KBRA Affirms Ratings for Southside Bancshares, Inc.

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Tyler, Texas-based Southside Bancshares, Inc. (NYSE: SBSI) (“the company”). KBRA also affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for the bank subsidiary, Southside Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

SBSI’s ratings remain anchored by a durable earnings profile that reflects its conservative balance sheet strategy, which has historically supported lower credit risk than peers and steadier through the cycle performance. Despite maintaining a lower loan mix relative to earning assets than most rated peers, returns have remained sound, with ROA generally tracking above 1.0% over the past five years. In 1H26, ROA was 1.2%, reinforcing the underlying strength of the franchise. Earnings continue to benefit from modest credit costs, stable fee income, and disciplined expense management. Fee income continues to provide meaningful diversification, contributing roughly 20% of total revenue. NIM has lagged peers in recent years, largely reflecting the company's meaningful allocation in lower-yielding securities. However, as management continues to reposition the balance sheet toward loans, the margin profile is expected to improve over time.

The comparatively large securities portfolio contributes to higher interest rate sensitivity than most peers. As such, the company utilizes a somewhat higher level of wholesale and other noncore funding to match-fund its longer-duration securities portfolio, as well as to implement hedges. In our view, management has historically been effective in mitigating this risk using both cash flow and fair value hedges, which have helped limit earnings volatility and support margin stability. While this funding profile results in slightly above peer deposit costs, which were 1.93% in 2Q26, liquidity remains a credit positive. The loan-to-deposit ratio was a conservative 80% at 2Q26, and on balance sheet plus contingent liquidity sources are considered ample and provided coverage of roughly 2.0x uninsured and uncollateralized deposits.

Asset quality remains a clear rating strength and has consistently compared favorably to peers, reflecting conservative underwriting, lower relative lending exposure, and a long record of minimal loss content. The balance sheet has historically carried a low loan to average earning asset mix, generally below 65% over the last decade, which has helped moderate credit risk. At 2Q26, the NPA ratio remained low at 0.20%, while loss content was negligible, with NCOs remaining below 8 bps over the past five years (NCO ratio of 2 bps during 1H26). Reserve coverage remains adequate, with the ACL equal to 0.92% of total loans. While criticized assets can move with the broader economic cycle, the overall trend remains consistent with a well-managed and comparatively resilient portfolio.

Capital remains strong considering SBSI’s risk profile, with an above average CET1 ratio, benefiting from lower risk weighted asset density than peers, which stood at 12.9% in 2Q26. However, the TCE ratio of 8.0% continues to trail similarly rated peers, reflecting a fairly sizable amount of negative AOCI given its larger securities portfolio. Moving forward, management intends to maintain a conservative capital position, though noted they may deploy some relative excess capital in a potential M&A transaction.

Rating Sensitivities

Positive rating momentum could be supported by sustained improvement in earnings generation, greater revenue diversification, continued strong asset quality, capital levels maintained above peer averages, a stable and well-diversified funding profile, and successful execution of strategic initiatives that further strengthen the franchise. Negative rating pressure could result from a sustained weakening in earnings, deterioration in asset quality, more aggressive capital management that reduces capital buffers, or a meaningful weakening in the funding profile, particularly if accompanied by franchise erosion or increased risk appetite.

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