatile political environment in the United States could negatively impact business and market conditions, economic growth, financial stability, and business, consumer, investor, and regulatory sentiments, any one or more of which could have a material adverse impact on our financial condition and results of operations. Credit and financial markets have experienced extreme volatility and disruptions, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, persistently elevated rates of inflation, and uncertainty about economic stability. With newly enacted and/or proposed domestic economic policies, we may experience additional volatility, including changes as a result of the level of government spending. While our management team continually monitors market conditions and economic factors throughout our footprint, we are unable to predict the duration or severity of such conditions or factors. If conditions were to worsen nationally, regionally, or locally, we could experience a sharp increase in our total net charge-offs and could also be required to significantly increase our allowance for credit losses. Economic instability could also result in decreased demand for loans and our other products and services. An increase in our non-performing assets and related increases in our provision for credit losses, coupled with a potential decrease in the demand for loans and other products and services, could negatively affect our business and could have a material adverse effect on our capital, financial condition, results of operations, and future growth. Our clients may also be adversely impacted by changes in regulatory, trade (including tariffs), tax policies and laws, all of which could cause inflation or reduce demand for loans and adversely impact our borrowers' ability to repay our loans.
We have a high concentration of loans secured by real estate and a decline in the real estate market, for any reason, could result in losses and materially and adversely affect our business, financial condition, results of operations and future prospects.
A significant portion of our loan portfolio is dependent on real estate. In addition to the importance of the financial strength and cash flow characteristics of the borrower, loans are also often secured with real estate collateral. As of December 31, 2025, approximately 82.7% of our loans have real estate as a primary or secondary component of collateral. The real estate in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. A decline in the credit markets generally could adversely affect our financial condition and results of operations if we are unable to extend credit or sell loans in the secondary market. An adverse change in the economy affecting real estate values generally or in our primary markets specifically could significantly impair the value of collateral underlying certain of our loans and our ability to sell the collateral at a profit or at all upon foreclosure. Furthermore, it is likely that, in a declining real estate market, we would be required to further increase our allowance for loan losses. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase our allowance for loan losses, our profitability and financial condition could be adversely impacted.
Cybersecurity incidents, including security breaches and failures of our information systems, could significantly disrupt our business, result in the unintended disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs, and cause losses.
We rely heavily on communications and information systems to conduct our business. Our communications and information systems remain vulnerable to unexpecteddisruptions and failures. Any failure, interruption or breach in security of these systems could result in a material adverse effect on our customer relationships, general ledger, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the effect of a failure, interruption or security breach of our information systems, there can be no assurance that we will adhere to such policies or procedures or that they can prevent any such failures, interruptions, cybersecurity breaches or other security breaches or, if they do occur, that they will be
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adequately addressed. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny and disclosure obligations or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our business strategy, financial condition and results of operations.
In our ordinary course of business, we rely on electronic communications and information systems to conduct our businesses and to collect and store sensitive data, including our proprietary business information and that of our clients, and personally identifiable information of our customers and employees. The secure processing, maintenance, and transmission of this information is critical to our operations. Our systems, including those we maintain with our service providers, vendors, or our clients, could be vulnerable to cybersecurity-related incidents, which include compromises of information systems, attempts to access information, including customer and company information, malicious code, computer viruses or other malware, denial of service attacks, phishing attempts, brute force attacks, exploiting software vulnerabilities (including “zero-day attacks”), ransomware, supply chain attacks, and other events that could result in unauthorized access, theft, misuse, loss, release, or destruction of data (including confidential customer information), account takeovers, unavailability of service, or other events. These types of threats may result from human error, fraud, or criminal activity on the part of external or internal parties or may result from the failure of technology or information systems. Further, these types of threats may be exacerbated by developments in artificial intelligence and its increased use to produce sophisticated malware, phishing schemes, and other fraudulent activities. Any failure, interruption, or compromise in security of these systems could result in significant disruption to our operations. We employ an in-depth, layered, defense approach that leverages people, processes and technology to manage and maintain cybersecurity controls.
Financial institutions and companies engaged in data processing have increasingly reported compromises in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disrupt or degrade service, sabotage systems, or cause other damage. Our technologies, systems, networks, and software have been and continue to be subject to cybersecurity threats and attacks, which range from uncoordinated individual attempts to sophisticated and targeted measures by criminal organizations directed at us. Our customers, associates, and third parties that we do business with have been, and will likely continue to be, targeted in cybersecurity-related incidents by parties using fraudulent e-mails, artificial intelligence, and other communications in attempts to misappropriate passwords, bank account information, or other personal information, or to introduce viruses or other malware programs to our information systems, or the information systems and devices of our third-party service providers and our customers that are beyond our security control systems. Although we try to mitigate these threats through product improvements, use of encryption and authentication technology, and customer and employee education, among other things, cybersecurity-attacks against us, our third-party service providers, and our customers are a risk to our business.
We may be required to spend significant capital and other resources to protect against the threat of cybersecurity-related incidents or to alleviate problems caused by such incidents. Any failures related to upgrades and maintenance of our technology and information systems could increase our information and system security risk. Our increased use of cloud and other technologies, such as remote work technologies, and the increased connectivity of third parties and electronic devices to our systems also increases our risk of being subject to a cybersecurity-related incident. The risk of a cybersecurity-related incident has increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. A cybersecurity-related incident or other significant disruption of our information systems or those of our customers or third-party service providers and vendors could (i) disrupt the proper functioning of our networks and systems and, therefore, our operations and those of our customers; (ii) result in the unauthorized access to, destruction, loss, theft, misappropriation, or release of confidential, sensitive, or otherwise valuable information of ours or our customers; (iii) result in a violation of applicable privacy, data protection, and other laws, subjecting us to additional regulatory scrutiny and exposing us to civil litigation, enforcement actions, governmental fines, sanctions, or penalties (which may not be covered by our insurance policies), and possible financial liability; (iv) require significant management attention and resources to remedy the damages that result; (v) cause increased expenses and lost revenue; or (vi) cause negative publicity, harm our reputation, or cause a decrease in the number of customers that choose to do business with us, damaging our ability to generate deposits. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition, and results of operations. Furthermore, in the event of a cybersecurity-related incident, we may be delayed in identifying or responding to the incident, which could increase the negative impact of the incident on our business, financial condition, and results of operations. While we maintain cybersecurity insurance coverage, which may apply in the event of certain cybersecurity-related incidents, the amount of coverage may not be adequate depending on the magnitude of the incident. Furthermore, because cybersecurity-related incidents are inherently difficult to predict and can take many forms, some incidents may not be covered under our cyber insurance coverage.
Our systems and those of our customers and third-party service providers are under constant threat, and it is possible that we could experience a significant compromise, significant data loss or material financial losses related to cyber-attacks in the future. We may suffer material financial losses related to these risks in the future or we may be subject to liability for compromises to our customer or third-party service provider systems. Any such losses or liabilities could have a material
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adverse effect on our business strategy, financial condition or results of operations and could expose us to reputation risk, the loss of customer business, increased operational costs, as well as additional regulatory scrutiny, possible litigation and related financial liability. These risks also include possible business interruption, including the inability to access critical information and systems.
Increased fraudulent activity may cause losses to us or our clients, damage to our brand, and increases in our costs, in turn, materially and adversely affecting our business, financial condition, and results of operations.
Fraudlosses have risen in recent years due in large part to growing and evolving schemes, as well as the advancement of artificial intelligence. Fraudulent activity has taken many forms, ranging from wire fraud, debit card fraud, credit card fraud, check fraud, mechanical devices attached to ATMs, social engineering, and phishing attacks to obtain personal information, business email compromise, or impersonation of clients through the use of falsified or stolen credentials. Many financial institutions have suffered significant losses in recent years due to the theft of cardholder data that has been illegallyexploited for personal gain. The potential for debit and credit card fraud, as well as check fraud, against us or our clients and our third-party service providers is a serious issue. Debit and credit card fraud and check fraud are pervasive, and the risks of cybercrime are complex and continue to evolve. While we have policies and procedures, as well as fraud detection tools, designed to prevent fraudlosses, such policies, procedures, and tools may be insufficient to accurately detect and prevent fraud. A significant increase in fraudulent activities could lead us to take additional steps to reduce fraud risk, which could increase our costs. Fraudlosses could cause losses to us or our clients, damage to our brand, and an increase in our costs, in turn, materially and adversely affecting our business, financial condition, and results of operations.
The development and use of AI presents risks and challenges that may adversely impact our business.
The banking and financial services industry continually experiences technological changes, with frequent introductions of new technology-driven products and services, including recent and rapid developments in AI, including with agentic AI. Our future success will depend, in part, upon our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands for convenience, as well as to assess the proper operation of AI models and capabilities to create additional efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our clients. In addition, the implementation of technological changes and upgrades to maintain current systems and integrate new ones may also create service interruptions, transaction processing errors, and system conversion delays and may cause us to fail to comply with applicable laws. There can be no assurance that we will be able to successfully manage the risks associated with our increased dependency on technology. Failure to successfully keep pace with technological change affecting the banking and financial services industry could negatively affect our revenue and profitability.
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. The development and use of AI presents a number of risks and challenges to the Company’s business. 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. 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. 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. In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs. 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. 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. 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.
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
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destabilizing effect on our financial condition and results of operations. In addition, the current administration is seeking to implement a regulatory reform agenda that will impact the rulemaking, supervision, examination and enforcement priorities of the federal banking agencies and potentially result in uncertainty. Unfavorable or uncertain international, national or regional political or economic environments could drive losses beyond those which are provided for in our allowance for loan losses and result in the following consequences:
• increases in loan delinquencies;
• increases in nonperforming assets and foreclosures;
• decreases in demand for our products and services, which could adversely affect our liquidity position;
• decreases in the value of the collateral securing our loans, especially real estate, which could reduce customers’ borrowing power;
• decreases in the credit quality of our non-U.S. Government and non-U.S. agency investment securities, corporate and municipal securities;
• an adverse or unfavorable resolution of the Fannie Mae or Freddie Mac conservatorship; and
• decreases in the real estate values subject to ad-valorem taxes by municipalities that impact such municipalities’ ability to repay their debt, which could adversely affect our municipal loans or debt securities.
Any of the foregoing could adversely affect our financial condition and results of operations.
Corporate responsibility risks could adversely affect our reputation and shareholder, employee, client, and third-party relationships and may negatively affect our stock price.
Our business faces increasing public scrutiny related to corporate responsibility activities. We risk damage to our brand and reputation if we fail to act responsibly or are perceived to act too aggressively in a number of areas, such as DEI, environmental stewardship (including with respect to climate change), human capital management, support for our local communities, corporate governance and transparency.
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. 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. 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.
Certain investors and shareholder advocates are placing increasing emphasis on how corporations address corporate responsibility 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 corporate responsibility efforts and if such efforts are negatively perceived, our reputation and stock price may suffer.
In response to ESG developments (including, in particular, DEI initiatives), there are increasing instances of “anti-ESG” and anti-DEI executive orders, adverse media coverage, legislation, regulation, and litigation that could have unintended impacts on ordinary banking operations and increase litigation or reputational risk related to actions we choose to take and impact the results of our operations. If legislatures in the states in which we operate adopt legislation intended to protect certain industries by limiting or prohibiting consideration of business and industry factors in lending activities, certain portions of our lending operations may be impacted.
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. These developments have negatively impacted customer confidence in regional and community banks, which could prompt customers to transfer their deposits to larger financial institutions. Further, competition for deposits has increased in recent periods, and the cost of funding has similarly increased, putting pressure on our net interest margin. If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses as a result of the negative impact of elevated interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital. If we were required to raise additional capital in the current environment, any such capital raise may be on unfavorable terms, thereby
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negatively impacting book value and profitability. While we have taken actions to increase our funding, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.
We also anticipate 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. Among other things, there is an increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, losses embedded in the held-to-maturity portion of our securities portfolio, contingent liquidity, CRE composition and concentration, capital position and our general oversight and internal control structures regarding the foregoing. As a result, the Bank could continue to face increased scrutiny or be viewed as higher risk by regulators and the investor community.
Despite recent cuts, extended periods of 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.
As a result of inflationary pressures and elevated interest rates in recent 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 the Company were required to sell such securities to meet liquidity needs, including in the event of deposit outflows or slower deposit growth, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.
Inflationary pressures and rising prices may affect our results of operations and financial condition.
Inflation rates remained above the Federal Reserve’s target rate in 2025 and were above the target of 2% as of December 31, 2025. Inflation has led to increased costs for our customers, making it more difficult for them to repay their loans or other obligations and increasing our credit risk, and the general economic impact of inflation persists and is expected to continue in 2026. Prolonged periods of inflation may impact our profitability by negatively impacting our fixed costs and expenses, including increasing funding costs and expense related to talent acquisition and retention, and negatively impacting the demand for our products and services. Additionally, persistent or rising inflation may lead to a decrease in consumer and client purchasing power and negatively affect the need or demand for our products and services. If elevated inflation continues or the Federal Reserve reverses monetary policy and raises interest rates, our business could be negatively affected by, among other things, increased default rates leading to credit losses which could decrease our appetite for new credit extensions. These inflationary pressures could result in missed earnings and budgetary projections causing our stock price to suffer.
We rely on other companies to provide key components of our business infrastructure.
