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ITEM 1.	BUSINESS

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•	Creation of the Bureau with centralized authority, including supervisory, examination and enforcement authority, for consumer protection in the banking industry;

•	New limitations on federal preemption;

•	New prohibitions and restrictions on the ability of a banking entity and nonbank financial company to engage in proprietary trading and have certain interests in, or relationships with, a hedge fund or private equity fund;

•	Application of new regulatory capital requirements, including changes to leverage and risk-based capital standards and changes to the components of permissible tiered capital;

•	Requirement that holding companies and their subsidiary banks be well capitalized and well managed in order to engage in activities permitted for financial holding companies;

•	Changes to the assessment base for deposit insurance premiums;

•	Permanently raising the FDIC’s standard maximum deposit insurance amount to $250,000;

•	Repeal of the prohibition on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts;

•	Restrictions on compensation, including a prohibition on incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions and are deemed to be excessive, or that may lead to material losses;

•	Requirement that sponsors of asset-backed securities retain a percentage of the credit risk underlying the securities; and

•	Requirement that banking regulators remove references to and requirements of reliance upon credit ratings from their regulations and replace them with appropriate alternatives for evaluating creditworthiness.

•	banking or managing or controlling banks;

•	furnishing services to or performing services for our subsidiaries; and

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

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◦	factoring accounts receivable;

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

◦	leasing personal or real property;

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

◦	performing trust company functions;

◦	conducting financial and investment advisory activities;

◦	conducting discount securities brokerage activities;

◦	underwriting and dealing in government obligations and money market instruments;

◦	providing specified management consulting and counseling activities;

◦	performing selected data processing services and support services;

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

◦	performing selected insurance underwriting activities;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

•	the Electronic Fund Transfer Act and Regulation E, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of ATMs and other electronic banking services, which the Bureau has expanded to include a new compliance regime that governs consumer-initiated cross border electronic transfers.

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

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

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•	establishment of anti-money laundering programs, including adoption of written procedures and an ongoing employee training program, designation of a compliance officer and auditing of the program;

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

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

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

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

•	requirements that bank regulators consider bank holding company or bank compliance in connection with merger or acquisition transactions.

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•	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 receivership; 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.

•	our ability to originate loans and obtain deposits;

•	our ability to retain deposits in a rising rate environment;

•	net interest rate spreads and net interest rate margins;

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•	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 mortgage-backed securities portfolio.

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•	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;

•	customer satisfaction with our level of service; and

•	industry and general economic trends.

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•	actual or anticipated variations in quarterly results of operations;

•	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;

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

•	perceptions in the marketplace regarding the impact of the change in price per barrel of crude oil 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;

•	changes in government regulations; and

•	geopolitical conditions such as acts or threats of terrorism or military conflicts.

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•	Southside Bank main branch at 1201 South Beckham Avenue, Tyler, Texas.  The primary executive offices of Southside Bancshares, Inc. are located at this location;

•	Fort Worth main branch located at 1320 South University Drive, Fort Worth, Texas. Additional executive offices of Southside Bancshares, Inc. are located at this location;

•	Southside Bank Annex at 1211 South Beckham Avenue, Tyler, Texas.  The Southside Bank Annex is directly adjacent to the main bank building.  Human Resources, and other support areas are located in this building;

•	Operations Annex at 1221 South Beckham Avenue, Tyler, Texas.  Various back office, lending and training facilities and other support areas are located in this building;

•	Southside Bank Trust at 1305 South Beckham Avenue, Tyler, Texas.  The Trust Department is located in this building;

•	Southside Bank Technology Center at 1010 East First Street, Tyler, Texas;

•	Southside Bank main branch motor bank facility at 1010 East First Street, Tyler, Texas;

•	South Broadway branch at 6201 South Broadway, Tyler, Texas;

•	South Broadway branch motor bank facility at 6019 South Broadway, Tyler, Texas;

•	Downtown branch at 113 West Ferguson Street, Tyler, Texas;

•	Gentry Parkway branch and motor bank facility at 2121 West Gentry Parkway, Tyler, Texas;

•	Highway 64 West branch and motor bank facility at 3815 State Highway 64 West, Tyler, Texas;

•	Longview main branch and motor bank facility at 2001 Judson Road, Longview, Texas;

•	Lindale main branch and motor bank facility at 2510 South Main Street, Lindale, Texas;

•	Whitehouse main branch and motor bank facility at 901 Highway 110 North, Whitehouse, Texas;

