UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2021

OR

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

For the transition period from ____________ to ____________

Commission file number: 000-12247

SOUTHSIDE BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Texas			75-1848732
(State or Other Jurisdiction of  Incorporation or Organization)			(I.R.S. Employer  Identification No.)
1201 S. Beckham Avenue,	Tyler,	Texas	75701
(Address of Principal Executive Offices)			(Zip Code)

903-531-7111

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $1.25 par value	SBSI	NASDAQ Global Select Market

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

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

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

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

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

The number of shares of the issuer’s common stock, par value $1.25, outstanding as of October 26, 2021 was 32,276,057 shares.

TABLE OF CONTENTS

GLOSSARY OF ACRONYMS, ABBREVIATIONS AND TERMS	1
PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS	3
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	44
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	71
ITEM 4.  CONTROLS AND PROCEDURES	72
PART II.  OTHER INFORMATION
ITEM 1.  LEGAL PROCEEDINGS	72
ITEM 1A.  RISK FACTORS	72
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	73
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES	73
ITEM 4.  MINE SAFETY DISCLOSURES	73
ITEM 5.  OTHER INFORMATION	73
ITEM 6.  EXHIBITS	74
EXHIBIT INDEX	74
SIGNATURES	75

SOUTHSIDE BANCSHARES, INC.

Glossary of Acronyms, Abbreviations and Terms

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

Entities:
Southside Bancshares, Inc.	Bank holding company for Southside Bank
Southside Bank	Texas state bank and wholly owned subsidiary of Southside Bancshares, Inc.
Company	Combined entities of Southside Bancshares, Inc. and its subsidiaries, including Southside Bank
Bank	Southside Bank
Southside	Southside Bancshares, Inc.
Other Acronyms, Abbreviations and Terms:
2020 Form 10-K	Company’s Annual Report on Form 10-K for the year ended December 31, 2020
Acquired Retirement Plan	OmniAmerican Bank defined benefit pension plan
AFS	Available for sale
ALCO	Asset/Liability Committee
AOCI	Accumulated other comprehensive income or loss
ASC	Accounting Standards Codification
ASU	Accounting Standards Update issued by the FASB
ATM	Automated teller machines
Basel Committee	Basel Committee on Banking Supervision
BOLI	Bank owned life insurance
CARES Act	Coronavirus Aid, Relief, and Economic Security Act
CDs	Certificates of deposit
CECL	ASU No. 2016-13, Financial Instruments- Credit Losses, also known as Current Expected Credit Losses
CET1	Common Equity Tier 1
CMOs	Collateralized mortgage obligations
COVID-19	Novel strain of coronavirus
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Economic Aid Act	Economic Aid to Hard-Hit Small Business, Nonprofits and Venues Act
ESOP	Employee Stock Ownership Plan
ETR	Effective tax rate
Exchange Act	Securities Exchange Act of 1934
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
Federal Reserve	The Board of Governors of the Federal Reserve System
FHLB	Federal Home Loan Bank
FRBNY	Federal Reserve Bank of New York
FRDW	Federal Reserve Discount Window
FTE	Fully-taxable equivalents measurements
GAAP	United States generally accepted accounting principles
GSEs	U.S. government-sponsored enterprises
Guidelines	Interagency Guidelines Prescribing Standards for Safety and Soundness adopted by federal banking agencies

Southside Bancshares, Inc. |1

HTM	Held to maturity
ITM	Interactive teller machines
LIBOR	London Interbank Offered Rate
MBS	Mortgage-backed securities
MVPE	Market value of portfolio equity
OREO	Other real estate owned
PCD	Purchased financial assets with credit deterioration under CECL
PCI	Financial assets purchased credit impaired under ASC 310-30 prior to CECL
PPP	Paycheck Protection Program
PPP Facility	Paycheck Protection Program Lending Facility
Repurchase agreements	Securities sold under agreements to repurchase
Restoration Plan	Nonfunded supplemental retirement plan
Retirement Plan	Defined benefit pension plan
ROU	Right-of-use
SBA	Small Business Administration
SEC	Securities and Exchange Commission
SOFR	Secured Overnight Financing Rate provided by the Federal Reserve Bank of New York
TDR	Troubled debt restructurings
U.S.	United States