Third parties provide key components of our business infrastructure, such as banking services, core processing and internet connections and network access. Any disruption in such services provided by these third parties or any failure of these third parties to handle current or higher volumes of use could adversely affect our ability to deliver products and services to our customers and otherwise to conduct business. Technological or financial difficulties of one of our third-party service providers or their subcontractors could adversely affect our business to the extent those difficulties result in the interruption or discontinuation of services provided by that party. In addition, one or more of our third-party service providers may become subject to cyber-attacks or information security breaches, including as a result of remote working, that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary and other information, or otherwise disrupt our or our customers’ or other third parties’ business strategies, financial condition or results of operations. While we have processes in place to monitor our third-party service providers’ data and information security safeguards, there can be no assurance that we will adhere to such processes. We also do not control such service providers’ day-to-day operations, and preventing a successful attack or security breach at one or more of such third-party service providers is not within our control. The occurrence of any such breaches or failures could damage our reputation, result in a loss of customer business and expose us to additional regulatory scrutiny, disclosure obligations, civil litigation and possible financial liability, any of which could have a material adverse effect on our business strategy, financial condition and results of operations. Further, in some instances we may be held responsible for the failure of such third parties to comply with government regulations. We may not be insured against all types of losses as a result of third-party failures, and our insurance coverage may not be adequate to cover all losses resulting from system failures, third-party breaches or other disruptions. Failures in our business structure or in the structure of one or more of our third-party service providers could interrupt our operations or increase the cost of doing business.
We continually encounter technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services including those related to or involving artificial intelligence, machine learnings, blockchain and other distributed ledger technologies. The effective use of technology increases efficiency and enables financial
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institutions to better serve customers and reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers, and even if we implement such products and services, we may incur substantial costs in doing so. Failure to successfully keep pace with technological changes affecting the financial services industry could have a material adverse impact on our business, financial condition and results of operations.
Industry adoption of real-time payments networks could negatively impact financial performance through reductions in product profitability, increased liquidity reserves and the potential for increased fraudlosses, among other risks.
With the launch of real-time payments networks, such as RTP® from The Clearing House and FedNow® from the Federal Reserve, instantaneous cash settlement capabilities are available 24 hours a day and 7 days a week. The implications of the new settlement capabilities are far reaching and have not yet significantly affected the banking industry. As market adoption increases, we may be required to hold more liquidity reserves in cash to facilitate cash settlement activity outside of traditional business hours. Additionally, instantaneous settlement will likely reduce float benefits associated with providing deposit and banking services, as well as pose incremental fraud risk due to a reduced ability to reverse fraudulent transactions due to the speed of money movement.
We are subject to the risk that our U.S. agency MBS could prepay faster than we have projected.
We have purchased and may continue to purchase MBS at premiums. Our prepayment assumptions take into account market consensus speeds, current trends and past experience. If actual prepayments exceed our projections, the amortization expense associated with these MBS will increase, thereby decreasing our net income. The increase in amortization expense and the corresponding decrease in net income could have a material adverse effect on our financial condition and results of operations.
We rely on dividends from our bank subsidiary for most of our revenue.
Southside Bancshares, Inc. is a separate and distinct legal entity from its subsidiaries. We receive substantially all of our revenue from dividends from the Bank. These dividends are the principal source of funds to pay dividends on our common stock to our shareholders and interest and principal on our debt. Various federal and/or state laws and regulations limit the amount of dividends that the Bank and certain of our nonbank subsidiaries may pay to us. In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event the Bank is unable to pay dividends to us, we may not be able to service debt, pay obligations or pay dividends to our shareholders. The inability to receive dividends from the Bank could have a material adverse effect on our business, financial condition and results of operations. See the section captioned “Supervision and Regulation” in “Item 1. Business” and “Note 13 – Shareholders’ Equity” to our consolidated financial statements included in this report.
You may not receive dividends on our common stock.
Although we have historically declared quarterly cash dividends on our common stock, we are not required to do so and may reduce or cease to pay 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.
As noted above, our ability to pay dividends depends primarily upon the receipt of dividends or other capital distributions from the Bank. The Bank’s ability to pay dividends to us is subject to, among other things, its earnings, financial condition and need for funds, as well as federal and state governmental policies and regulations applicable to us and the Bank, including the statutory requirement that we serve as a source of financial strength for the Bank, which limits the amount that may be paid as dividends without prior regulatory approval. Additionally, if the Bank’s earnings are not sufficient to pay dividends to us while maintaining adequate capital levels, we may not be able to pay dividends to our shareholders. See “Supervision and Regulation — Holding Company Regulation — Dividends” included in this report.
We may not be able to attract and retain skilled personnel.
Our success depends, in large part, on our ability to attract and retain key personnel. Competition for the best personnel in most of our activities can be intense, and we may not be able to hire or retain acceptable personnel. The 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. The unexpectedloss of services of one or more of our key personnel could have a material adverse impact on our business because of their skills, knowledge of our market, relationships in the communities we serve, years of industry experience and the difficulty of promptly finding qualified replacement personnel. Although we have employment agreements
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with certain of our executive officers, there is no guarantee that these officers and other key personnel will remain employed with the Company.
We operate in a highly competitive industry and market area.
We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and may have more financial resources. Such competitors primarily include national, regional and community banks within the various markets we operate. Additionally, various out-of-state banks have entered or have announced plans to enter the market areas in which we currently operate. We also face competition from many other types of financial institutions, including, without limitation, credit unions, fintech companies, finance companies, brokerage firms, insurance companies, factoring companies and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes, continued consolidation and recent trends in the credit and mortgage lending markets. Banks, securities firms and insurance companies can be affiliated under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Also, technology has lowered barriers to entry and made it possible for nonbanks to offer certain products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Our competitors may have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can, including lower or discontinued fees, such as non-sufficient funds and overdraft fees.
Our ability to compete successfully depends on a number of factors, including:
• the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets;
• the ability to expand our market position;
• the scope, relevance and pricing of products and services offered to meet customer needs and demands;
• the rate at which we introduce new products and services relative to our competitors;
• our ability to invest in or partner with technology providers offering banking solutions and delivery channels at a level equal to our competitors;
• customer satisfaction with our level of service; and
• industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.
Failures in the analytical and forecasting models relied upon for our accounting estimates and risk management processes could have a material adverse effect on our business, financial condition, and results of operations.
The process we use to estimate our loan losses and to measure our retirement plan liabilities and the fair value of our financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depend upon the use of analytical and forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation, including flaws caused by failures in controls, data management, human error or from our reliance on technology. If the models we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpectedlosses upon changes in market interest rates or other market measures. If the methodology we use for determining our loan losses are inadequate, our allowance for loan losses may not be sufficient to support future charge-offs. If the models we use to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments. If the key assumptions and models used to measure the retirement plan liabilities and expense are inadequate, the liability may not accurately reflect the amount required to fund the benefit obligation. Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.
Our allowance for loan losses may be insufficient or we may be adversely affected by credit risk exposures .
We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense. This allowance represents management’s best estimate of expected losses that may occur over the contractual life of our current loan portfolio. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and
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risks expected in the loan portfolio considering historical losses, current conditions and reasonable and supportable forecasts. The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present and forecasted economic, political and regulatory conditions, including inflation and recessionaryconcerns; and interest rate trends. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires management to make significant estimates and assumptions regarding current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting the value of properties used as collateral for loans, problems affecting the credit of borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. Business and consumer customers of the Bank may be currently experiencing varying degrees of financial distress, which may continue over the coming months and may adversely affect their ability to timely pay interest and principal on their loans and the value of the collateral securing their obligations. This in turn may influence the recognition of credit losses in our loan portfolios and may increase our allowance for credit losses, particularly should more customers draw on their lines of credit or seek additional loans to help finance their businesses. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs (in accordance with GAAP), based on judgments different than those of management. If charge-offs in future periods exceed the allowance for loan losses, we may need additional provisions to increase the allowance for loan losses. Any increases in the allowance for loan losses will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations.
Our interest rate risk, liquidity, fair value of securities and profitability are dependent upon the successful management of our balance sheet strategy.
We implemented a balance sheet strategy for the purpose of enhancing overall profitability by maximizing the use of our capital. The effectiveness of our balance sheet strategy, and therefore our profitability, may be adversely affected by a number of factors, including reduced net interest margin and spread, adverse changes in the market liquidity and fair value of our investment securities and U.S. agency MBS, incorrect modeling results due to the unpredictable nature of MBS prepayments, the length of interest rate cycles and the slope of the interest rate yield curve. In addition, we may not be able to obtain wholesale funding to profitably and properly fund our balance sheet strategy. If our balance sheet strategy is flawed or poorly implemented, we may incur significant losses. See the section captioned “Balance Sheet Strategy” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report for further discussion related to our balance sheet strategy.
Our process for managing risk may not be effective in mitigating risk or losses to us.
The objective of our risk management process is to mitigate risk and loss to our organization. We have established procedures that are intended to identify, measure, monitor, report and analyze the types of risks to which we are subject, including liquidity risk, credit risk, market risk, interest rate risk, operational risk, cybersecurity risk, legal and compliance risk and reputational risk, among others. However, as with any risk management process, there are inherent limitations to our risk management strategies as there may exist or develop in the future, and there may be risks that we have not appropriately anticipated or identified. The ongoing developments in the financial institutions industry continue to highlight both the importance and some of the limitations of managing unanticipated risks. If our risk management processes prove ineffective, we could sufferunexpectedlosses that could have a material adverse effect on our business results of operations and financial condition.
New lines of business or new products and services may subject us to additional risks.
From time to time, we evaluate our service offerings and may implement new delivery systems or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts. In developing and marketing new delivery systems and/or new products and services, we may invest significant time and resources to build internal controls, policies and procedures to mitigate those risks, including hiring experienced management to oversee the implementation of the initiative. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations and financial condition.
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Acquisitions and potential acquisitions may disrupt our business and dilute shareholder value.
We occasionally evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial services companies. As a result, merger or acquisition discussions and, in some cases, negotiations may take place, and future mergers or acquisitions involving cash, debt or equity securities may occur at any time. Acquisitions typically involve the payment of a premium over book and fair values, and, therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future transaction. Furthermore, failure to realize expected revenue increases, cost savings, increases in geographic or product presence and/or other projected benefits and synergies from an acquisition could have a material adverse effect on our financial condition and results of operations.
Our profitability depends significantly on economic conditions in the State of Texas.
Our success depends primarily on the general economic conditions in the State of Texas and the 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. The local economic conditions in these areas have a significant impact on the demand for our products and services, as well as the ability of our customers to repay loans, the value of the collateral securing our loans and the stability of our deposit funding sources. Moreover, a substantial percentage of the securities in our municipal bond portfolio were issued by political subdivisions and agencies within the State of Texas. A significant decline in general economic conditions, caused by inflation, tariffs, trade wars, 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.
Funding to provide liquidity may not be available to us on favorable terms or at all.
Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. The liquidity of the Bank is necessary to make loans and leases and to repay deposit liabilities as they become due or are demanded by customers. Our board of directors establishes liquidity policies and limits. Management and our ALCO regularly monitor the overall liquidity position of the Bank and the Company to ensure that various alternative strategies exist to cover unanticipated events that could affect liquidity. Management and our ALCO also establish policies and monitor guidelines to diversify the Bank’s funding sources to avoid concentrations in excess of board-approved policies from any one market source. Funding sources include federal funds purchased, repurchase agreements, core and noncore deposits and short- and long-term debt. The Bank is also a member of the FHLB System, which provides funding through advance agreements to members that are collateralized with U.S. Treasury securities, MBS, commercial MBS and loans.
We maintain a portfolio of securities that can be used as a secondary source of liquidity. Other sources of liquidity include sales or securitizations of loans, our ability to acquire additional national market, noncore deposits, additional collateralized borrowings such as FHLB advance agreements, the issuance and sale of debt securities and the issuance and sale of preferred or common securities in public or private transactions. The Bank also can borrow from the FRDW.
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, there is no assurance that we will be able to obtain such liquidity on terms that are favorable to us, or at all. The cost of out-of-market deposits may exceed the cost of deposits of similar maturity in our local market area, making such deposits unattractive sources of funding; financial institutions may be unwilling to extend credit to banks because of concerns about the banking industry and the economy in general, and there may not be a viable market for raising equity capital.
If we 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.
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If we fail to maintain an effective system of disclosure controls and procedures, including internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud, which could have a material adverse effect on our business, results of operations and financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting, which could harm the trading price of our common stock.
Management regularly monitors, reviews and updates our disclosure controls and procedures, including our internal control over financial reporting. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable assurances that the controls will be effective. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.
Failure to achieve and maintain an effective internal control environment could prevent us from accurately reporting our financial results, preventing or detecting fraud or providing timely and reliable financial information pursuant to our reporting obligations, which could result in a material weakness in our internal controls over financial reporting and the restatement of previously filed financial statements and could have a material adverse effect on our business, financial condition and results of operations. Further, ineffective internal controls could cause our investors to lose confidence in our financial information, which could affect the trading price of our common stock.
The value of our goodwill and other intangible assets may decline in the future.
As of December 31, 2025, we had $202.1 million of goodwill and other intangible assets. A significant decline in our expected future cash flows, a significant adverse change in the business climate, slower growth rates or a significant and sustained decline in the price of our common stock may necessitate taking charges in the future related to the impairment of our goodwill and other intangible assets. If we were to conclude that a future write-down of goodwill and other intangible assets is necessary, we would record the appropriate charge, which could have a material adverse effect on our business, financial condition and results of operations.
