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 June 30, 2022

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 July 27, 2022 was 32,103,712 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	41
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	66
ITEM 4.  CONTROLS AND PROCEDURES	67
PART II.  OTHER INFORMATION
ITEM 1.  LEGAL PROCEEDINGS	67
ITEM 1A.  RISK FACTORS	67
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	68
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES	68
ITEM 4.  MINE SAFETY DISCLOSURES	68
ITEM 5.  OTHER INFORMATION	68
ITEM 6.  EXHIBITS	69
EXHIBIT INDEX	69
SIGNATURES	70

SOUTHSIDE BANCSHARES, INC.

Glossary of Acronyms, Abbreviations and Terms

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

Entities:
Southside Bancshares, Inc.	Bank holding company for Southside Bank
Southside Bank	Texas state bank and wholly owned subsidiary of Southside Bancshares, Inc.
Company	Combined entities of Southside Bancshares, Inc. and its subsidiaries, including Southside Bank
Bank	Southside Bank
Southside	Southside Bancshares, Inc.
Other Acronyms, Abbreviations and Terms:
2021 Form 10-K	Company’s Annual Report on Form 10-K for the year ended December 31, 2021
401(k) Plan	401(k) Defined Contribution Plan
Acquired Retirement Plan	OmniAmerican Bank defined benefit pension plan
AFS	Available for sale
ALCO	Asset/Liability Committee
AOCI	Accumulated other comprehensive income or loss
ASC	Accounting Standards Codification
ASU	Accounting Standards Update issued by the FASB
ATM	Automated teller machines
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

Southside Bancshares, Inc. |1

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

	June 30, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	111,099	$	91,120
Interest earning deposits	12,910		110,633
Federal funds sold	48,280		—
Total cash and cash equivalents	172,289		201,753
Securities:
Securities AFS, at estimated fair value (amortized cost of $1,816,349 and $2,655,594, respectively)	1,733,354		2,764,325
Securities HTM (estimated fair value of $969,807 and $95,235, respectively)	1,083,672		90,780
FHLB stock, at cost	13,726		14,375
Equity investments	11,282		11,841
Loans held for sale	815		1,684
Loans:
Loans	3,963,041		3,645,162
Less:  Allowance for loan losses	(35,449)		(35,273)
Net loans	3,927,592		3,609,889
Premises and equipment, net	142,772		142,509
Operating lease ROU assets	14,427		15,073
Goodwill	201,116		201,116
Other intangible assets, net	5,687		6,895
Interest receivable	41,539		39,145
Deferred tax asset, net	34,458		—
Unsettled trades to sell securities	72,001		—
BOLI	132,675		131,232
Other assets	18,656		28,985
Total assets	$	7,606,061	$	7,259,602
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing	$	1,735,488	$	1,644,775
Interest bearing	4,512,921		4,077,552
Total deposits	6,248,409		5,722,327
Other borrowings	58,478		23,219
FHLB borrowings	153,701		344,038
Subordinated notes, net of unamortized debt issuance costs	98,604		98,534
Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,262		60,260
Deferred tax liability, net	—		17,808
Unsettled trades to purchase securities	174,038		18,995
Operating lease liabilities	16,096		16,676
Other liabilities	64,691		45,573
Total liabilities	6,874,279		6,347,430
Off-balance-sheet arrangements, commitments and contingencies (Note 12)
Shareholders’ equity:
Common stock:  ($1.25 par value, 80,000,000 shares authorized, 37,984,357 shares issued at June 30, 2022 and 37,968,969 shares issued at December 31, 2021)	47,481		47,461
Paid-in capital	782,511		780,501
Retained earnings	208,171		179,813
Treasury stock: (shares at cost, 5,876,390 at June 30, 2022 and 5,616,917 at December 31, 2021)	(167,046)		(155,308)
AOCI	(139,335)		59,705
Total shareholders’ equity	731,782		912,172
Total liabilities and shareholders’ equity	$	7,606,061	$	7,259,602