•	Jacksonville main branch and motor bank at 1015 South Jackson Street, Jacksonville, Texas;

•	Gresham main branch and motor bank at 16691 FM 2493, Tyler, Texas;

•	Gun Barrel City main branch and motor bank facility at 901 West Main, Gun Barrel City, Texas;

•	Irving branch at 1401 Walnut Hill Lane, Irving, Texas;

•	Cleburne branch at 1204 West Henderson, Cleburne, Texas;

•	Euless branch at 2311 West Euless Boulevard, Euless, Texas;

•	Arlington branch and motor bank facility at 2831 West Park Row, Arlington, Texas;

•	Arlington branch at 950 West Arbrook Boulevard, Arlington, Texas;

•	Fort Worth branch at 1000 Pennsylvania Avenue, Fort Worth, Texas;

•	Fort Worth branch at 2330 East Rosedale Street, Fort Worth, Texas;

•	Fort Worth branch at 6001 Bryant Irvin Road, Fort Worth, Texas;

•	Fort Worth branch at 7800 White Settlement Road, Fort Worth, Texas;

•	Fort Worth branch and motor bank facility at 9516 Clifford Street, Fort Worth, Texas;

•	Watauga branch at 8024 Denton Highway, Watauga, Texas;

•	Weatherford branch at 318 South Main Street, Weatherford, Texas; and

•	74 ATM’s located throughout our market areas.

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•	one in Bullard, Texas;

•	one in Lindale, Texas;

•	one in Flint, Texas;

•	one in Whitehouse, Texas;

•	one in Chandler, Texas;

•	one in Palestine, Texas;

•	one in Athens, Texas;

•	one in Hawkins, Texas;

•	three in Longview, Texas;

•	seven in Tyler, Texas;

•	Fort Worth operations branch at 5001 North Riverside Drive, Suite 111, Fort Worth, Texas;

•	Flower Mound branch at 2341 Justin Road, Flower Mound, Texas;

•	Granbury branch at 1030 East Highway 377, Suite 138, Granbury, Texas;

•	Grapevine branch at 1616 West Northwest Highway, Grapevine, Texas;

•	Austin branch at 8200 North Mopac, Suite 130, Austin, Texas; and

•	Austin branch at 1250 South Capital of Texas Hwy, Bldg 1, Suite 101, Austin, Texas.

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(1)	We completed the acquisition of Omni on December 17, 2014. Accordingly, our balance sheet data as of December 31, 2014 reflects the effects of the acquisition of Omni. Income statement data with respect to Omni includes only the results of Omni's operations for December 17 - December 31, 2014.

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general 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 and 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;

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current or future legislation, regulatory changes or changes in monetary or fiscal policy that adversely affect the businesses in which we are engaged, including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), the Federal Reserve’s actions with respect to interest rates, the capital requirements promulgated by the Basel Committee on Banking Supervision (“Basel Committee”) and other regulatory responses to current economic conditions;

•	adverse changes in the status or financial condition of the Government-Sponsored Enterprises (the “GSEs”) impacting the GSEs’ guarantees or ability to pay or issue debt;

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

•	economic or other disruptions caused by acts of terrorism in the United States, Europe or other areas;

•	changes in the interest rate yield curve such as flat, inverted or steep yield curves, or changes in the interest rate environment that impact interest margins and may impact prepayments on the mortgage-backed securities (“MBS”) portfolio;

•	increases in our nonperforming assets;

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

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

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

•	changes impacting our balance sheet and leverage strategy;

•	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;

•	our ability to monitor interest rate risk;

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•	risks related to 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;

•	technological changes;

•	our ability to increase market share and control expenses;

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

•	the effect of compliance with legislation or regulatory changes;

•	the effect of changes in accounting policies and practices;

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

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

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

(2)	Interest income includes taxable-equivalent adjustments of $4,209, $3,899 and $3,856 for the years ended December 31, 2015, 2014, and 2013, respectively.

(3)	Interest income includes taxable-equivalent adjustments of $12,513, $12,225 and $11,827 for the years ended December 31, 2015, 2014, and 2013, respectively.

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

Note:	As of December 31, 2015, 2014 and 2013, loans totaling $20,526, $4,096 and $8,088, 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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(5)	Represents issuance of junior subordinated debentures.

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(1)	Interest yields on loans and securities that are nontaxable for federal income tax purposes are presented on a taxable equivalent basis.