We are subject to environmental liability as a result of certain lending activities.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. There is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental remediation may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures that require us to perform an environmental review before initiating any foreclosure action on nonresidential real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.
We may be adversely affected by declining crude oil prices.
Since the beginning of 2023, the market price of a barrel of West Texas Intermediate crude oil fluctuated from a low of approximately $56 to a high of approximately $93. To partially mitigate this volatility, oil producers continue to find ways to control production costs. Decreased market oil prices compressed margins for many U.S. and Texas-based oil producers, as well as oilfield service providers, energy equipment manufacturers and transportation suppliers, among others. As of December 31, 2025, energy loans comprised approximately 1.47% of our loan portfolio. Energy production and related industries represent a significant part of the economies in our primary markets. Although crude oil prices are not presently depressed, if oil prices were to decline significantly for an extended period, we could experience weaker loan demand from the energy industry and increased losses within our energy portfolio. A prolonged period of low oil prices could also have a negative impact on the U.S. economy and, in particular, the economies of energy-dominant states such as Texas, which in turn could have a material adverse effect on our business, financial condition and results of operations.
Severe weather, natural disasters, climate change, acts of war or terrorism, health emergencies, epidemics or pandemics and other external events could significantly impact our business.
Severe weather, natural disasters, climate change, acts of war or terrorism, health emergencies, epidemics or pandemics and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses. For example, severe weather is more likely in our location and the market areas we serve than in other areas of the country. Although management has established disaster recovery policies and procedures, there can be no assurance of the effectiveness of such policies and procedures, and the occurrence of any such event could have a material adverse effect on our business, financial condition and results of operations.
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RISKS ASSOCIATED WITH THE BANKING INDUSTRY
We are subject or may become subject to extensive government regulation and supervision.
Southside Bancshares, Inc., primarily through the Bank, and certain of its nonbank subsidiaries, is subject to extensive federal and state regulation and supervision. Banking 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. 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. Congress and federal and state regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit deposit fees and other types of fees we charge, limit the types of financial services and products we may offer and/or increase the ability of nonbanks to offer competing financial services and products, among other things. While we cannot predict the impact of regulatory changes that may arise out of the current financial and economic environment, any regulatory changes or increased regulatory scrutiny could increase costs directly related to complying with new regulatory requirements. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputational damage, which could have a material adverse effect on our business, financial condition and results of operations. While our policies and procedures are designed to prevent any such violations, there can be no assurance that such violations will not occur. See the section captioned “Supervision and Regulation” in “Item 1. Business” and “Note 13 – Shareholders’ Equity” to our consolidated financial statements included in this report.
We may become subject to increased regulatory capital requirements .
The capital requirements applicable to Southside Bancshares, Inc. and the Bank are subject to change as a result of future government actions. Each of the federal banking agencies, including the Federal Reserve and the FDIC, has issued substantially similar risk-based and leverage capital guidelines applicable to the banking organizations they supervise. For additional discussion relating to capital adequacy refer to “Item 1. Business - Supervision and Regulation - Capital Adequacy” in this report. The Company believes it will continue to meet the capital guidelines, however complying with new capital rules mandated by the federal banking agencies may affect our operations, including our asset portfolios and financial performance.
Changes in accounting and tax rules applicable to banks could adversely affect our financial condition and results of operations.
From time to time, the FASB and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in us restating prior period financial statements. For a discussion of the reporting and accounting implications to the Company and Southside Bank resulting from recent changes to the tax laws, refer to “Item 1. Business - Supervision and Regulation - Regulatory Examination” in this report.
Financial services companies depend on the accuracy and completeness of information about customers and counterparties and inaccuracies in such information, including as a result of fraud, could adversely impact our business, financial condition and results of operations.
In deciding whether to extend credit or enter into other transactions with third parties, we rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. We may also rely on representations of those customers, counterparties or other third parties, such as independent auditors or property appraisers, as to the accuracy and completeness of that information. Such information could be inaccurate, including as a result of fraud on behalf of our customers, counterparties or other third parties. In times of increased economic stress, we are at an increased risk of fraudlosses. We cannot assure you that our underwriting and operational controls will prevent or detect such fraud or that we will not experience fraudlosses or incur costs or other damages related to such fraud. Our customers may also experience fraud in their businesses which could adversely affect their ability to repay their loans or make use of our services. Our exposure and the exposure of our customers to fraud may increase our financial risk and reputation risk as it may result in unexpected loan losses that exceed those that have been provided for in our allowance for loan
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losses. Reliance on inaccurate or misleading information from our customers, counterparties and other third parties, including as a result of fraud, could have a material adverse impact on our business, financial condition and results of operations.
Customers may decide not to use banks to complete their financial transactions.
Technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods. For example, 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. The process of eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.
The soundness of other financial institutions could adversely affect us.
Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional customers. Many of these transactions expose us to credit risk in the event of default of our counterparty or customer. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices insufficient to recover the full amount of the loan or derivative exposure due to us. Any such losses could materially and adversely affect our results of operations or earnings.
We are subject to claims and litigation pertaining to fiduciary responsibility.
From time to time, customers make claims and take legal action pertaining to the performance of our fiduciary responsibilities. Whether customer claims and legal actions related to the performance of our fiduciary responsibilities are merited, defendingclaims is costly and diverts management’s attention, and if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect our market perception and products and services as well as impact customer demand for those products and services. Any financial liability or reputational damage resulting from claims and legal actions could have a material adverse effect on our business, financial condition and results of operations.
Deposit insurance premiums levied against the Bank could increase.
The DIF is funded by fees assessed on insured depository institutions including the Bank. Future deposit premiums paid by the Bank depend on FDIC rules, which are subject to change, the level of the DIF and the magnitude and cost of future bank failures. The FDIC may further increase the assessment rates or impose additional special assessments in the future, which may require the Bank to pay significantly higher FDIC premiums.
GENERAL RISK FACTORS
Our stock price can be volatile.
Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. Our stock price can fluctuate significantly in response to a variety of factors including, among other things: actual or anticipated variations in our results of operations, financial condition or asset quality; changes in recommendations by securities analysts; operating and stock price performance of other companies that investors deem comparable to us; news reports relating to trends, concerns and other issues in the financial services industry, including regulatory actions against other financial institutions; perceptions in the marketplace regarding us and/or our competitors; perceptions in the marketplace regarding the impact of changes in price per barrel of crude oil, real estate values and interest rates on the Texas economy; new technology used or services offered by competitors; significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; failure to integrate acquisitions or realize anticipated benefits from acquisitions; future issuances of our common stock or other securities; additions or departures of key personnel; changes in government regulations; and geopolitical conditions such as acts or threats of terrorism or military conflicts, health emergencies, epidemics or pandemics.
General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, inflation, interest rate changes or credit loss trends, could also cause our stock price to decrease regardless of operating results.
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The holders of our subordinated notes and junior subordinated debentures have rights that are senior to those of our common stock shareholders.
On August 14, 2025, the Company issued $150.0 million of 7.00% fixed-to-floating rate subordinated notes, with an outstanding balance, net of unamortized debt issuance costs, of $147.5 million as of December 31, 2025, which mature on August 15, 2035. 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 $92.2 million as of December 31, 2025, which we redeemed on February 15, 2026. On September 4, 2003, we issued $20.6 million of floating rate junior subordinated debentures in connection with a $20.0 million trust preferred securities issuance by our subsidiary Southside Statutory Trust III. These junior subordinated debentures mature in September 2033. On August 8 and 10, 2007, we issued $23.2 million and $12.9 million, respectively, of fixed-to-floating rate junior subordinated debentures in connection with $22.5 million and $12.5 million, respectively, trust preferred securities issuances by our subsidiaries Southside Statutory Trust IV and V, respectively. Trust IV matures October 2037, and Trust V matures September 2037. On October 10, 2007, as part of an acquisition, we assumed $3.6 million of floating rate junior subordinated debentures to Magnolia Trust Company I in connection with $3.5 million of trust preferred securities issued in 2005 that mature in 2035.
We conditionally guarantee payments of the principal and interest on the trust preferred securities. Our subordinated notes and the junior subordinated debentures are senior to our shares of common stock. We must make payments on the junior subordinated debentures (and the related trust preferred securities) before any dividends can be paid on our common stock, and in the event of bankruptcy, dissolution or liquidation, the holders of the debentures must be satisfied before any distributions can be made to the holders of common stock. We have the right to defer distributions on our debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid to holders of common stock.
The trading volume in our common stock is less than that of other larger financial services companies.
Although our common stock is listed for trading on the NYSE and NYSE Texas, the trading volume for our common stock is low relative to other larger financial services companies, and you are not assured liquidity with respect to transactions in our common stock. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the lower trading volume of our common stock, significant sales of our common stock or the expectation of these sales could cause our stock price to fall.
We may issue additional securities, which could dilute your ownership percentage.
In certain situations, our board of directors has the authority, without any vote of our shareholders, to issue shares of our authorized but unissued stock. In the future, we may issue additional securities, through public or private offerings, to raise additional capital or finance acquisitions. Any such issuance would dilute the ownership of current holders of our common stock.
Securities analysts might not continue coverage on our common stock, which could adversely affect the market for our common stock.
The trading price of our common stock depends in part on the research and reports that securities analysts publish about us and our business. We do not have any control over these analysts, and they may not continue to cover our common stock. If securities analysts do not continue to cover our common stock, the lack of research coverage may adversely affect its market price. If securities analysts continue to cover our common stock and our common stock is the subject of an unfavorable report, the price of our common stock may decline. If one or more of these analysts cease to cover us or fail to publish regular reports on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our common stock to decline.
Provisions of our certificate of formation and bylaws, as well as state and federal banking regulations, could delay or prevent a takeover of us by a third party.
Our certificate of formation and bylaws could delay, defer or prevent a third party from acquiring us, despite the possible benefit to our shareholders, or otherwise adversely affect the price of our common stock. These provisions include, among others, requiring advance notice for raising business matters or nominating directors at shareholders’ meetings and staggered board elections.
Any individual, acting alone or with other individuals, who are seeking to acquire, directly or indirectly, 10.0% or more of our outstanding common stock must comply with the CBCA, which requires prior notice to the Federal Reserve for any acquisition. Additionally, any entity that wants to acquire 5.0% or more of our outstanding common stock, or otherwise control us, may need to obtain the prior approval of the Federal Reserve under the BHCA. As a result, prospective investors in our common stock need to be aware of and comply with those requirements, to the extent applicable. These provisions may
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discourage potential acquisition proposals and could delay or prevent a change in control, including under circumstances in which our shareholders might otherwise receive a premium over the market price of our share.
An investment in our common stock is not an insured deposit.
Our common stock is not a bank deposit and, therefore, is not insured againstloss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you may lose some or all of your investment.
nonperforming
efficiencies
limitations
declines
recession
disruptions
unemployment
stress
unpredictable
• 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 risks of an economic slowdown or recession and the effects of inflationary pressures, changes in interest rates, tariffs or trade wars (including reduced consumer spending, supply chain issues and adverse impacts to credit quality) and the related financial stress on borrowers and changes to customer behavior and credit risk as a result of the foregoing;
• changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate and changes in international trade policies, tariffs and treaties affecting imports and exports, and their related impacts on macroeconomic conditions, customer behavior, funding costs and loan and securities portfolios;
• 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 Federal Reserve’s actions to manage interest rates, tariffs, trade policies, supply chain disruptions, immigration policies and/or disputes and other regulatory responses to economic conditions;
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• the impact of interest rate fluctuations on our financial projections, models and guidance;
• legislative, tax and regulatory changes, including those that impact the money supply, trade, immigration and inflation;
• 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 (including increases in the cost of our deposit insurance assessments);
• technological changes, including potential cyber-security incidents and other disruptions, developments in AI, 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 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 unexpectedlosses;
• the effect of compliance with legislation or regulatory changes;
• the implementation under the 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, including inflation, tariffs and immigration policies;
• 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, tariffs, supply chain disruptions, fluctuating interest rates and recessionaryconcerns;
• 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;
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• the effect of changes in accounting policies and practices;
• adverse changes in the status or financial condition of the GSEs which impact the GSEs’ guarantees or ability to pay or issue debt;
• adverse changes in the credit portfolios of other U.S. financial institutions relative to the performance of certain of our investment securities;
• risks related to actual U.S. agency MBS prepayments exceeding projected prepayment levels;
• risks related to U.S. agency MBS prepayments increasing due to U.S. government programs designed to assist homeowners to refinance their mortgage that might not otherwise have qualified;
• risks related to loans secured by real estate, including the risk that the value and marketability of collateral could decline;
• risks associated with our common stock and our other securities, including fluctuations in our stock price and general volatility in the stock market; and
• the risks identified in “Part I - Item 1A. Risk Factors – Risks Related to Our Business” in this report.
All written or oral forward-looking statements made by us or attributable to us are expressly qualified by this cautionary notice. We disclaim any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments, unless otherwise required by law.
