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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, 2021March 31, 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,Texas75701
(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 classTrading SymbolName of each exchange on which registered
Common Stock, $1.25 par valueSBSINASDAQ 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 FilerAccelerated filer
Non-accelerated filerSmaller 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, 2021April 26, 2022 was 32,653,85632,121,923 shares.



TABLE OF CONTENTS
 
PART I.  FINANCIAL INFORMATION 
PART II.  OTHER INFORMATION 































Table of Contents

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 BankTexas state bank and wholly owned subsidiary of Southside Bancshares, Inc.
CompanyCombined entities of Southside Bancshares, Inc. and its subsidiaries, including Southside Bank
BankSouthside Bank
SouthsideSouthside Bancshares, Inc.
Other Acronyms, Abbreviations and Terms:
20202021 Form 10-KCompany’s Annual Report on Form 10-K for the year ended December 31, 20202021
401(k) Plan401(k) Defined Contribution Plan
Acquired Retirement PlanOmniAmerican Bank defined benefit pension plan
AFSAvailable for sale
ALCOAsset/Liability Committee
AOCIAccumulated other comprehensive income or loss
ASCAccounting Standards Codification
ASUAccounting Standards Update issued by the FASB
ATMAutomated teller machines
Basel CommitteeBasel Committee on Banking Supervision
BOLIBank owned life insurance
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CDsCertificates of deposit
CECLASU No. 2016-13, Financial Instruments- Credit Losses, also known as Current Expected Credit Losses
CET1Common Equity Tier 1
CMOsCollateralized mortgage obligations
COVID-19Novel strain of coronavirus
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Economic Aid ActEconomic Aid to Hard-Hit Small Business, Nonprofits and Venues Act
ESOPEmployee Stock Ownership Plan
ETREffective tax rate
Exchange ActSecurities Exchange Act of 1934
FASBFinancial Accounting Standards Board
FDICFederal Deposit Insurance Corporation
Federal ReserveThe Board of Governors of the Federal Reserve System
FHLBFederal Home Loan Bank
FRBNYFederal Reserve Bank of New York
FRDWFederal Reserve Discount Window
FTEFully-taxable equivalents measurements
GAAPGenerallyUnited States generally accepted accounting principles
GSEsU.S. government-sponsored enterprises
GuidelinesInteragency Guidelines Prescribing Standards for Safety and Soundness adopted by federal banking agencies
Southside Bancshares, Inc. |1

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GuidelinesInteragency Guidelines Prescribing Standards for Safety and Soundness adopted by federal banking agencies
HTMHeld to maturity
ITMInteractive teller machines
LIBORLondon Interbank Offered Rate
MBSMortgage-backed securities
MVPEMarket value of portfolio equity
OREOOther real estate owned
PCDPurchased financial assets with credit deterioration under CECL
PCIFinancial assets purchased credit impaired under ASC 310-30 prior to CECL
PPPPaycheck Protection Program
PPP FacilityPaycheck Protection Program Lending Facility
Repurchase agreementsSecurities sold under agreements to repurchase
Restoration PlanNonfunded supplemental retirement plan
Retirement PlanDefined benefit pension plan
ROURight-of-use
SBASmall Business Administration
SECSecurities and Exchange Commission
SOFRSecured Overnight Financing Rate provided by the Federal Reserve Bank of New York
TDRTroubled debt restructurings
U.S.United States