Southside Bancshares, Inc. |2

PART I.   FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(UNAUDITED)
(in thousands, except share amounts)

	September 30, 2021		December 31, 2020
ASSETS
Cash and due from banks	$	83,346	$	87,357
Interest earning deposits	3,787		21,051
Total cash and cash equivalents	87,133		108,408
Securities:
Securities AFS, at estimated fair value (amortized cost of $2,650,237 and $2,437,513, respectively)	2,753,104		2,587,305
Securities HTM (estimated fair value of $98,035 and $118,198, respectively)	92,479		108,998
FHLB stock, at cost	27,248		25,259
Equity investments	11,794		11,905
Loans held for sale	1,131		3,695
Loans:
Loans	3,647,585		3,657,779
Less:  Allowance for loan losses	(38,022)		(49,006)
Net loans	3,609,563		3,608,773
Premises and equipment, net	142,736		144,576
Operating lease ROU assets	15,394		15,063
Goodwill	201,116		201,116
Other intangible assets, net	7,553		9,744
Interest receivable	29,097		38,708
BOLI	130,522		115,583
Other assets	26,821		29,094
Total assets	$	7,135,691	$	7,008,227
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing	$	1,596,781	$	1,354,815
Interest bearing	3,734,874		3,577,507
Total deposits	5,331,655		4,932,322
Other borrowings	20,724		23,172
FHLB borrowings	659,204		832,527
Subordinated notes, net of unamortized debt issuance costs	98,500		197,251
Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,259		60,255
Deferred tax liability, net	12,486		15,549
Unsettled trades to purchase securities	4,433		—
Operating lease liabilities	16,967		16,734
Other liabilities	53,597		55,120
Total liabilities	6,257,825		6,132,930
Off-balance-sheet arrangements, commitments and contingencies (Note 12)
Shareholders’ equity:
Common stock:  ($1.25 par value, 80,000,000 shares authorized, 37,960,148 shares issued at September 30, 2021 and 37,934,819 shares issued at December 31, 2020)	47,450		47,419
Paid-in capital	778,600		771,511
Retained earnings	163,809		111,208
Treasury stock: (shares at cost, 5,687,226 at September 30, 2021 and 4,983,645 at December 31, 2020)	(155,967)		(123,921)
AOCI	43,974		69,080
Total shareholders’ equity	877,866		875,297
Total liabilities and shareholders’ equity	$	7,135,691	$	7,008,227

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

Southside Bancshares, Inc. |3

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except per share data)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Interest income:
Loans	$	37,034	$	38,185	$	108,792	$	119,195
Taxable investment securities	3,853		1,175		9,097		2,419
Tax-exempt investment securities	9,649		9,003		27,787		24,430
MBS	4,405		7,048		15,140		27,626
FHLB stock and equity investments	111		249		355		1,034
Other interest earning assets	24		17		56		220
Total interest income	55,076		55,677		161,227		174,924
Interest expense:
Deposits	2,234		4,862		7,170		21,010
FHLB borrowings	1,865		2,369		5,590		9,272
Subordinated notes	2,417		1,427		7,235		4,250
Trust preferred subordinated debentures	345		378		1,045		1,469
Other borrowings	9		55		31		365
Total interest expense	6,870		9,091		21,071		36,366
Net interest income	48,206		46,586		140,156		138,558
Provision for credit losses	(5,071)		(4,746)		(13,543)		25,746
Net interest income after provision for credit losses	53,277		51,332		153,699		112,812
Noninterest income:
Deposit services	6,779		6,129		19,513		17,940
Net gain on sale of securities AFS	1,381		78		3,399		8,281
Gain on sale of loans	299		1,071		1,285		1,924
Trust fees	1,494		1,253		4,373		3,779
BOLI	637		680		1,908		1,899
Brokerage services	846		564		2,476		1,643
Other	1,333		1,366		4,371		3,366
Total noninterest income	12,769		11,141		37,325		38,832
Noninterest expense:
Salaries and employee benefits	19,777		19,344		59,825		57,616
Net occupancy	3,532		3,595		10,698		10,574
Advertising, travel & entertainment	579		519		1,491		1,643
ATM expense	311		271		821		728
Professional fees	1,135		961		3,166		3,238
Software and data processing	1,503		1,215		4,221		3,737
Communications	552		495		1,689		1,494
FDIC insurance	454		469		1,343		668
Amortization of intangibles	695		881		2,191		2,792
Loss on redemption of subordinated notes	1,118		—		1,118		—
Other	2,107		3,866		7,133		9,502
Total noninterest expense	31,763		31,616		93,696		91,992
Income before income tax expense	34,283		30,857		97,328		59,652
Income tax expense	4,977		3,783		12,614		7,071
Net income	$	29,306	$	27,074	$	84,714	$	52,581
Earnings per common share – basic	$	0.90	$	0.82	$	2.60	$	1.58
Earnings per common share – diluted	$	0.90	$	0.82	$	2.59	$	1.58
Cash dividends paid per common share	$	0.33	$	0.31	$	0.98	$	0.93