CRITICAL ACCOUNTING ESTIMATES
Our accounting and reporting estimates conform with U.S. GAAP and general practices within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. We consider our critical accounting estimates to include the following:
Allowance for Credit Losses . The allowance for credit losses includes credit losses on loans as well as the off-balance-sheet credit exposure, which is reported as a component of other liabilities on our consolidated balance sheets. The allowance for credit losses on loans is estimated and recognized upon origination of the loan based on expected credit losses. The off-balance-sheet credit exposure is evaluated using the expected credit losses using usage given defaults and credit conversion factors depending on the type of commitment and based upon historical usage rates. The CECL model uses historical experience and current conditions for homogeneous pools of loans, and reasonable and supportable forecasts about future events. Management selects models through which historical reserve factor estimates are calibrated to economic forecasts over the reasonable and supportable forecast period based on the projected performance of specific economic variables that statistically correlate with the probability of default and loss given default pools. Loss estimates revert to the long-term trend of each economic variable beyond the forecast period. Management selects economic variables it believes to be most relevant based on the composition of the loan portfolio and customer base, including forecasted levels of employment, gross domestic product, corporate bond and treasury spreads, industrial production levels, consumer and commercial real estate price indices as well as housing statistics. The allowance for credit losses is highly sensitive to the economic forecasts used to develop the estimate. Due to the high level of uncertainty regarding significant assumptions, we evaluate a range of economic scenarios, including a more severe economic forecast scenario, with varying speeds of recovery. Selecting a different forecast could result in a significantly different estimated allowance for credit losses. To the extent actual outcomes differ from management estimates, additional provision for credit losses may be required that would adversely impact earnings in future periods.
Refer to “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Allowance for Credit Losses - Loans and Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures,” “Note 1 – Summary of Significant Accounting and Reporting Policies,” “Note 5 – Loans and Allowance for Loan Losses” and “Note 17 - Off-Balance-Sheet Arrangements, Commitments and Contingencies” to our consolidated financial statements included in this report for a detailed description of our estimation process and methodology related to the allowance for loan losses.
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NON-GAAP FINANCIAL MEASURES
Certain non-GAAP measures are used by management to supplement the evaluation of our performance. These include the following fully taxable-equivalent measures: net interest income (FTE), net interest margin (FTE) and net interest spread (FTE), which include the effects of taxable-equivalent adjustments using a federal income tax rate of 21% to increase tax-exempt interest income to a tax-equivalent basis. Interest income earned on certain assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments.
Net interest income (FTE), net interest margin (FTE) and net interest spread (FTE). Net interest income (FTE) is a non-GAAP measure that adjusts for the tax-favored status of net interest income from certain loans and investments and is not permitted under GAAP in the consolidated statements of income. We believe 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. Net interest margin (FTE) is the ratio of net interest income (FTE) to average earning assets. The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin. Net interest spread (FTE) is the difference in the average yield on average earning assets on a tax-equivalent basis and the average rate paid on average interest bearing liabilities. The most directly comparable financial measure calculated in accordance with GAAP is our net interest spread.
These non-GAAP financial measures should not be considered alternatives to GAAP-basis financial statements and other bank holding companies may define or calculate these non-GAAP measures or similar measures differently. Whenever we present a non-GAAP financial measure in an SEC filing, we are also required to present the most directly comparable financial measure calculated and presented in accordance with GAAP and reconcile the differences between the non-GAAP financial measure and such comparable GAAP measure.
In the following table we present the reconciliation of net interest income to net interest income adjusted to a fully taxable-equivalent basis assuming a 21% marginal tax rate for interest earned on tax-exempt assets such as municipal loans and investment securities (dollars in thousands), along with the calculation of net interest margin (FTE) and net interest spread (FTE).
Years Ended December 31,
Net interest income (GAAP)
Tax-equivalent adjustments:
Loans
Tax-exempt investment securities
Net interest income (FTE) (1)
Average earning assets
Net interest margin
Net interest margin (FTE) (1)
Net interest spread
Net interest spread (FTE) (1)
(1) These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.
Management believes adjusting net interest income, net interest margin and net interest spread to a fully taxable-equivalent basis is a standard practice in the banking industry as these measures provide useful information to make peer comparisons. Tax-equivalent adjustments are reported in the respective earning asset categories as listed in the “Average Balances with Average Yields and Rates” tables under Results of Operations.
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OVERVIEW
ECONOMIC CONDITIONS
Continued tariff announcements and ongoing tariff negotiations have caused some uncertainty related to inflation levels and its impact on interest rates and the overall economy. While it is too early to discern the likely outcome of these tariff announcements and negotiations, the current economic conditions and growth prospects for our markets continue to reflect a solid and positive outlook. Higher inflation levels and interest rate fluctuations could have a negative impact on both our consumer and commercial borrowers in the future. Overall, however, the Texas markets we serve remain healthy.
DEPOSITS
Our deposits were $6.87 billion at December 31, 2025, an increase of $210.9 million, or 3.2%, from December 31, 2024. At December 31, 2025, we had 178,757 total deposit accounts with an average balance of $35,000. Our estimated uninsured deposits were 39.7% of total deposits as of December 31, 2025. When excluding affiliate deposits (Southside-owned deposits) and public fund deposits (all collateralized), our total estimated deposits without insurance or collateral was 23.0% of total deposits as of December 31, 2025.
Our noninterest bearing deposits represent approximately 20.9% of total deposits. Our cost of interest bearing deposits decreased 18 basis points, from 2.98% for the year ended December 31, 2024, to 2.80% for the year ended December 31, 2025. Our cost of total deposits decreased 13 basis points, from 2.36% for the year ended December 31, 2024, to 2.23% for the year ended December 31, 2025.
CAPITAL RESOURCES AND LIQUIDITY
Our capital ratios and contingent liquidity sources remain solid. The table below shows our total lines of credit, borrowings, total amounts available for future liquidity, and swapped value as of December 31, 2025 (in thousands):
December 31, 2025
Line of Credit
Borrowings
Total Available for Future Liquidity
Swapped
FHLB advances
Federal Reserve discount window
Correspondent bank lines of credit
Total liquidity lines
OPERATING RESULTS
During the year ended December 31, 2025, our net income decreased $19.3 million, or 21.8%, to $69.2 million from $88.5 million for the same period in 2024. The decrease in net income was largely driven by a $25.8 million decrease in noninterest income and to a lesser extent, a $4.2 million increase in noninterest expense, partially offset by a $5.5 million decrease in income tax expense, a $5.0 million increase in net interest income and a $293,000 decrease in provision for credit losses. Net loss on sale of AFS securities, included in noninterest income, was $32.3 million for the year ended December 31, 2025, compared to a net loss of $2.5 million for the same period in 2024. Earnings per diluted common share decreased $0.62, or 21.3%, to $2.29 for the year ended December 31, 2025, compared to $2.91 for the same period in 2024.
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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, 2025. This information should be read in conjunction with “Item 8. Financial Statements and Supplementary Data,” as set forth in this report (in thousands, except per share data):
As of and for the Years Ended December 31,
Summary Balance Sheet Data
Securities AFS, at estimated fair value
Securities HTM, at carrying value
Loans
Total assets
Noninterest bearing deposits
Interest bearing deposits
Total deposits
FHLB borrowings
Subordinated notes, net of unamortized debt issuance costs
Trust preferred subordinated debentures, net of unamortized debt issuance costs
Shareholders’ equity
Summary Income Statement Data
Interest income
Interest expense
Provision for (reversal of) credit losses
Deposit services
Net gain (loss) on sale of securities AFS
Noninterest income
Noninterest expense
Net income
Per Common Share Data
Earnings-basic
Earnings-diluted
Cash dividends declared and paid
Book value
Asset Quality
Allowance for loan losses
Allowance for loan losses to total loans
Net loan charge-offs
Net loan charge-offs to average loans
Nonperforming assets
Nonperforming assets to:
Total loans
Total assets
Consolidated Capital Ratios
Common equity tier 1 capital
Tier 1 risk-based capital
Total risk-based capital
Tier 1 leverage capital
Average shareholders’ equity to average total assets
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FINANCIAL CONDITION
Our total assets decreased $2.9 million to $8.51 billion at December 31, 2025 from $8.52 billion at December 31, 2024. Our securities portfolio decreased by $109.4 million, or 3.9%, to $2.70 billion, compared to $2.81 billion at December 31, 2024. The decrease in the securities portfolio was primarily due to decreases in municipal securities and U.S. Treasury securities, partially offset by an increase in MBS during the year ended December 31, 2025. Our FHLB stock decreased $19.8 million, or 58.4%, to $14.1 million from $33.8 million at December 31, 2024, due to the decrease in our FHLB borrowings during the year ended December 31, 2025.
Loans at December 31, 2025 were $4.82 billion, an increase of $156.4 million, or 3.4%, compared to $4.66 billion at December 31, 2024, due to increases of $133.1 million in commercial real estate loans, $81.6 million in commercial loans and $10.7 million in construction loans. These increases were partially offset by decreases of $44.2 million in municipal loans, $16.0 million in 1-4 family residential loans and $8.7 million in loans to individuals. Loans held for sale decreased $0.6 million, or 31.6%, to $1.3 million at December 31, 2025 from $1.9 million at December 31, 2024.
Our nonperforming assets at December 31, 2025 increased $34.7 million, or 965.6%, to $38.2 million and represented 0.45% of total assets, compared to $3.6 million, or 0.04% of total assets, at December 31, 2024, due primarily to an increase of $27.5 million in restructured loans. The increase in restructured loans was due to the extension of maturity of a $27.5 million commercial real estate loan to allow for an extended lease up period during the first quarter of 2025. Nonaccruing loans increased $7.3 million, or 229.2%, to $10.5 million, and the ratio of nonaccruing loans to total loans was 0.22% and 0.07% for December 31, 2025 and December 31, 2024, respectively. The increase in nonaccrual loans compared to December 31, 2024 was primarily due to increases of $3.2 million in 1-4 family residential loans, $3.0 million in commercial loans and $1.0 million in commercial real estate loans. There were no repossessed assets at December 31, 2025, compared to $14,000 at December 31, 2024. There was $248,000 of OREO at December 31, 2025 and $388,000 at December 31, 2024.
Our deposits increased $210.9 million, or 3.2%, to $6.87 billion at December 31, 2025 from $6.65 billion at December 31, 2024, due to an increase in retail deposits of $359.9 million, or 7.7%, partially offset by a decrease in public fund deposits of $78.4 million, or 6.4%, and a decrease in brokered deposits of $70.7 million, or 9.5%. The increase in retail deposits of $359.9 million consists of $280.7 million of interest bearing deposits and $79.2 million of noninterest bearing deposits.
Total FHLB borrowings decreased $520.8 million, or 71.2%, to $211.1 million at December 31, 2025, from $731.9 million at December 31, 2024.
Other borrowings increased $132.2 million, or 173.0%, to $208.7 million at December 31, 2025, from $76.4 million at December 31, 2024.
Our subordinated notes, net of unamortized debt issuance costs, increased $147.6 million, or 160.4%, to $239.7 million at December 31, 2025 from $92.0 million at December 31, 2024, a result of the issuance of $150.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes during the third quarter of 2025.
Our total shareholders’ equity at December 31, 2025 increased 4.4%, or $35.7 million, to $847.6 million, or 10.0% of total assets, compared to $811.9 million, or 9.5% of total assets, at December 31, 2024. The increase in shareholders’ equity was the result of net income of $69.2 million, other comprehensive income of $29.3 million, stock compensation expense of $3.0 million and common stock issued under our dividend reinvestment plan of $1.0 million, partially offset by cash dividends paid of $43.4 million, repurchases of $23.4 million of our common stock pursuant to our Stock Repurchase Plan and net issuance of common stock under employee stock plans of $91,000.
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.
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BALANCE SHEET STRATEGY
Determining the appropriate size of the balance sheet is one of the critical decisions any bank makes. Our balance sheet is not merely the result of a series of micro-decisions, but rather the size is controlled based on the economics of assets compared to the economics of funding and funding sources. Changing interest rate environments and economic conditions require that we monitor the interest rate sensitivity of the assets, the funding driving our growth and closely align ALCO objectives accordingly.
We ended 2025 with approximately $241.8 million in available liquidity from the FRDW, in addition to the approximately $2.45 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. At December 31, 2025, the estimated deposits without insurance or collateral to total deposits, excluding affiliate deposits (Southside-owned deposits), was 23.0%, or $1.58 billion.
At December 31, 2025, brokered deposits of $650 million and FHLB advances of $210 million were hedged with $860 million of cash flow swaps. In connection with this $860.0 million of funding at December 31, 2025, the Bank also entered into various interest rate swap contracts that are treated as cash flow hedges under ASC Topic 815, “Derivatives and Hedging” that are expected to be effective in hedging the variability in future cash flows at 3.42% with a remaining average weighted maturity of 1.3 years at December 31, 2025. During the year ended December 31, 2025, we entered into an additional $250 million in cash flow hedge interest rate swap contracts, while $180 million in cash flow hedge interest rate swap contracts matured. As of December 31, 2025, a pre-tax unrealized loss of $663,000 was recognized in other comprehensive income, and there was no ineffective portion of these hedges. At December 31, 2024, the outstanding balance of cash flow hedges was $790.0 million. 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.