Southside Bancshares, Inc. |2

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PART I.   FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share amounts)
June 30,
2021
December 31,
2020
March 31,
2022
December 31,
2021
ASSETSASSETS  ASSETS  
Cash and due from banksCash and due from banks$92,047 $87,357 Cash and due from banks$90,399 $91,120 
Interest earning depositsInterest earning deposits36,441 21,051 Interest earning deposits72,158 110,633 
Federal funds soldFederal funds sold24,550 — 
Total cash and cash equivalentsTotal cash and cash equivalents128,488 108,408 Total cash and cash equivalents187,107 201,753 
Securities:Securities:Securities:
Securities AFS, at estimated fair value (amortized cost of $2,634,074 and $2,437,513, respectively)2,766,035 2,587,305 
Securities HTM (estimated fair value of $101,368 and $118,198, respectively)94,850 108,998 
Securities AFS, at estimated fair value (amortized cost of $2,117,597 and $2,655,594, respectively)Securities AFS, at estimated fair value (amortized cost of $2,117,597 and $2,655,594, respectively)2,065,984 2,764,325 
Securities HTM (estimated fair value of $462,621 and $95,235, respectively)Securities HTM (estimated fair value of $462,621 and $95,235, respectively)474,319 90,780 
FHLB stock, at costFHLB stock, at cost28,081 25,259 FHLB stock, at cost3,757 14,375 
Equity investmentsEquity investments11,821 11,905 Equity investments11,475 11,841 
Loans held for saleLoans held for sale2,510 3,695 Loans held for sale1,576 1,684 
Loans:Loans:  Loans:  
LoansLoans3,642,346 3,657,779 Loans3,800,916 3,645,162 
Less: Allowance for loan lossesLess: Allowance for loan losses(42,913)(49,006)Less: Allowance for loan losses(35,524)(35,273)
Net loansNet loans3,599,433 3,608,773 Net loans3,765,392 3,609,889 
Premises and equipment, netPremises and equipment, net142,835 144,576 Premises and equipment, net142,880 142,509 
Operating lease ROU assetsOperating lease ROU assets15,472 15,063 Operating lease ROU assets14,751 15,073 
GoodwillGoodwill201,116 201,116 Goodwill201,116 201,116 
Other intangible assets, netOther intangible assets, net8,248 9,744 Other intangible assets, net6,273 6,895 
Interest receivableInterest receivable36,596 38,708 Interest receivable28,367 39,145 
Deferred tax asset, netDeferred tax asset, net19,116 — 
Unsettled trades to sell securitiesUnsettled trades to sell securities47,019 — 
BOLIBOLI116,886 115,583 BOLI131,923 131,232 
Other assetsOther assets30,037 29,094 Other assets18,060 28,985 
Total assetsTotal assets$7,182,408 $7,008,227 Total assets$7,119,115 $7,259,602 
     
LIABILITIES AND SHAREHOLDERS’ EQUITYLIABILITIES AND SHAREHOLDERS’ EQUITY  LIABILITIES AND SHAREHOLDERS’ EQUITY  
Deposits:Deposits:  Deposits:  
Noninterest bearingNoninterest bearing$1,501,120 $1,354,815 Noninterest bearing$1,630,056 $1,644,775 
Interest bearingInterest bearing3,655,047 3,577,507 Interest bearing4,440,343 4,077,552 
Total depositsTotal deposits5,156,167 4,932,322 Total deposits6,070,399 5,722,327 
Other borrowingsOther borrowings23,783 23,172 Other borrowings30,196 23,219 
FHLB borrowingsFHLB borrowings721,368 832,527 FHLB borrowings3,871 344,038 
Subordinated notes, net of unamortized debt issuance costsSubordinated notes, net of unamortized debt issuance costs197,312 197,251 Subordinated notes, net of unamortized debt issuance costs98,569 98,534 
Trust preferred subordinated debentures, net of unamortized debt issuance costsTrust preferred subordinated debentures, net of unamortized debt issuance costs60,258 60,255 Trust preferred subordinated debentures, net of unamortized debt issuance costs60,261 60,260 
Deferred tax liability, netDeferred tax liability, net16,456 15,549 Deferred tax liability, net— 17,808 
Unsettled trades to purchase securitiesUnsettled trades to purchase securities41,888 Unsettled trades to purchase securities2,053 18,995 
Operating lease liabilitiesOperating lease liabilities17,025 16,734 Operating lease liabilities16,388 16,676 
Other liabilitiesOther liabilities53,751 55,120 Other liabilities53,137 45,573 
Total liabilitiesTotal liabilities6,288,008 6,132,930 Total liabilities6,334,874 6,347,430 
     