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				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Interest income:
Loans	$	38,344	$	35,720	$	73,232	$	71,758
Taxable investment securities	4,632		2,921		9,240		5,244
Tax-exempt investment securities	10,605		9,173		20,824		18,138
MBS	3,238		4,647		7,255		10,735
FHLB stock and equity investments	77		108		190		244
Other interest earning assets	204		17		232		32
Total interest income	57,100		52,586		110,973		106,151
Interest expense:
Deposits	4,264		2,339		7,501		4,936
FHLB borrowings	224		1,817		590		3,725
Subordinated notes	1,000		2,423		1,998		4,818
Trust preferred subordinated debentures	471		349		827		700
Other borrowings	63		11		73		22
Total interest expense	6,022		6,939		10,989		14,201
Net interest income	51,078		45,647		99,984		91,950
Provision for (reversal of) credit losses	(633)		1,677		(339)		(8,472)
Net interest income after provision for credit losses	51,711		43,970		100,323		100,422
Noninterest income:
Deposit services	6,496		6,609		13,124		12,734
Net gain (loss) on sale of securities AFS	(2,177)		15		(3,720)		2,018
Gain on sale of loans	208		393		386		986
Trust fees	1,520		1,496		3,014		2,879
BOLI	720		645		1,411		1,271
Brokerage services	1,098		850		1,907		1,630
Other	1,232		925		3,700		3,038
Total noninterest income	9,097		10,933		19,822		24,556
Noninterest expense:
Salaries and employee benefits	20,329		20,004		40,298		40,048
Net occupancy	3,654		3,606		7,310		7,166
Advertising, travel & entertainment	716		475		1,453		912
ATM expense	356		272		637		510
Professional fees	1,147		1,040		2,074		2,031
Software and data processing	1,739		1,406		3,370		2,718
Communications	509		612		1,012		1,137
FDIC insurance	477		435		949		889
Amortization of intangibles	586		730		1,208		1,496
Other	2,593		2,119		4,990		5,026
Total noninterest expense	32,106		30,699		63,301		61,933
Income before income tax expense	28,702		24,204		56,844		63,045
Income tax expense	3,297		2,887		6,443		7,637
Net income	$	25,405	$	21,317	$	50,401	$	55,408
Earnings per common share – basic	$	0.79	$	0.65	$	1.56	$	1.69
Earnings per common share – diluted	$	0.79	$	0.65	$	1.56	$	1.69
Cash dividends paid per common share	$	0.34	$	0.33	$	0.68	$	0.65

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				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Net income	$	25,405	$	21,317	$	50,401	$	55,408
Other comprehensive income (loss):
Securities AFS and transferred securities:
Change in unrealized holding gain (loss) on AFS securities during the period	(33,523)		33,166		(195,424)		(15,813)
Change in net unrealized loss on securities transferred from AFS to HTM	(52,360)		—		(91,504)		—
Reclassification adjustment for amortization related to AFS and HTM debt securities	1,310		390		1,553		806
Reclassification adjustment for net (gain) loss on sale of AFS securities, included in net income	2,177		(15)		3,720		(2,018)
Derivatives:
Change in net unrealized gain (loss) on effective cash flow hedge interest rate swap derivatives	7,047		(3,104)		27,593		7,919
Reclassification adjustment of net (gain) loss related to derivatives designated as cash flow hedges	344		1,599		1,666		3,167
Pension plans:
Amortization of net actuarial loss, included in net periodic benefit cost	241		(9)		447		632
Other comprehensive income (loss), before tax	(74,764)		32,027		(251,949)		(5,307)
Income tax (expense) benefit related to items of other comprehensive income (loss)	15,700		(6,726)		52,909		1,114
Other comprehensive income (loss), net of tax	(59,064)		25,301		(199,040)		(4,193)
Comprehensive income (loss)	$	(33,659)	$	46,618	$	(148,639)	$	51,215