We continue to evaluate the lowest cost wholesale funding sources and will utilize either brokered deposits, FHLB advances or FRDW borrowings, or a combination of the three funding sources in addition to utilizing cash flow hedges to mitigate the impacts of interest rate movements. Wholesale funding and securities are utilized 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. Wholesale funds are invested primarily in U.S. agency MBS and long-term municipal securities and to a lesser extent, corporate securities. Although the securities 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. Government and the guarantees of the municipalities, (ii) are more liquid than individual loans and (iii) may be used to collateralize our borrowings or other obligations.
Risks associated with this asset structure include a potentially lower net interest rate spread and margin when compared to our peers, changes in the slope of the yield curve, increased interest rate risk, the length of interest rate cycles, changes in volatility or spreads associated with the MBS, municipal and corporate securities, the unpredictable nature of MBS prepayments and credit risks associated with the municipal and corporate securities. See “Part I - Item 1A. Risk Factors – Risks Related to Our Business” in this report for a discussion of risks related to interest rates. An additional risk is significant increases in interest rates, especially long-term interest rates, which could adversely impact the fair value of the AFS securities portfolio and could also impact our equity capital. Due to the unpredictable nature of MBS prepayments, the length of interest rate cycles and the slope of the interest rate yield curve, net interest income could fluctuate more than simulated under the scenarios modeled by our ALCO and described under “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in this report.
Our securities portfolio decreased 3.9% from $2.81 billion at December 31, 2024 to $2.70 billion at December 31, 2025, with decreases in municipal securities, U.S. Treasury Bills and corporate bonds, partially offset by an increase in U.S. Agency MBS. The decrease in the securities portfolio was due to sales of securities, maturities and principal payments during the year ended December 31, 2025, which more than offset securities purchased.
During the second half of 2025, we restructured a portion of the AFS securities portfolio to enhance future earnings by selling primarily lower yielding long duration municipal securities and, to a lesser extent, MBS. During the year ended December 31, 2025, we sold $299.4 million of municipal securities, $225.9 million of MBS and $49.7 million in U.S. Treasury Bills, which resulted in a net realized loss of $32.3 million. During the year ended December 31, 2025, we purchased $739.1 million in lower premium, 5.50% to 6.50% coupon MBS, $41.8 million in 5.00% to 5.75% coupon municipal securities, $4.8 million in corporate bonds and $182.0 million in short-term U.S. Treasury Bills for collateral purposes.
At December 31, 2025, securities as a percentage of assets totaled 31.8%, compared to 33.0% at December 31, 2024, due to a $109.4 million, or 3.9%, decrease in securities. Cash and cash equivalents decreased to 4.6% of total assets at December 31, 2025, compared to 5.0% at December 31, 2024. Our balance sheet management strategy is dynamic and is continually evaluated as market conditions warrant.
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Our FHLB borrowings decreased 71.2%, or $520.8 million, to $211.1 million at December 31, 2025 from $731.9 million at December 31, 2024. As of December 31, 2025, we had $110.0 million in borrowings from the FRDW. There were no borrowings from the FRDW at December 31, 2024.
As of December 31, 2025, our total wholesale funding as a percentage of deposits, not including brokered deposits, decreased to 16.0% from 24.9% at December 31, 2024.
Our brokered deposits may consist of CDs and non-maturity deposits which may be raised quickly with terms tailored to our funding needs. We had $19.8 million in brokered CDs at December 31, 2025, a decrease from $115.7 million at December 31, 2024. At December 31, 2025, our brokered CDs had a weighted average cost of 406 basis points and matured on January 8, 2026. Our brokered non-maturity deposits increased to $652.4 million at December 31, 2025, of which $650.0 million are related to our cash flow hedges, from $627.1 million at December 31, 2024, with a weighted average cost of 359 and 321 basis points, respectively. 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, 2025, the majority of the securities portfolio was funded by non-maturity deposits, some of which are included in wholesale funding that accounts for approximately 37% of the funding source, of which approximately 87% is swapped at a fixed rate, providing protection from rising interest rates.
We have partial term fair value hedges for certain of our fixed rate callable AFS municipal securities and partial term fair value hedges of fixed rate AFS MBS and fixed rate municipal loans using the portfolio layer method. The instruments are designated as fair value hedges as the changes in the fair value of the interest rate swap are expected to partially offset changes in the fair value of the hedged item attributable to changes in the SOFR swap rate, the designated benchmark interest rate. As of December 31, 2025, $24.1 million in hedging instruments were used to hedge municipal securities with a carrying amount of $21.3 million included in our AFS securities portfolio in our consolidated balance sheets, representing approximately 12.0% of the AFS municipal portfolio. As of December 31, 2025, $301.0 million in hedging instruments were used to hedge a layer of the closed portfolio of AFS MBS with a carrying value of $1.08 billion, or 85.8% of the AFS MBS portfolio, and $155.0 million in hedging instruments were used to hedge a layer of the closed portfolio of municipal loans. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for us making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value.
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RESULTS OF OPERATIONS
Our results of operations are dependent primarily on net interest income, which is the difference between the interest income earned on assets (loans and investments) and interest expense due on our funding sources (deposits and borrowings) during a particular period. Results of operations are also affected by our noninterest income, provision for credit losses, noninterest expenses and income tax expense. General economic and competitive conditions, particularly changes in interest rates, changes in interest rate yield curves, prepayment rates of MBS and loans, repricing of loan relationships, government policies and actions of regulatory authorities also significantly affect our results of operations. Future changes in applicable law, regulations or government policies may also have a material impact on us. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2024 Form 10-K for a discussion and analysis of the periods prior to 2024.
The following table presents net interest income for the periods presented (in thousands):
Years Ended December 31,
Interest income:
Loans
Taxable investment securities
Tax-exempt investment securities
MBS
FHLB stock and equity investments
Other interest earning assets
Total interest income
Interest expense:
Deposits
FHLB borrowings
Subordinated notes
Trust preferred subordinated debentures
Repurchase agreements
Other borrowings
Total interest expense
Net interest income
NET INTEREST INCOME
Net interest income is one of the principal sources of a financial institution’s earnings stream and represents the difference or spread between interest and fee income generated from interest earning assets and the interest expense paid on interest bearing liabilities. Fluctuations in interest rates or interest rate yield curves, as well as repricing characteristics and volume and changes in the mix of interest earning assets and interest bearing liabilities, materially impact net interest income. During the last four months of 2024, the Federal Reserve reduced target federal funds rate by 100 basis points to 4.25% to 4.50%. During the last four months of 2025, the Federal Reserve reduced target federal funds rate by 75 basis points to 3.50% to 3.75%. If the federal funds rate remains elevated, it may negatively impact our net interest income. See “Part I - Item 1A. Risk Factors – Risks Related to Our Business” in this report for a discussion of risks related to interest rates.
Net interest income was $221.1 million for the year ended December 31, 2025, compared to $216.1 million for the same period in 2024, an increase of $5.0 million, or 2.3%. The increase in net interest income for the year ended December 31, 2025 was due to decreases in the average rate paid on our interest bearing liabilities and a change in the mix of our interest earning assets and interest bearing liabilities, partially offset by the decrease in the average yield of interest earning assets. Total interest income decreased $11.3 million, or 2.7%, to $403.1 million for the year ended December 31, 2025, compared to $414.3 million for the same period in 2024. Total interest expense decreased $16.2 million, or 8.2%, to $182.0 million for the year ended December 31, 2025, compared to $198.2 million for the same period in 2024. Our net interest margin and net interest margin (FTE), a non-GAAP measure, increased to 2.81% and 2.93%, respectively, for the year ended December 31, 2025, compared to 2.74% and 2.88%, respectively, for the same period in 2024, and our net interest spread and net interest spread (FTE), also a non-GAAP measure, increased to 2.14% and 2.26%, respectively, compared to 2.02% and 2.16%, respectively, for the same period in 2024. See “Non-GAAP Financial Measures” for more information and for a reconciliation to GAAP.
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ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
The following table presents on a fully taxable-equivalent basis, a non-GAAP measure, the net change in net interest income and sets forth the dollar amount of increase (decrease) in the average volume of interest earning assets and interest bearing liabilities and from changes in yields/rates. Volume/Yield/Rate variances (change in volume times change in yield/rate) have been allocated to amounts attributable to changes in volumes and to changes in yields/rates in proportion to the amounts directly attributable to those changes (in thousands). The comparison between the years includes an additional change factor that shows the effect of the difference in the number of days in each period for assets and liabilities that accrue interest based upon the actual number of days in the period.
Year Ended December 31, 2025 Compared to 2024
Year Ended December 31, 2024 Compared to 2023
Change Attributable to
Total Change
Change Attributable to
Total Change
Fully Taxable-Equivalent Basis:
Average Volume
Average Yield/Rate
Number of Days
Average Volume
Average Yield/Rate
Number of Days
Interest income on:
Loans (1)
Loans held for sale
Taxable investment securities
Tax-exempt investment securities (1)
Mortgage-backed and related securities
FHLB stock, at cost, and equity investments
Interest earning deposits
Federal funds sold
Total earning assets
Interest expense on:
Savings accounts
CDs
Interest bearing demand accounts
FHLB borrowings
Subordinated notes, net of unamortized debt issuance costs
Trust preferred subordinated debentures, net of unamortized debt issuance costs
Repurchase agreements
Other borrowings
Total interest bearing liabilities
Net change
(1) Interest yields on loans and securities that are nontaxable for federal income tax purposes are presented on a fully taxable-equivalent basis. See “Non-GAAP Financial Measures” for more information and for a reconciliation to GAAP.
The decrease in total interest income for the year ended December 31, 2025 was attributable to the decrease in the average yield on earning assets to 5.25% for the year ended December 31, 2025 from 5.40% for the same period in 2024, partially offset by a change in the mix of our interest earning assets when compared to the year ended December 31, 2024.
The decrease in total interest expense for the year ended December 31, 2025 was attributable to the decrease in the average rate paid on our interest bearing liabilities to 2.99% from 3.24% for the year ended December 31, 2024 and a change in the average balance and mix of our interest bearing liabilities.
Interest bearing demand, savings and noninterest bearing demand deposits are considered the lowest cost deposits and decreased to 79.2% of total average deposits for the year ended December 31, 2025, from 83.7% for the year ended December 31, 2024.
At December 31, 2025, brokered CDs were 0.3% of deposits, compared to 1.7% of deposits at December 31, 2024. Our brokered non-maturity deposits increased to 9.5% of deposits at December 31, 2025, compared to 9.4% of deposits at December 31, 2024. 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.
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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, 2025, 2024 and 2023. The interest and related yields presented are on a fully taxable-equivalent basis and are therefore non-GAAP measures. See “Non-GAAP Financial Measures” for more information and for a reconciliation to GAAP. The 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, 2025
December 31, 2024
December 31, 2023
Average Balance
Interest
Avg Yield/Rate (3)
Average Balance
Interest
Avg Yield/Rate (3)
Average Balance
Interest
Avg Yield/Rate (3)
ASSETS
Loans (1)
Loans held for sale
Securities:
Taxable investment securities (2)
Tax-exempt investment securities (2)
Mortgage-backed and related securities (2)
Total securities
FHLB stock, at cost, and equity investments
Interest earning deposits
Federal funds sold
Total earning assets
Cash and due from banks
Accrued interest and other assets
Less: Allowance for loan losses
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings accounts
CDs
Interest bearing demand accounts
Total interest bearing deposits
FHLB borrowings
Subordinated notes, net of unamortized debt issuance costs
Trust preferred subordinated debentures, net of unamortized debt issuance costs
Repurchase agreements
Other borrowings
Total interest bearing liabilities
Noninterest bearing deposits
Accrued expenses and other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest income (FTE)
Net interest margin (FTE)
Net interest spread (FTE)
(1) Interest on loans includes net fees on loans that are not material in amount.
(2) For the purpose of calculating the average yield, the average balance of securities do not include unrealized gains and losses on AFS securities.
(3) Yield/rate includes the impact of applicable derivatives.
Note: As of December 31, 2025, 2024 and 2023, loans totaling $10.5 million, $3.2 million and $3.9 million, respectively, were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.
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PROVISION FOR CREDIT LOSSES
For the year ended December 31, 2025, there was a provision for credit losses of $3.1 million, compared to $3.3 million for the year ended December 31, 2024. The decrease in provision expense for the year ended December 31, 2025, compared to 2024, was primarily due to improvements in the overall economic forecast in the CECL model.
As of December 31, 2025, and 2024, our reviews of the loan portfolio indicated that loan loss allowances of $45.1 million and $44.9 million, respectively, were appropriate to cover expected credit losses in the portfolio. See the section captioned “Allowance for Credit Losses - Loans” elsewhere in this discussion for further analysis of the provision for credit losses for loans.
The balance of the allowance for off-balance-sheet credit exposures at December 31, 2025 and 2024, was $3.2 million and $3.1 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 credit losses on securities held to maturity at December 31, 2025 was $25,000. There was no allowance for credit losses on securities held to maturity at December 31, 2024.
The following table details the provision for (reversal of) loan losses, provision for (reversal of) off-balance-sheet credit exposures and provision for (reversal of) securities held to maturity for the years ended December 31, 2025, 2024 and 2023 (dollars in thousands):
Increase
(Decrease)
Increase
(Decrease)
Provision for (reversal of) loan losses
Provision for (reversal of) off-balance-sheet credit exposures
Provision for (reversal of) securities held to maturity
Total provision for credit losses
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NONINTEREST INCOME
Noninterest income consists of revenue generated from a broad range of financial services and activities and other fee generating services that we either provide or in which we participate.