Off-balance-sheet arrangements, commitments and contingencies (Note 12)Off-balance-sheet arrangements, commitments and contingencies (Note 12)00Off-balance-sheet arrangements, commitments and contingencies (Note 12)00
   
Shareholders’ equity:Shareholders’ equity:  Shareholders’ equity:  
Common stock: ($1.25 par value, 80,000,000 shares authorized, 37,951,517 shares issued at June 30, 2021 and 37,934,819 shares issued at December 31, 2020)47,439 47,419 
Common stock: ($1.25 par value, 80,000,000 shares authorized, 37,976,640 shares issued at March 31, 2022 and 37,968,969 shares issued at December 31, 2021)Common stock: ($1.25 par value, 80,000,000 shares authorized, 37,976,640 shares issued at March 31, 2022 and 37,968,969 shares issued at December 31, 2021)47,471 47,461 
Paid-in capitalPaid-in capital777,413 771,511 Paid-in capital781,814 780,501 
Retained earningsRetained earnings145,277 111,208 Retained earnings193,739 179,813 
Treasury stock: (shares at cost, 5,276,448 at June 30, 2021 and 4,983,645 at December 31, 2020)(140,616)(123,921)
Treasury stock: (shares at cost, 5,682,651 at March 31, 2022 and 5,616,917 at December 31, 2021)Treasury stock: (shares at cost, 5,682,651 at March 31, 2022 and 5,616,917 at December 31, 2021)(158,512)(155,308)
AOCIAOCI64,887 69,080 AOCI(80,271)59,705 
Total shareholders’ equityTotal shareholders’ equity894,400 875,297 Total shareholders’ equity784,241 912,172 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$7,182,408 $7,008,227 Total liabilities and shareholders’ equity$7,119,115 $7,259,602 
The accompanying notes are an integral part of these consolidated financial statements.
Southside Bancshares, Inc. |3

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SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
Three Months EndedSix Months Ended
June 30,June 30,
 2021202020212020
Interest income:    
Loans$35,720 $39,115 $71,758 $81,010 
Taxable investment securities2,921 732 5,244 1,244 
Tax-exempt investment securities9,173 9,221 18,138 15,427 
MBS4,647 9,044 10,735 20,578 
FHLB stock and equity investments108 360 244 785 
Other interest earning assets17 23 32 203 
Total interest income52,586 58,495 106,151 119,247 
Interest expense:    
Deposits2,339 6,229 4,936 16,148 
FHLB borrowings1,817 2,929 3,725 6,903 
Subordinated notes2,423 1,412 4,818 2,823 
Trust preferred subordinated debentures349 491 700 1,091 
Other borrowings11 163 22 310 
Total interest expense6,939 11,224 14,201 27,275 
Net interest income45,647 47,271 91,950 91,972 
Provision for credit losses1,677 5,245 (8,472)30,492 
Net interest income after provision for credit losses43,970 42,026 100,422 61,480 
Noninterest income:    
Deposit services6,609 5,532 12,734 11,811 
Net gain on sale of securities AFS15 2,662 2,018 8,203 
Gain on sale of loans393 683 986 853 
Trust fees1,496 1,221 2,879 2,526 
BOLI645 650 1,271 1,219 
Brokerage services850 499 1,630 1,079 
Other925 946 3,038 2,000 
Total noninterest income10,933 12,193 24,556 27,691 
Noninterest expense:    
Salaries and employee benefits20,004 18,629 40,048 38,272 
Net occupancy3,606 3,668 7,166 6,979 
Advertising, travel & entertainment475 292 912 1,124 
ATM expense272 233 510 457 
Professional fees1,040 1,082 2,031 2,277 
Software and data processing1,406 1,295 2,718 2,522 
Communications612 506 1,137 999 
FDIC insurance435 174 889 199 
Amortization of intangibles730 931 1,496 1,911 
Other2,119 3,046 5,026 5,636 
Total noninterest expense30,699 29,856 61,933 60,376 
Income before income tax expense24,204 24,363 63,045 28,795 
Income tax expense2,887 2,809 7,637 3,288 
Net income$21,317 $21,554 $55,408 $25,507 
Earnings per common share – basic$0.65 $0.65 $1.69 $0.76 
Earnings per common share – diluted$0.65 $0.65 $1.69 $0.76 
Cash dividends paid per common share$0.33 $0.31 $0.65 $0.62 