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, 2021	$	47,461	$	780,501	$	179,813	$	(155,308)	$	59,705	$	912,172
Net income	—		—		24,996		—		—		24,996
Other comprehensive income (loss)	—		—		—		—		(139,976)		(139,976)
Issuance of common stock for dividend reinvestment plan (7,671 shares)	10		312		—		—		—		322
Purchase of common stock (82,285 shares)	—		—		—		(3,358)		—		(3,358)
Stock compensation expense	—		819		—		—		—		819
Net issuance of common stock under employee stock plans (16,551 shares)	—		182		(67)		154		—		269
Cash dividends paid on common stock ($0.34 per share)	—		—		(11,003)		—		—		(11,003)
Balance at March 31, 2022	47,471		781,814		193,739		(158,512)		(80,271)		784,241
Net income	—		—		25,405		—		—		25,405
Other comprehensive income (loss)	—		—		—		—		(59,064)		(59,064)
Issuance of common stock for dividend reinvestment plan (7,717 shares)	10		303		—		—		—		313
Purchase of common stock (223,901 shares)	—		—		—		(8,842)		—		(8,842)
Stock compensation expense	—		847		—		—		—		847
Net issuance of common stock under employee stock plans (30,162 shares)	—		(453)		(67)		308		—		(212)
Cash dividends paid on common stock ($0.34 per share)	—		—		(10,906)		—		—		(10,906)
Balance at June 30, 2022	$	47,481	$	782,511	$	208,171	$	(167,046)	$	(139,335)	$	731,782

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, 2020	$	47,419	$	771,511	$	111,208	$	(123,921)	$	69,080	$	875,297
Net income	—		—		34,091		—		—		34,091
Other comprehensive income (loss)	—		—		—		—		(29,494)		(29,494)
Issuance of common stock for dividend reinvestment plan (8,918 shares)	11		321		—		—		—		332
Purchase of common stock (427,396 shares)	—		—		—		(15,213)		—		(15,213)
Stock compensation expense	—		674		—		—		—		674
Net issuance of common stock under employee stock plans (126,260 shares)	—		2,309		(41)		1,118		—		3,386
Cash dividends paid on common stock ($0.32 per share)	—		—		(10,476)		—		—		(10,476)
Balance at March 31, 2021	47,430		774,815		134,782		(138,016)		39,586		858,597
Net income	—		—		21,317		—		—		21,317
Other comprehensive income	—		—		—		—		25,301		25,301
Issuance of common stock for dividend reinvestment plan (7,780 shares)	9		321		—		—		—		330
Purchase of common stock (90,884 shares)	—		—		—		(3,497)		—		(3,497)
Stock compensation expense	—		686		—		—		—		686
Net issuance of common stock under employee stock plans (99,217 shares)	—		1,591		(47)		897		—		2,441
Cash dividends paid on common stock ($0.33 per share)	—		—		(10,775)		—		—		(10,775)
Balance at June 30, 2021	$	47,439	$	777,413	$	145,277	$	(140,616)	$	64,887	$	894,400

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

Southside Bancshares, Inc. |7

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

	Six Months Ended
	June 30,
	2022		2021
OPERATING ACTIVITIES:
Net income	$	50,401	$	55,408
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and net amortization	5,561		5,780
Securities premium amortization (discount accretion), net	9,346		12,186
Loan (discount accretion) premium amortization, net	(323)		(683)
Provision for (reversal of) credit losses	(339)		(8,472)
Stock compensation expense	1,666		1,360
Deferred tax expense (benefit)	643		2,022
Net (gain) loss on sale of AFS securities	3,720		(2,018)
Loss on impairment of investments	38		—
Net loss on premises and equipment	433		302
Gross proceeds from sales of loans held for sale	15,835		27,286
Gross originations of loans held for sale	(14,966)		(26,101)
Net (gain) loss on OREO	(12)		(2)
Net change in:
Interest receivable	(2,394)		2,112
Other assets	(3,472)		8,409
Interest payable	(346)		(784)
Other liabilities	62,242