The following table details the categories included in noninterest income for the years ended December 31, 2025, 2024 and 2023 (dollars in thousands):
Increase
(Decrease)
Increase
(Decrease)
Deposit services
Net gain (loss) on sale of securities AFS
Net gain on sale of equity securities
Gain (loss) on sale of loans
Trust fees
BOLI
Brokerage services
Other noninterest income
Total noninterest income
The 61.8% decrease in noninterest income for the year ended December 31, 2025, when compared to the same period in 2024, was due to an increase in net loss on sale of securities AFS and a decrease in BOLI income, partially offset by increases in other noninterest income, trust fees, brokerage services income and gain on sale of loans.
During the year ended December 31, 2025, we sold municipal securities, MBS and U.S. Treasury securities that resulted in a net loss on sale of AFS securities of $32.3 million. During the year ended December 31, 2024, we sold municipal securities that resulted in a net loss on sale of AFS securities of $2.5 million.
The increase in gain on sale of loans for the year ended December 31, 2025, was primarily due to the $412,000 net loss on the sale of a commercial real estate loan relationship during the first quarter of 2024.
Trust fees increased for the year ended December 31, 2025, when compared to the same period in 2024, due to an increase in accounts under management and fee repricing.
The decrease in BOLI income for the year ended December 31, 2025, when compared to the same period in 2024, was due to a death benefit of $962,000 realized in the second quarter of 2024 for a former covered officer, partially offset by a death benefit of $255,000 realized during the fourth quarter of 2025 for a former covered officer.
Brokerage services income increased for the year ended December 31, 2025, when compared to the same period in 2024, due to an increase in assets under management.
Other noninterest income increased for the year ended December 31, 2025, when compared to the same period in 2024, partially due to an impairmentloss in the third quarter of 2024 of $868,000 for AFS securities. Additionally, the increase for the year ended December 31, 2025 was also due to increases in swap fee income, equity investment income, deluxe income and merchant services income, partially offset by the gain recognized on the repurchase of our subordinated notes at a discount during the second quarter of 2024.
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NONINTEREST EXPENSE
We incur certain types of noninterest expenses associated with the operation of our various business activities. The following table details the categories included in noninterest expense for the years ended December 31, 2025, 2024 and 2023 (dollars in thousands):
Increase
(Decrease)
Increase
(Decrease)
Salaries and employee benefits
Net occupancy
Advertising, travel & entertainment
ATM expense
Professional fees
Software and data processing
Communications
FDIC insurance
Amortization of intangibles
Other noninterest expense
Total noninterest expense
The increase in noninterest expense for the year ended December 31, 2025, when compared to the same period in 2024, was primarily due to increases in other noninterest expense, professional fees and advertising, travel and entertainment expense, partially offset by decreases in amortization of intangibles and communications expense.
Salaries and employee benefits expense remained relatively unchanged during the year ended December 31, 2025 compared to the same period in 2024, consisting of a decrease in health insurance expense, partially offset by increases in direct salary expense and retirement expense.
Direct salary expense increased $248,000, or 0.3%, for the year ended December 31, 2025, compared to the same period in 2024, primarily due to normal salary increases effective in the first quarter of 2025.
Health and life insurance expense, included in salaries and employee benefits, decreased $272,000, or 3.0%, for the year ended December 31, 2025, compared to the same period in 2024, due to decreases in health claims expense and plan administration cost. We have a self-insured health plan which is supplemented with a stop loss policy.
Retirement expense, included in salaries and employee benefits, increased $7,000, or 0.2%, for the year ended December 31, 2025, compared to the same period in 2024.
Advertising, travel and entertainment expense increased during the year ended December 31, 2025, compared to the same period in 2024, due to increases in media advertising, meals and entertainment and travel related expenses and donations.
Professional fees increased for the year ended December 31, 2025, when compared to the same period in 2024, due to increases in managed services, audit, consulting and legal fees.
Communications expense decreased for the year ended December 31, 2025, when compared to the same period in 2024, resulting from improved network management efficiency.
Amortization of intangibles decreased for the year ended December 31, 2025, compared to the same period in 2024, 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.
Other noninterest expense increased for the year ended December 31, 2025, when compared to the same period in 2024, primarily due to an increase in non-service cost of the Retirement Plan as a result of the amortization method change from average life expectancy to average future service in the first quarter of 2025 and a one-time charge of $1.2 million on the demolition of an old branch facility following completion of the new branch during the second quarter of 2025. Additional increases included an increase in bank analysis fees and online banking expense.
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INCOME TAXES
Pre-tax income for the year ended December 31, 2025 was $82.6 million, compared to $107.4 million for the year ended December 31, 2024.
Income tax expense was $13.4 million for the year ended December 31, 2025 and represented a decrease of $5.5 million, or 29.0%, from $18.9 million for the year ended December 31, 2024. The ETR as a percentage of pre-tax income was 16.2% in 2025 and 17.6% in 2024. The decrease in the ETR for the year ended December 31, 2025, compared to the same period in 2024, was primarily a result of an increase in net tax-exempt income as a percentage of pre-tax income. The decrease in income tax expense is due to the lower ETR and lower pre-tax income for the year ended December 31, 2025 compared to the same period in 2024.
The ETR differs from the statutory rate of 21% primarily due to the effect of tax-exempt income from municipal loans and securities, as well as BOLI. The net deferred tax asset totaled $27.1 million at December 31, 2025, as compared to $34.5 million in 2024. The decrease in the net deferred tax asset is primarily the result of a decrease in unrealized losses in the AFS securities portfolio. See “Note 15 – Income Taxes” to our consolidated financial statements included in this report. No valuation allowance was recorded at December 31, 2025 or December 31, 2024, as management believes it is more likely than not that all of the deferred tax asset items will be realized in future years.
LENDING ACTIVITIES
One of our main objectives is to seek attractive lending opportunities in Texas, primarily in the market areas in which we operate. The majority of our loan originations are made to borrowers who live in and/or conduct business in the market areas of Texas in which we operate or adjoin.
Total loans as of December 31, 2025 increased $156.4 million, or 3.4%, and the average loan balance outstanding for the year increased $50.8 million, or 1.1%, compared to 2024.
From December 31, 2024 to December 31, 2025, commercial real estate loans increased $133.1 million, commercial loans increased $81.6 million and construction loans increased $10.7 million. The increases were partially offset by decreases of $44.2 million in municipal loans, $16.0 million in 1-4 family residential loans and $8.7 million in loans to individuals. Loans held for sale decreased $614,000, or 31.6%, to $1.3 million at December 31, 2025 from $1.9 million at December 31, 2024.
Our greatest concentration of loans is in our real estate portfolio. Management does not consider there to be a concentration of risk in any one industry type. See “Item 1. Business – Market Area.”
The aggregate amount of loans that we are permitted to make under applicable bank regulations to any one borrower, including non-affiliate related entities is 25% of Tier 1 capital. Our legal lending limit at December 31, 2025, was approximately $240.7 million. Our largest loan relationship at December 31, 2025 was approximately $133.1 million.
The average yield on loans for the year ended December 31, 2025 decreased to 5.98%, compared to 6.13% for the year ended December 31, 2024.
LOAN PORTFOLIO COMPOSITION AND ASSOCIATED RISK
For purposes of this discussion, our loans are divided into real estate loans, commercial loans, municipal loans and loans to individuals.
REAL ESTATE LOANS
Our real estate loan portfolio consists of construction, 1-4 family residential and commercial real estate loans, and represents our greatest concentration of loans. We attempt to mitigate the amount of risk associated with this group of loans through the type of loans originated and geographic distribution. At December 31, 2025, the majority of our real estate loans were collateralized by properties located in our market areas. Of the $3.99 billion in real estate loans, $724.4 million, or 18.2%, represent loans collateralized by residential dwellings that are primarily owner occupied. Historically, the amount of losses realized on this type of loan has been significantly less than those on other properties. Prior to funding any real estate loan, our loan policy requires an appraisal or evaluation of the property and also outlines the requirements for appraisals on renewals based on the size and complexity of the transaction.
We pursue an aggressive policy of reappraisal on any real estate loan that is in the process of foreclosure and potential exposures are recognized and reserved for or charged off as soon as they are identified. Our ability to liquidate certain types of properties that may be obtained through foreclosure could adversely affect the volume of our nonperforming real estate loans.
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Construction Real Estate Loans
Our construction loans are collateralized by property located primarily in or near the market areas we serve. 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. 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. Owner occupied 1-4 family residential construction loans are subject to the underwriting standards of the permanent loan.
1-4 Family Residential Real Estate Loans
Residential loan originations are generated by our mortgage loan officers, in-house origination staff, marketing efforts, present customers, walk-in customers and referrals from real estate agents and builders. We focus our lending efforts primarily on the origination of loans secured by first mortgages on owner occupied 1-4 family residences. Substantially all of our 1-4 family residential originations are secured by properties located in or near our market areas. Historically, we have originated a portion of our residential loans for sale into the secondary market. These loans are reflected on the balance sheet as loans held for sale. Secondary market investors, other than Fannie Mae, typically pay us a service release premium in addition to a predetermined price based on the interest rate of the loan originated. We retain liabilities related to early prepayments, defaults, failure to adhere to origination and processing guidelines and other issues. We have internal controls in place to mitigate many of these liabilities and historically our realized liability has been extremely low. In addition, many of the retained liabilities expire one year from the date a loan is sold. We warehouse these loans until they are transferred to the secondary market investor, which usually occurs within 45 days.
Our 1-4 family residential loans generally have maturities ranging from 15 to 30 years. These loans are typically fully amortizing with monthly payments sufficient to repay the total amount of the loan. Our 1-4 family residential loans are made at both fixed and adjustable interest rates.
Underwriting for 1-4 family residential loans includes debt-to-income analysis, credit history analysis, appraised value and down payment considerations. Changes in the market value of real estate can affect the potential losses in the residential portfolio.
We also make home equity loans, which are included as part of the 1-4 family residential loans, and at December 31, 2025, these loans totaled $97.2 million. Under Texas law, these loans, when combined with all other mortgage indebtedness for the property, are capped at 80% of appraised value.
Commercial Real Estate Loans
Commercial real estate loans primarily include loans collateralized by retail, commercial office buildings, multi-family residential buildings, medical facilities and offices, senior living, assisted living and skilled nursing facilities, warehouse facilities, hotels and churches. Management does not consider there to be a concentration of risk in any one industry type. In determining whether to originate commercial real estate loans, we generally consider such factors as the financial condition of the borrower and the debt service coverage of the property. Commercial real estate loans are made at both fixed and adjustable interest rates for terms generally up to 20 years. Most of our fixed rate commercial real estate loans adjust at least every five years. At December 31, 2025, commercial real estate loans consisted of $1.94 billion of owner and non-owner occupied real estate loans, $742.7 million of loans secured by multi-family properties and $32.7 million of loans secured by farmland.
COMMERCIAL LOANS
Our commercial loans are diversified loan types including short-term working capital loans for inventory and accounts receivable and short- and medium-term loans for equipment or other business capital expansion. Management does not consider there to be a concentration of risk in any one industry type. In our commercial loan underwriting, we assess the creditworthiness, ability to repay and the value and liquidity of the collateral being offered. Terms of commercial loans are generally commensurate with the useful life of the collateral offered. Commercial loans increased $81.6 million, or 22.5%, to $444.7 million as of December 31, 2025, when compared to 2024.
MUNICIPAL LOANS
We make loans to municipalities and school districts primarily throughout the state of Texas, with a small percentage originating outside of the state. The majority of the loans to municipalities and school districts have tax or revenue pledges and in some cases are additionally supported by collateral. Municipal loans made without a direct pledge of taxes or revenues are usually made based on some type of collateral that represents an essential service. These loans allow us to earn a higher yield
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than we could if we purchased municipal securities for similar durations. Loans to municipalities and school districts decreased $44.2 million, or 11.3%, to $346.7 million as of December 31, 2025, when compared to 2024.
LOANS TO INDIVIDUALS
Substantially all originations of our loans to individuals are made to consumers in our market areas. At December 31, 2025, loans collateralized by titled equipment, which are primarily automobiles, accounted for approximately $19.3 million, or 47.3%, of total loans to individuals.
Home equity loans, which are included in 1-4 family residential loans, have replaced some of the traditional loans to individuals. In addition, we make loans for a full range of other consumer purposes, which may be secured or unsecured depending on the credit quality and purpose of the loan.
Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. The underwriting standards we employ for consumer loans include an application and a determination of the applicant’s payment history on other debts, with the greatest weight being given to payment history with us and an assessment of the borrower’s ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, in relation to the proposed loan amount. Most of our loans to individuals are collateralized, which management believes assists in limiting our exposure.
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
The following tables represent loan maturities and sensitivity to changes in interest rates for our loans (dollars in thousands). The amounts of these loans outstanding at December 31, 2025, which, based on maturity, are due in (1) one year or less, (2) after one but within five years, (3) after five years but within 15 years, and (4) after 15 years, are shown in the following table. The amounts due after one year are classified according to the sensitivity to changes in interest rates:
Due in One
Year or Less
After One but
Within Five Years
After Five
Years Within 15 Years
After 15 Years
Total
Real estate loans:
Construction
1-4 family residential
Commercial
Commercial loans
Municipal loans
Loans to individuals
Total loans
Loans with maturities after one year for which:
Interest Rates are Fixed or Predetermined
Interest Rates are Floating or Adjustable
Real estate loans:
Construction
1-4 family residential
Commercial
Commercial loans
Municipal loans
Loans to individuals
Total loans
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LOANS TO AFFILIATED PARTIES
In the normal course of business, we make loans to our own executive officers and directors and their related interests. These loans totaled $9.8 million and $12.1 million and represented 1.2% and 1.5% of shareholders’ equity as of December 31, 2025 and 2024, respectively.