Three Months Ended
March 31,
 20222021
Interest income:  
Loans$34,888 $36,038 
Taxable investment securities4,608 2,323 
Tax-exempt investment securities10,219 8,965 
MBS4,017 6,088 
FHLB stock and equity investments113 136 
Other interest earning assets28 15 
Total interest income53,873 53,565 
Interest expense:  
Deposits3,237 2,597 
FHLB borrowings366 1,908 
Subordinated notes998 2,395 
Trust preferred subordinated debentures356 351 
Other borrowings10 11 
Total interest expense4,967 7,262 
Net interest income48,906 46,303 
Provision for (reversal of) credit losses294 (10,149)
Net interest income after provision for credit losses48,612 56,452 
Noninterest income:  
Deposit services6,628 6,125 
Net gain (loss) on sale of securities AFS(1,543)2,003 
Gain on sale of loans178 593 
Trust fees1,494 1,383 
BOLI691 626 
Brokerage services809 780 
Other2,468 2,113 
Total noninterest income10,725 13,623 
Noninterest expense:  
Salaries and employee benefits19,969 20,044 
Net occupancy3,656 3,560 
Advertising, travel & entertainment737 437 
ATM expense281 238 
Professional fees927 991 
Software and data processing1,631 1,312 
Communications503 525 
FDIC insurance472 454 
Amortization of intangibles622 766 
Other2,397 2,907 
Total noninterest expense31,195 31,234 
Income before income tax expense28,142 38,841 
Income tax expense3,146 4,750 
Net income$24,996 $34,091 
Earnings per common share – basic$0.77 $1.04 
Earnings per common share – diluted$0.77 $1.04 
Cash dividends paid per common share$0.34 $0.32 
The accompanying notes are an integral part of these consolidated financial statements.
Southside Bancshares, Inc. |4