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

Southside Bancshares, Inc. |4

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net income	$	29,306	$	27,074	$	84,714	$	52,581
Other comprehensive income (loss):
Securities AFS and transferred securities:
Change in unrealized holding (loss) gain on AFS securities during the period	(27,714)		1,601		(43,527)		88,900
Reclassification adjustment for amortization related to AFS and HTM debt securities	312		394		1,118		730
Reclassification adjustment for net gain on sale of AFS securities, included in net income	(1,381)		(78)		(3,399)		(8,281)
Derivatives:
Change in net unrealized gain (loss) on effective cash flow hedge interest rate swap derivatives	377		(197)		8,296		(25,236)
Reclassification adjustment of net loss related to derivatives designated as cash flow hedges	1,617		1,587		4,784		2,283
Pension plans:
Amortization of net actuarial loss and prior service credit, included in net periodic benefit cost	316		819		948		2,207
Prior service cost adjustment due to plan amendment	—		—		—		163
Change in net actuarial loss	—		—		—		(7,558)
Other comprehensive income (loss), before tax	(26,473)		4,126		(31,780)		53,208
Income tax benefit (expense) related to items of other comprehensive income (loss)	5,560		(866)		6,674		(11,173)
Other comprehensive (loss) income, net of tax	(20,913)		3,260		(25,106)		42,035
Comprehensive income	$	8,393	$	30,334	$	59,608	$	94,616

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

Southside Bancshares, Inc. |5

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except share and per share data)

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

Southside Bancshares, Inc. |6

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (continued)

(UNAUDITED)

(in thousands, except share and per share data)

	Common Stock		Paid In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at December 31, 2019	$	47,360	$	766,718	$	80,274	$	(94,008)	$	4,236	$	804,580
Cumulative effect of accounting change	—		—		(7,830)		—		—		(7,830)
Adjusted beginning balance	47,360		766,718		72,444		(94,008)		4,236		796,750
Net income	—		—		3,953		—		—		3,953
Other comprehensive income	—		—		—		—		29,303		29,303
Issuance of common stock for dividend reinvestment plan (10,607 shares)	13		334		—		—		—		347
Purchase of common stock (869,723 shares)	—		—		—		(25,842)		—		(25,842)
Stock compensation expense	—		695		—		—		—		695
Net issuance of common stock under employee stock plans (47,428 shares)	—		693		(40)		435		—		1,088
Cash dividends paid on common stock ($0.31 per share)	—		—		(10,494)		—		—		(10,494)
Balance at March 31, 2020	47,373		768,440		65,863		(119,415)		33,539		795,800
Net income	—		—		21,554		—		—		21,554
Other comprehensive income	—		—		—		—		9,472		9,472
Issuance of common stock for dividend reinvestment plan (11,532 shares)	14