NONPERFORMING ASSETS
Nonperforming assets consist of delinquent loans 90 days or more past due, nonaccrual loans, OREO, repossessed assets and restructured loans. Nonaccrual loans are loans 90 days or more delinquent and collection in full of both the principal and interest is not expected. Additionally, some loans that are not delinquent or that are delinquent less than 90 days may be placed on nonaccrual status if it is probable that we will not receive contractual principal and interest payments in accordance with the terms of the respective loan agreements. When a loan is categorized as nonaccrual, the accrual of interest is discontinued and any accrued balance is reversed for financial statement purposes. OREO represents real estate taken in full or partial satisfaction of debts previously contracted. The dollar amount of OREO is based on a current evaluation of the OREO at the time it is recorded on our books, net of estimated selling costs. Updated valuations are obtained as needed and any additional impairments are recognized. Restructured loans represent loans that have been modified due to the borrower experiencing financial difficulty by providing interest rate reductions or below market interest rates, restructuring amortization schedules and other actions intended to minimize potential losses. Categorization of a loan as nonperforming is not in itself a reliable indicator of potential loan loss. Other factors, such as the value of collateral securing the loan and the financial condition of the borrower, are considered in judgments as to potential loan loss.
Our nonperforming assets at December 31, 2025 increased $34.7 million, or 965.6%, to $38.2 million and represented 0.45% of total assets, compared to $3.6 million, or 0.04% of total assets, at December 31, 2024, due primarily to an increase of $27.5 million in restructured loans. The increase in restructured loans was due to the extension of maturity of a $27.5 million commercial real estate loan to allow for an extended lease up period during the first quarter of 2025. Nonaccruing loans increased $7.3 million, or 229.2%, to $10.5 million, and the ratio of nonaccruing loans to total loans was 0.22% and 0.07% for December 31, 2025 and December 31, 2024, respectively. The increase in nonaccrual loans compared to December 31, 2024 was primarily due to increases of $3.2 million in 1-4 family residential loans, $3.0 million in commercial loans and $1.0 million in commercial real estate loans. There were no repossessed assets at December 31, 2025, compared to $14,000 at December 31, 2024. There was $248,000 of OREO at December 31, 2025 and $388,000 at December 31, 2024.
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The following table sets forth nonperforming assets and selected asset quality ratios for the periods presented (dollars in thousands):
December 31,
Change (%)
Nonaccrual loans (1)
Accruing loans past due more than 90 days
Restructured loans
OREO
Repossessed assets
Total nonperforming assets
Total loans
Allowance for loan losses at end of period
Ratio of nonaccruing loans to:
Total loans
Ratio of nonperforming assets to:
Total assets
Total loans
Total loans and OREO
Ratio of allowance for loan losses to:
Nonaccruing loans
Nonperforming assets
Total loans
(1) Includes $2.0 million and $63,000 of restructured loans as of December 31, 2025 and December 31, 2024, respectively.
Nonperforming assets hinder our ability to earn interest income. Decreases in earnings can result from both the loss of interest income and the costs associated with maintaining the OREO, for taxes, insurance and other operating expenses. We actively market all OREO properties and do not hold them for investment purposes.
We reversed $83,000 of interest income on nonaccrual loans during the year ended December 31, 2025. We had $2.7 million of loans on nonaccrual for which there was no related allowance for credit losses as of December 31, 2025.
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ALLOWANCE FOR CREDIT LOSSES – LOANS
The following table presents information regarding changes in the allowance for loan losses for the periods presented (in thousands):
Years Ended December 31,
Balance of allowance for loan losses at beginning of period
Total loan charge-offs
Total recovery of loans previously charged-off
Net loan charge-offs
Provision for (reversal of) loan losses
Allowance for loan losses at end of period
Our allowance for loan losses was $45.1 million at December 31, 2025, or 0.94% of loans, an increase of $216,000, or 0.5%, compared to $44.9 million at December 31, 2024.
In accordance with ASC 326, the allowance for credit losses on loans is estimated and recognized upon origination of the loan based on expected credit losses. The CECL model uses historical experience and current conditions for homogeneous pools of loans, and reasonable and supportable forecasts about future events. The impact of varying economic conditions and portfolio stress factors are a component of the credit loss models applied to each portfolio. Reserve factors are specific to the loan segments that share similar risk characteristics based on the probability of default assumptions and loss given default assumptions, over the contractual term. The forecasted periods gradually mean-revert the economic inputs to their long-run historical trends. Management evaluates the economic data points used in the Moody’s forecasting scenarios on a quarterly basis to determine the most appropriate impact to the various portfolio characteristics based on management’s view and applies weighting to various forecasting scenarios as deemed appropriate based on known and expected economic activities. Management also considers and may apply relevant qualitative factors, not previously considered, to determine the appropriate allowance level. The use of the CECL model includes significant judgment by management and may differ from those of our peers due to different historical loss patterns, economic forecasts, and the length of time of the reasonable and supportable forecast period and reversion period.
We utilize Moody’s Analytics economic forecast scenarios and assign probability weighting to those scenarios which best reflect management’s views on the economic forecast. The probability weighting and scenarios utilized for the estimate of the allowance were generally reflective of the economic forecast in our CECL model as of December 31, 2025.
When determining the appropriate allowance for credit losses on our loan portfolio, our commercial construction and real estate loans, commercial loans and municipal loans utilize the probability of default/loss given default discounted cash flow approach. Reserves on these loans are based upon risk factors including the loan type and structure, collateral type, leverage ratio, refinancing risk and origination quality, among others. Our consumer construction real estate loans, 1-4 family residential loans and our loans to individuals use a loss rate based upon risk factors including loan types, origination year and credit scores.
Loans evaluated collectively in a pool are monitored to ensure they continue to exhibit similar risk characteristics with other loans in the pool. If a loan does not share similar risk characteristics with other loans, expected credit losses for that loan are evaluated individually.
Our lenders have the primary responsibility for identifying problem loans based on customer financial stress and underlying collateral. These recommendations are reviewed by a senior credit officer, the special assets department and the loan review department on a monthly basis. The loan review department independently reviews the portfolio on an annual basis in compliance with the board-approved annual loan review scope. The loan review scope encompasses a number of considerations including the size of the loan, the type of credit extended, the seasoning of the loan and the performance of the loan. The loan review scope, as it relates to size, focuses more on larger dollar loan relationships, typically aggregate debt of $500,000 or greater.
At each review, a subjective analysis methodology is used to grade the respective loan. Categories of grading vary in severity from loans that do not appear to have a significant probability of loss at the time of review to loans that indicate a probability that the entire balance of the loan will be uncollectible. If at the time of the review we determine it is probable we will not collect the principal and interest cash flows contractually due on the loan, estimates of future expected cash flows or appraisals of the collateral securing the debt are used to determine the necessary allowance. The internal loan review department maintains a list of all loans or loan relationships that are graded as having more than the normal degree of risk associated with them. In addition, a list of specifically reserved loans or loan relationships of $150,000 or more is updated on a
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quarterly basis in order to properly determine necessary allowances and keep management informed on the status of attempts to correct the deficiencies noted with respect to the loans.
As of December 31, 2025, our review of the loan portfolio indicated that an allowance for loan losses of $45.1 million was appropriate to cover expected losses in the portfolio. Changes in economic and other conditions, including the application of the CECL model, may require future adjustments to the allowance for loan losses.
Industry and our own experience indicate that a portion of our loans will become delinquent and a portion of our loans will require partial or full charge-off. Regardless of the underwriting criteria utilized, losses may occur as a result of various factors beyond our control, including, among other things, changes in market conditions affecting the value of properties used as collateral for loans and problems affecting the credit worthiness of the borrower and the ability of the borrower to make payments on the loan. Our determination of the appropriateness of the allowance for loan losses is based on various considerations, including an analysis of the risk characteristics of various classifications of loans, previous loan loss experience, specific loans which have loan loss potential, delinquency trends, estimated fair value of the underlying collateral, current economic conditions and geographic and industry loan concentration.
The following table presents the allocation of allowance for loan losses for the years presented (dollars in thousands):
December 31,
Amount
Percent
of Loans
To Total
Loans
Amount
Percent
of Loans
To Total
Loans
Real estate loans:
Construction
1-4 family residential
Commercial
Commercial loans
Municipal loans
Loans to individuals
Ending balance
The following table presents information regarding the net charge-offs to average amount of loans outstanding by portfolio segment (dollars in thousands):
Years Ended
December 31, 2025
December 31, 2024
December 31, 2023
Net Loans (Charged-off) Recovered
Average Loans Outstanding
Net (Charge-offs) Recoveries to Average Loans Outstanding
Net Loans (Charged-off) Recovered
Average Loans Outstanding
Net (Charge-offs) Recoveries to Average Loans Outstanding
Net Loans (Charged-off) Recovered
Average Loans Outstanding
Net (Charge-offs) Recoveries to Average Loans Outstanding
Real estate loans:
Construction
1-4 family residential
Commercial
Commercial loans
Municipal loans
Loans to individuals
Total
For the year ended December 31, 2025, net loan charge-offs increased $860,000, or 44.6%, to $2.8 million, compared to $1.9 million for the same period in 2024.
See “Note 5 – Loans and Allowance for Loan Losses” in our consolidated financial statements included in this report.
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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,
Balance at beginning of period
Provision for (reversal of) off-balance-sheet credit exposures
Balance at end of period
Our off-balance-sheet credit exposures include contractual commitments to extend credit and standby letters of credit. For these credit exposures we evaluate the expected credit losses using usage given defaults and credit conversion factors depending on the type of commitment and based upon historical usage rates. These assumptions are reevaluated on an annual basis and adjusted if necessary. For the year ended December 31, 2025, we recorded a provision for credit losses for off-balance-sheet exposures of $25,000, compared to a reversal of provision for credit losses on off-balance-sheet exposures of $791,000 for the year ended December 31, 2024. 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.
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SECURITIES ACTIVITY
Our securities portfolio plays a primary role in the management of our interest rate sensitivity and liquidity and, therefore, is managed in the context of the overall balance sheet. The securities portfolio generates a substantial percentage of our interest income and serves as a necessary source of liquidity.
Refer to “Note 1 – Summary of Significant Accounting and Reporting Policies” and “Note 4 – Securities” to our consolidated financial statements included in this report for a detailed description of our accounting related to our debt and equity securities.
Management attempts to deploy investable funds into instruments that are expected to provide a reasonable overall return on the portfolio given the current assessment of economic and financial conditions, while maintaining acceptable levels of capital, interest rate and liquidity risk. At December 31, 2025, the combined investment securities, MBS, FHLB stock and other investments as a percentage of total assets was 32.0%, compared to loans, which were 56.6% of total assets. For a discussion of our strategy in relation to the securities portfolio, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Balance Sheet Strategy.”
Our MBS are all insured or guaranteed by U.S. government agencies and corporations. Our MBS include 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. 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. The total net unamortized premium for our MBS increased to $9.3 million at December 31, 2025, compared to $5.9 million at December 31, 2024.
Our investment securities consist primarily of state and political subdivision (municipal bonds) and to a lesser extent, corporate bonds. Most of our municipal bonds were issued by the State of Texas or political subdivisions or agencies within the State of Texas and are highly rated. Our corporate bonds consist of investment grade bonds, private placement bonds and one bond rated below investment grade in the amount of $4.0 million.
During 2025, we sold AFS municipal securities, mortgage related securities and U.S. Treasury Bills that resulted in an overall net loss of $32.3 million, which included a net loss of $1.2 million recorded on the unwind of fair value municipal securities and MBS hedges in the AFS securities portfolio. During 2024, the sale of AFS municipal securities resulted in an overall net loss of $2.5 million, which included a net gain of $3.5 million recorded on the unwind of fair value municipal security hedges in the AFS securities portfolio.
The combined investment securities, MBS, FHLB stock and other investments decreased to $2.73 billion at December 31, 2025, compared to $2.86 billion at December 31, 2024, a decrease of $129.1 million, or 4.5%. The decrease is a result of a decrease in our investment securities portfolio of $431.6 million, or 24.4%, and a decrease in FHLB stock of $19.8 million, or 58.4%, partially offset by an increase in our MBS of $322.1 million, or 30.8%, when compared to December 31, 2024.
The combined fair value of the AFS and HTM securities portfolio at December 31, 2025 was $2.56 billion, which represented a net unrealized loss as of that date of $145.0 million. The net unrealized loss was comprised of $165.1 million of unrealized losses and $20.1 million in unrealized gains. The fair value of the AFS securities portfolio at December 31, 2025 was $1.46 billion, which included a net unrealized loss of $767,000. The net unrealized loss was comprised of $17.9 million of unrealized losses and $17.1 million of unrealized gains. The majority of the $17.9 million of unrealized losses is reflected in our state and political subdivisions. Net unrealized gains and losses on AFS securities, which is also a component of shareholders’ equity on the consolidated balance sheet, can fluctuate significantly as a result of changes in interest rates and is monitored through the use of shock tests on the AFS securities portfolio using an array of interest rate assumptions.