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SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands)
Three Months EndedSix Months EndedThree Months Ended
June 30,June 30,March 31,
202120202021202020222021
Net incomeNet income$21,317 $21,554 $55,408 $25,507 Net income$24,996 $34,091 
Other comprehensive income (loss):Other comprehensive income (loss):    Other comprehensive income (loss):  
Securities AFS and transferred securities:Securities AFS and transferred securities:Securities AFS and transferred securities:
Change in unrealized holding gain (loss) on AFS securities during the periodChange in unrealized holding gain (loss) on AFS securities during the period33,166 25,813 (15,813)87,299 Change in unrealized holding gain (loss) on AFS securities during the period(161,901)(48,979)
Change in net unrealized loss on securities transferred from AFS to HTMChange in net unrealized loss on securities transferred from AFS to HTM(39,144)— 
Reclassification adjustment for amortization related to AFS and HTM debt securitiesReclassification adjustment for amortization related to AFS and HTM debt securities390 215 806 336 Reclassification adjustment for amortization related to AFS and HTM debt securities243 416 
Reclassification adjustment for net gain on sale of AFS securities, included in net income(15)(2,662)(2,018)(8,203)
Reclassification adjustment for net (gain) loss on sale of AFS securities, included in net incomeReclassification adjustment for net (gain) loss on sale of AFS securities, included in net income1,543 (2,003)
Derivatives:Derivatives:Derivatives:
Change in net unrealized (loss) gain on effective cash flow hedge interest rate swap derivatives(3,104)(5,439)7,919 (25,039)
Change in net unrealized gain (loss) on effective cash flow hedge interest rate swap derivativesChange in net unrealized gain (loss) on effective cash flow hedge interest rate swap derivatives20,546 11,023 
Reclassification adjustment of net loss related to derivatives designated as cash flow hedges1,599 797 3,167 696 
Reclassification adjustment of net (gain) loss related to derivatives designated as cash flow hedgesReclassification adjustment of net (gain) loss related to derivatives designated as cash flow hedges1,322 1,568 
Pension plans:Pension plans:Pension plans:
Amortization of net actuarial (gain) loss and prior service credit, included in net periodic benefit cost(9)661 632 1,388 
Prior service cost adjustment due to plan amendment163 163 
Change in net actuarial loss(7,558)(7,558)
Amortization of net actuarial loss and prior service credit, included in net periodic benefit costAmortization of net actuarial loss and prior service credit, included in net periodic benefit cost206 641 
Other comprehensive income (loss), before taxOther comprehensive income (loss), before tax32,027 11,990 (5,307)49,082 Other comprehensive income (loss), before tax(177,185)(37,334)
Income tax (expense) benefit related to items of other comprehensive income (loss)Income tax (expense) benefit related to items of other comprehensive income (loss)(6,726)(2,518)1,114 (10,307)Income tax (expense) benefit related to items of other comprehensive income (loss)37,209 7,840 
Other comprehensive income (loss), net of taxOther comprehensive income (loss), net of tax25,301 9,472 (4,193)38,775 Other comprehensive income (loss), net of tax(139,976)(29,494)
Comprehensive income$46,618 $31,026 $51,215 $64,282 
Comprehensive income (loss)Comprehensive income (loss)$(114,980)$4,597 

The accompanying notes are an integral part of these consolidated financial statements.
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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, 202147,430 774,815 134,782 (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)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 
 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 

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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, 2019$47,360 $766,718 $80,274 $(94,008)$4,236 $804,580 
Cumulative effect of accounting change— — (7,830)— — (7,830)
Adjusted beginning balance47,360 766,718 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, 202047,373 768,440 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)14 322 — — — 336 
Stock compensation expense— 772 — — — 772 
Net issuance of common stock under employee stock plans (9,342 shares)— (127)(50)81 — (96)
Cash dividends paid on common stock ($0.31 per share)— — (10,233)— — (10,233)
Balance at June 30, 2020$47,387 $769,407 $77,134 $(119,334)$43,011 $817,605 
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 

The accompanying notes are an integral part of these consolidated financial statements.
Southside Bancshares, Inc. |7|6






SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Six Months Ended Three Months Ended
June 30,March 31,
20212020 20222021
OPERATING ACTIVITIES:OPERATING ACTIVITIES:  OPERATING ACTIVITIES:  
Net incomeNet income$55,408 $25,507 Net income$24,996 $34,091 
Adjustments to reconcile net income to net cash provided by operations:Adjustments to reconcile net income to net cash provided by operations:  Adjustments to reconcile net income to net cash provided by operations:  
Depreciation and net amortizationDepreciation and net amortization5,780 6,053 Depreciation and net amortization2,765 2,882 
Securities premium amortization (discount accretion), netSecurities premium amortization (discount accretion), net12,186 11,178 Securities premium amortization (discount accretion), net4,804 6,083 
Loan (discount accretion) premium amortization, netLoan (discount accretion) premium amortization, net(683)(406)Loan (discount accretion) premium amortization, net(132)(223)
Provision for credit losses(8,472)30,492 
Provision for (reversal of) credit lossesProvision for (reversal of) credit losses294 (10,149)
Stock compensation expenseStock compensation expense1,360 1,467 Stock compensation expense819 674 
Deferred tax expense (benefit)Deferred tax expense (benefit)2,022 (4,955)Deferred tax expense (benefit)285 2,161 
Net gain on sale of AFS securities(2,018)(8,203)
Net gain (loss) on sale of AFS securitiesNet gain (loss) on sale of AFS securities1,543 (2,003)
Loss on impairment of investmentsLoss on impairment of investments38 — 
Net loss on premises and equipmentNet loss on premises and equipment302 59 Net loss on premises and equipment334 227 
Gross proceeds from sales of loans held for saleGross proceeds from sales of loans held for sale27,286 25,633 Gross proceeds from sales of loans held for sale5,114 15,987 
Gross originations of loans held for saleGross originations of loans held for sale(26,101)(28,642)Gross originations of loans held for sale(5,006)(14,907)
Net (gain) loss on OREONet (gain) loss on OREO(2)Net (gain) loss on OREO— (2)
Retirement plan curtailment expense163 
Net change in:Net change in:  Net change in:  
Interest receivableInterest receivable2,112 (8,401)Interest receivable10,778 11,270 
Other assetsOther assets8,409 (9,804)Other assets(74)6,459 
Interest payableInterest payable(784)(1,404)Interest payable728 (1,026)
Other liabilitiesOther liabilities3,414 (21,277)Other liabilities38,091 10,891 
Net cash provided by operating activities80,219 17,469 
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities85,377 62,415 
INVESTING ACTIVITIES:INVESTING ACTIVITIES:  INVESTING ACTIVITIES:  
Securities AFS:Securities AFS:Securities AFS:
PurchasesPurchases(392,788)(711,897)Purchases(126,240)(127,713)
SalesSales46,720 285,478 Sales118,952 37,097 
Maturities, calls and principal repaymentsMaturities, calls and principal repayments181,956 187,896 Maturities, calls and principal repayments50,269 99,787 
Securities HTM:Securities HTM:  Securities HTM:  
Maturities, calls and principal repaymentsMaturities, calls and principal repayments14,220 14,405 Maturities, calls and principal repayments2,216 10,871 
Proceeds from redemption of FHLB stock and equity investmentsProceeds from redemption of FHLB stock and equity investments16,240 Proceeds from redemption of FHLB stock and equity investments11,041 16,240 
Purchases of FHLB stock and equity investmentsPurchases of FHLB stock and equity investments(18,973)(5,545)Purchases of FHLB stock and equity investments(57)(9,629)
Net loan originations15,333 (284,755)
Net loan paydowns (originations)Net loan paydowns (originations)(155,667)(59,211)
Purchases of premises and equipmentPurchases of premises and equipment(4,507)(7,886)Purchases of premises and equipment(2,806)(2,396)
Purchases of BOLI(12,500)
Proceeds from sales of premises and equipmentProceeds from sales of premises and equipment1,850 86 Proceeds from sales of premises and equipment94 
Net proceeds from sales of OREONet proceeds from sales of OREO59 186 Net proceeds from sales of OREO— 106 
Proceeds from sales of repossessed assetsProceeds from sales of repossessed assets44 54 Proceeds from sales of repossessed assets30 44 
Net cash used in investing activities(139,846)(534,478)
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities(102,259)(34,710)
(continued)(continued)(continued)
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SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIESSOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIESSOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED)(UNAUDITED)(UNAUDITED)
(in thousands)(in thousands)(in thousands)
Six Months Ended Three Months Ended
June 30,March 31,
20212020 20222021
FINANCING ACTIVITIES:FINANCING ACTIVITIES:  FINANCING ACTIVITIES:  
Net change in depositsNet change in deposits$223,822 $387,651 Net change in deposits348,066 160,308 
Net change in other borrowingsNet change in other borrowings611 42,947 Net change in other borrowings6,977 (857)
Proceeds from FHLB borrowingsProceeds from FHLB borrowings7,080,064 5,047,401 Proceeds from FHLB borrowings117,000 4,009,977 
Repayment of FHLB borrowingsRepayment of FHLB borrowings(7,191,223)(4,925,987)Repayment of FHLB borrowings(457,167)(4,176,974)
Net proceeds from issuance of subordinated long-term debt(95)
Net proceeds from issuance of subordinated notesNet proceeds from issuance of subordinated notes— (59)
Proceeds from stock option exercisesProceeds from stock option exercises5,979 1,130 Proceeds from stock option exercises332 3,412 
Cash paid to tax authority related to tax withholding on share-based awardsCash paid to tax authority related to tax withholding on share-based awards(152)(138)Cash paid to tax authority related to tax withholding on share-based awards(63)(26)
Purchase of common stockPurchase of common stock(18,710)(25,842)Purchase of common stock(2,228)(14,127)
Proceeds from the issuance of common stock for dividend reinvestment planProceeds from the issuance of common stock for dividend reinvestment plan662 683 Proceeds from the issuance of common stock for dividend reinvestment plan322 332 
Cash dividends paidCash dividends paid(21,251)(20,727)Cash dividends paid(11,003)(10,476)
Net cash provided by financing activities79,707 507,118 
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities2,236 (28,490)
Net increase (decrease) in cash and cash equivalents20,080 (9,891)
Net (decrease) increase in cash and cash equivalentsNet (decrease) increase in cash and cash equivalents(14,646)(785)
Cash and cash equivalents at beginning of periodCash and cash equivalents at beginning of period108,408 110,697 Cash and cash equivalents at beginning of period201,753 108,408 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$128,488 $100,806 Cash and cash equivalents at end of period$187,107 $107,623 
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:  SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:  
Interest paidInterest paid$14,984 $28,679 Interest paid$4,239 $8,288 
Income taxes paidIncome taxes paid$6,250 $5,000 Income taxes paid$— $250 
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:  SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:  
Loans transferred to other repossessed assets and real estate through foreclosureLoans transferred to other repossessed assets and real estate through foreclosure$531 $380 Loans transferred to other repossessed assets and real estate through foreclosure$31 $424 
Transfer of AFS to HTM securitiesTransfer of AFS to HTM securities$424,895 $— 
Unsettled trades to purchase securitiesUnsettled trades to purchase securities$(41,888)$(26,359)Unsettled trades to purchase securities$(2,053)$23,473 
Unsettled trades to sell securitiesUnsettled trades to sell securities$$2,923 Unsettled trades to sell securities$47,019 $— 
Unsettled trades to repurchase common stockUnsettled trades to repurchase common stock$(1,130)$(1,086)