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(1)	Excludes purchased credit impaired loans measured at fair value at acquisition of Omni.

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(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.

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(1)	At December 31, 2015, the weighted average cost of these advances was 1.3%.

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

(3)	This debt carries an adjustable rate of 3.5467% through March 30, 2016 and adjusts quarterly at a rate equal to three-month LIBOR plus 294 basis points.

(4)	This debt carried an adjustable rate of 1.6219% through January 29, 2016 and reset to 1.9156% through April 29, 2016. This debt adjusts quarterly at a rate equal to three-month LIBOR plus 130 basis points.

(5)	This debt carries an adjustable rate of 2.762% through March 14, 2016 and adjusts quarterly at a rate equal to three-month LIBOR plus 225 basis points.

(6)	This debt carried an adjustable rate of 2.1776% through February 22, 2016 and reset to 2.4182% through May 22, 2016. This debt adjusts quarterly at a rate equal to three-month LIBOR plus 180 basis points.

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•	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

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•	Consolidated Balance Sheets as of December 31, 2015 and 2014.

•	Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013.

•	Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013.

•	Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2014 and 2013.

•	Consolidated Statements of Cash Flow for the years ended December 31, 2015, 2014 and 2013.

•	Notes to Consolidated Financial Statements.

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1.	SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

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(1)	The estimated fair value as of the acquisition date, December 17, 2014, as previously reported in our Form 10-K for the year ended December 31, 2014.

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

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

◦	A lack of, or abnormally extended payment program;

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

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

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

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

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

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

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•	Changes in lending policies or procedures, including underwriting, collection, charge-off, and recovery procedures;

•	Changes in local, regional and national economic and business conditions, including entry into new markets;

•	Changes in the volume or type of credit extended;

•	Changes in the experience, ability, and depth of lending management;

•	Changes in the volume and severity of past due, nonaccrual, restructured, or classified loans;

•	Changes in charge-off trends;

•	Changes in loan review or Board oversight;

•	Changes in the level of concentrations of credit; and

•	Changes in external factors, such as competition and legal and regulatory requirements.

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(1)	These modifications may include an extension of the amortization period, interest rate reduction, and/or converting the loan to interest-only for a limited period of time.

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(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.

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(1)	The weighted average interest rate during the period was computed by dividing the actual interest expense by the average balance outstanding during the period.

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

(1)	This debt carries an adjustable rate of 3.5467% through March 30, 2016 and adjusts quarterly at a rate equal to three-month LIBOR plus 294 basis points.

(2)	This debt carried an adjustable rate of 1.6219% through January 29, 2016 and reset to 1.9156% through April 29, 2016. This debt adjusts quarterly at a rate equal to three-month LIBOR plus 130 basis points.

(3)	This debt carries an adjustable rate of 2.762% through March 14, 2016 and adjusts quarterly at a rate equal to three-month LIBOR plus 225 basis points.

(4)	This debt carried an adjustable rate of 2.1776% through February 22, 2016 and reset to 2.4182% through May 22, 2016. This debt adjusts quarterly at a rate equal to three-month LIBOR plus 180 basis points.

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(1)	Defined benefit plan acquired with the acquisition of Omni on December 17, 2014.

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(1)	This category is comprised of individual securities that are actively managed and a broadly diversified "passive" mutual fund.

(2)	This category is comprised of broadly diversified ‘passive’ mutual funds.

(3)	For the defined benefit pension plan, this category is comprised primarily of Southside Bancshares stock that is owned in the Plan and a broadly diversified "passive" mutual fund.

(4)	This category is comprised of individual investment grade securities that are generally held to maturity in the Plan. The Acquired Plan assets in this category consist of investment grade and below investment grade bonds.

(5)	This category is comprised of a broadly ‘passive’ mutual fund.

(6)	This category is comprised of individual securities that are generally not held to maturity.

(7)	This category is mainly comprised of asset backed securities, residential mortgage backed securities, commercial mortgage backed securities and corporate bonds.

(8)	This category is comprised of commercial real estate and includes mortgage loans which are backed by the associated properties.

(9)	This category is comprised of a combination of fixed income and equity investment options.

(10)	This category is comprised of a broad range of instruments including, but not limited to, equities, bonds, currencies, convertible securities and derivatives such as futures, options, swaps and forwards.

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(1)	All mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

(2)	Loans represent collateral dependent impaired loans with a specific valuation allowance.  Losses on these loans represent charge-offs which are netted against the allowance for loan losses.

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