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 supported by what we consider to be a conservatively constructed balance sheet. More specifically, we believe the company’s balance sheet exhibits materially lower credit risk than peers – a function of SBSI’s earning asset mix that is comparatively overweighted to securities that represent ~33% of total assets. Resultingly, SBSI’s loan-to-earning asset and loan-to-deposit ratios are some of the lowest in our rated universe (59% and 69%, respectively), and suggest to us that the absolute dollar amount of credit loss content (assuming little to no-risk in the $2.7 billion AFS+HTM securities portfolio) on SBSI’s balance sheet is lower than peers'. Also supporting our belief in SBSI’s lower-risk balance sheet is a rather low risk-weighted asset density of 67% as of 1Q25. With the lower-than-peer credit risk noted, KBRA believes the company exhibits above average interest rate risk given its balance sheet construction and larger securities portfolio. That being said, we have a favorable opinion of the company’s thoughtful approach to interest rate risk management. In our opinion, SBSI's interest rate risk management is robust for a bank of its size, with the company being a particularly active user of rate swaps and hedges ($631 million and $810 million of assets and liabilities are swapped/hedged in some form or fashion). We note SBSI’s active approach to interest rate risk management has dulled NIM expansion at times (margin expansion in the past 12 – 18 months has been more modest than peers); however, we also appreciate the company’s NIM exhibited greater-than-peer stability in the volatile rate environment of 2022-2023.

Notwithstanding a degree of municipal concentration within the securities portfolio (53% of total), we think SBSI’s approach to the management of its securities book is a responsible one. The company elects duration match fund the portfolio largely through rate hedged wholesale borrowings. Credit risk within the book seems appropriate, with essentially the entire municipal proportion rated AA- or higher, while the non-municipal portion of the book is primarily U.S. treasury securities or agency MBS/CMBS. Regulatory capital as measured by the CET1 ratio (13.4% at 2Q25) is solid for the risk profile, continuing to track above the peer average despite comparatively high shareholder distributions. Though we consider the Texas markets within SBSI’s operating footprint as stable, given the CRE-centric loan book, collateral values may become vulnerable to prolonged periods of economic disruptions or volatile oil prices. We also recognize the abundance of multifamily housing supply in certain areas of SBSI’s urban markets. However, reasonable LTV coverage, geographic diversity across the state, and manageable sector concentrations provide adequate mitigants.

Rating Sensitivities

Continued favorable earnings performance/asset quality, maintenance of solid liquidity and core capital profile, increased revenue diversification, and effective strategic regional expansion could facilitate positive rating momentum over time. Conversely, an unexpected deterioration in asset quality impacting earnings or more aggressive capital management could pressure the ratings.

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Methodologies