From time to time, we transfer securities from AFS to HTM due to overall balance sheet strategies. Any net unrealized gain or loss on the transferred securities included in AOCI at the time of transfer will be amortized over the remaining life of the underlying security as an adjustment to the yield on those securities. Securities transferred with losses included in AOCI continue to be included in management’s assessment for impairment for each individual security. During the years ended December 31, 2025 and 2024, we did not transfer any securities from AFS to HTM. There were no sales from the HTM portfolio during the years ended December 31, 2025 or 2024. There were $1.25 billion and $1.28 billion of securities classified as HTM at December 31, 2025 and 2024, respectively.
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The maturities of AFS and HTM investment securities and MBS portfolio and the weighted yields are presented below (dollars in thousands) as of December 31, 2025. Tax-exempt obligations are shown on a taxable-equivalent basis, which is a non-GAAP measure. See “Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. MBS are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.
MATURING
Within 1 Year
After 1 But
Within 5 Years
After 5 But
Within 10 Years
After 10 Years
Available for Sale:
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Investment securities:
State and political subdivisions
Corporate bonds and other
MBS:
Residential
Commercial
Total
MATURING
After 1 But
After 5 But
Within 1 Year
Within 5 Years
Within 10 Years
After 10 Years
Held to Maturity:
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Investment securities:
State and political subdivisions
Corporate bonds and other
MBS:
Residential
Commercial
Total
At December 31, 2025, there were no holdings of any one issuer, other than the U.S. government, its agencies and its GSEs, in an amount greater than 10% of our shareholders’ equity.
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DEPOSITS AND BORROWED FUNDS
We utilize deposits and primarily borrowings from FHLB, FRDW and BTFP to assist with our funding needs. Deposits provide us with our primary source of funds. The following table sets forth average deposits and rates paid by category (dollars in thousands) for the years ended December 31, 2025, 2024 and 2023:
Years Ended December 31,
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Interest bearing demand accounts (1)
Savings accounts
CDs
Total interest bearing deposits
Noninterest bearing demand deposits
Total deposits
(1) The average rate on interest bearing demand accounts includes the effect of interest rate swaps.
The table below sets forth the maturity distribution of CDs greater than $250,000 (in thousands):
December 31, 2025
December 31, 2024
Time deposits otherwise uninsured with a maturity of:
Three months or less
Over three to six months
Over six to twelve months
Over twelve months
Total CDs greater than $250,000
Estimated amount of uninsured deposits, including related accrued interest, were $2.73 billion and $2.53 billion at December 31, 2025 and 2024, respectively.
Brokered deposits may consist of CDs and non-maturity deposits. At December 31, 2025, we had $19.8 million in brokered CDs. Brokered non-maturity deposits were $652.4 million at December 31, 2025 with a weighted average cost of 359 basis points. As of December 31, 2024, we had $115.7 million in brokered CDs and $627.1 million in brokered non-maturity deposits. Our current policy allows for maximum brokered deposits of the lesser of $1.05 billion, or 12% of total assets. The potential higher interest costs and lack of customer loyalty are risks associated with the use of brokered deposits.
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Borrowing arrangements, consisting of FHLB borrowings, repurchase agreements and borrowings from the FRDW and BTFP, decreased $388.6 million, or 48.1%, during 2025 compared to 2024, due to a $520.8 million decrease in FHLB borrowings, partially offset by a $110.0 million increase in borrowings from the FRDW and a $22.2 million increase in repurchase agreements.
Borrowing arrangements are summarized as follows (dollars in thousands):
Years Ended December 31,
Other borrowings:
Balance at end of period
Average amount outstanding during the period (1)
Maximum amount outstanding during the period (2)
Weighted average interest rate during the period (3)
Interest rate at end of period (4)
FHLB borrowings:
Balance at end of period
Average amount outstanding during the period (1)
Maximum amount outstanding during the period (2)
Weighted average interest rate during the period (3)
Interest rate at end of period (5)
(1) The average amount outstanding during the period was computed by dividing the total daily outstanding principal balances by the number of days in the period.
(2) The maximum amount outstanding at any month-end during the period.
(3) The weighted average interest rate during the period was computed by dividing the actual interest expense by the average balance outstanding during the period. The weighted average interest rate on other borrowings and FHLB borrowings includes the effect of interest rate swaps.
(4) Stated rate.
(5) The interest rate on FHLB borrowings includes the effect of interest rate swaps.
Other borrowings may include federal funds purchased, repurchase agreements and borrowings from the Federal Reserve through the FRDW. Southside Bank has three unsecured lines of credit for the purchase of overnight federal funds at prevailing rates with Frost Bank, Amegy Bank and TIB – The Independent Bankers Bank for $40.0 million, $25.0 million and $15.0 million, respectively. There were no federal funds purchased at December 31, 2025 or 2024. 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, 2025, the amount of additional funding the Bank could obtain from the FRDW, collateralized by securities, was approximately $241.8 million. There were $110.0 million in borrowings from the FRDW at December 31, 2025. There were no borrowings from the FRDW at December 31, 2024. 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, 2025, the line had oneoutstanding letter of credit for $155,000. Southside Bank currently has two outstanding letters of credit from FHLB held as collateral for loans totaling $6.2 million.
Southside Bank enters into sales of securities under repurchase agreements. These repurchase agreements totaled $98.7 million at December 31, 2025, and $76.4 million at December 31, 2024, and had maturities of less than one year. Repurchase agreements are secured by investment and MBS and are stated at the amount of cash received in connection with the transaction.
FHLB borrowings represent borrowings with fixed interest rates ranging from 1.26% to 4.80% (including the effect of interest rate swaps) and with remaining maturities of 5 days to 2.5 years at December 31, 2025. FHLB borrowings may be collateralized by FHLB stock, nonspecified loans and/or securities. At December 31, 2025, the amount of additional funding Southside Bank could obtain from FHLB was approximately $2.45 billion, net of FHLB stock purchases required.
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CAPITAL RESOURCES AND LIQUIDITY
Our total shareholders’ equity at December 31, 2025 increased 4.4%, or $35.7 million, to $847.6 million, or 10.0% of total assets, compared to $811.9 million, or 9.5% of total assets, at December 31, 2024. The increase in shareholders’ equity was the result of net income of $69.2 million, other comprehensive income of $29.3 million, stock compensation expense of $3.0 million, and common stock issued under our dividend reinvestment plan of $1.0 million, partially offset by cash dividends paid of $43.4 million, repurchases of $23.4 million of our common stock pursuant to our Stock Repurchase Plan and the net issuance of common stock under employee stock plans of $91,000.
The Company’s Common Equity Tier 1 capital includes common stock and related paid-in capital, net of treasury stock, and retained earnings. The Bank’s Common Equity Tier 1 capital includes common stock and related paid-in capital, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include accumulated other comprehensive income in Common Equity Tier 1. 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, 2025 included $58.5 million of trust preferred securities. For bank holding companies that had assets of less than $15 billion as of December 31, 2009, trust preferred securities issued prior to May 19, 2010 can be treated as Tier 1 capital to the extent that they do not exceed 25% of Tier 1 capital after the application of capital deductions and adjustments. The Bank did not have any additional Tier 1 capital beyond Common Equity Tier 1 at December 31, 2025.
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, off-balance sheet exposures and HTM securities. Tier 2 capital for the Company also includes $221.2 million of qualified subordinated debt as of December 31, 2025. The permissible portion of qualified subordinated notes decreases 20% per year during the final five years of the term of the notes.
In April 2020, the FDIC, Federal Reserve, and the Office of the Comptroller of the Currency issued supplemental instructions allowing banking organizations that implement CECL before the end of 2020, the option to delay for two years an estimate of the CECL methodologies’ effect on regulatory capital, relative to the incurred loss methodologies effect on capital, followed by a three-year transition period. We elected to adopt the five-year transition option, and as of December 31, 2024, the CECL impact on regulatory capital was fully phased in and there is no longer a transitional amount.
The FDIA requires bank regulatory agencies to take “prompt corrective action” with respect to FDIC-insured depository institutions that do not meet minimum capital requirements. A depository institution’s treatment for purposes of the prompt corrective action provisions will depend on how its capital levels compare to various capital measures and certain other factors, as established by regulation. Prompt corrective action and other discretionary actions could have a direct material effect on our financial statements.
Management believes that, as of December 31, 2025, we met all capital adequacy requirements to which we were subject. It is management’s intention to maintain our capital at a level acceptable to all regulatory authorities and future dividend payments will be determined accordingly. Regulatory authorities require that any dividend payments made by either us or the Bank not exceed earnings for that year. Accordingly, shareholders should not anticipate a continuation of the cash dividend payments simply because of the existence of a dividend reinvestment program. The payment of dividends will depend upon future earnings, our financial condition and other related factors including the discretion of the Board.
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To be categorized as well capitalized we must maintain minimum Common Equity Tier 1 risk-based, Tier 1 risk-based, Total capital risk-based and Tier 1 leverage ratios as set forth in the following table (dollars in thousands):
Actual
For Capital
Adequacy Purposes
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2025
Common Equity Tier 1 (to Risk Weighted Assets)
Consolidated
Bank Only
Tier 1 Capital (to Risk Weighted Assets)
Consolidated
Bank Only
Total Capital (to Risk Weighted Assets)
Consolidated
Bank Only
Tier 1 Capital (to Average Assets) (1)
Consolidated
Bank Only
December 31, 2024
Common Equity Tier 1 (to Risk Weighted Assets)
Consolidated
Bank Only
Tier 1 Capital (to Risk Weighted Assets)
Consolidated
Bank Only
Total Capital (to Risk Weighted Assets)
Consolidated
Bank Only
Tier 1 Capital (to Average Assets) (1)
Consolidated
Bank Only
(1) Refers to quarterly average assets as calculated in accordance with policies established by bank regulatory agencies.
As of December 31, 2025, Southside Bancshares and Southside Bank met all capital adequacy requirements under the Basel III Capital Rules that became fully phased-in as of January 1, 2019. See the section captioned “Supervision and Regulation” in “Item 1. Business” included in this report.
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The table below summarizes our key equity ratios:
Years Ended December 31,
Return on average assets
Return on average shareholders’ equity
Dividend payout ratio – Basic
Dividend payout ratio – Diluted
Average shareholders’ equity to average total assets
EFFECTS OF INFLATION
Our consolidated financial statements and their related notes have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars, without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike many industrial companies, nearly all of our assets and liabilities are monetary. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services. Inflation can affect the amount of money customers have for deposits, as well as their ability to repay loans.
MANAGEMENT OF LIQUIDITY
Liquidity management involves our ability to convert assets to cash with minimum risk of loss while enabling us to meet our current and future obligations to our customers at any time. This means addressing (1) the immediate cash withdrawal requirements of depositors and other fund providers; (2) the funding requirements of lines and letters of credit; and (3) the short-term credit needs of customers. Liquidity is provided by cash, interest earning deposits and short-term investments that can be readily liquidated with a minimum risk of loss. At December 31, 2025, these investments were 8.1% of total assets, as compared with 8.6% for December 31, 2024. The decrease to 8.1% at December 31, 2025 as compared to December 31, 2024, is largely driven by a decrease in the short-term investment portfolio and cash and due from banks, partially offset by an increase in interest earning deposits. Liquidity is further provided through the matching, by time period, of rate sensitive interest earning assets with rate sensitive interest bearing liabilities. The Bank has three unsecured lines of credit for the purchase of overnight federal funds at prevailing rates with Frost Bank, Amegy Bank and TIB – The Independent Bankers Bank for $40.0 million, $25.0 million and $15.0 million, respectively. There were no federal funds purchased at December 31, 2025 or 2024. 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, 2025, the amount of additional funding the Bank could obtain from the FRDW, collateralized by securities, was approximately $241.8 million. There were $110.0 million in borrowings from the FRDW at December 31, 2025. There were no borrowings from the FRDW at December 31, 2024. At December 31, 2025, the amount of additional funding Southside Bank could obtain from FHLB, collateralized by FHLB stock, nonspecified loans and/or securities, was approximately $2.45 billion, net of FHLB stock purchases required. The Bank has a $5.0 million line of credit with Frost Bank to be used to issue letters of credit, and at December 31, 2025, the line had oneoutstanding letter of credit for $155,000. The Bank currently has two outstanding letters of credit from FHLB held as collateral for loans totaling $6.2 million.
Interest rate sensitivity management seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates. The ALCO closely monitors various liquidity ratios and interest rate spreads and margins. The ALCO utilizes a simulation model to perform interest rate simulation tests that apply various interest rate scenarios including immediate shocks and MVPE to assist in determining our overall interest rate risk and the adequacy of our liquidity position. In addition, the ALCO utilizes this simulation model to determine the impact on net interest income of various interest rate scenarios. By utilizing this methodology, we can determine potential changes to make to the asset and liability mix to minimize the change in net interest income under these various interest rate scenarios.
In the ordinary course of business we have entered into contractual obligations and have made certain other commitments to make future cash payments. Please refer to the accompanying notes to these consolidated financial statements for the expected timing of such cash payments as of December 31, 2025. 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.