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



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SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


1.    Summary of Significant Accounting and Reporting Policies
Basis of Presentation
In this report, the words “the Company,” “we,” “us,” and “our” refer to the combined entities of Southside Bancshares, Inc. and its subsidiaries, including Southside Bank.  The words “Southside” and “Southside Bancshares” refer to Southside Bancshares, Inc.  The words “Southside Bank” and “the Bank” refer to Southside Bank.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, not all information required by GAAP for complete financial statements is included in these interim statements. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included.  Such adjustments consisted only of normal recurring items.  The preparation of these consolidated financial statements in accordance with GAAP requires the use of management’s estimates.  These estimates are subjective in nature and involve matters of judgment.  Actual amounts could differ from these estimates.
Interim results are not necessarily indicative of results for a full year.  These financial statements should be read in conjunction with the financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. 
Accounting Changes and Reclassifications
Certain prior period amounts may be reclassified to conform to current year presentation.
Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 is intended to provide relief for companies preparing for discontinuation of interest rates based on LIBOR. The ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or other reference rates expected to be discontinued. ASU 2020-04 also provides for a one-time sale and/or transfer to AFS or trading to be made for HTM debt securities that both reference an eligible reference rate and were classified as HTM before January 1, 2020. ASU 2020-04 was effective for all entities as of March 12, 2020 and through December 31, 2022. Companies can apply the ASU as of the beginning of the interim period that includes March 12, 2020 or any date thereafter. The guidance requires companies to apply the guidance prospectively to contract modifications and hedging relationships while the one-time election to sell and/or transfer debt securities classified as HTM may be made any time after March 12, 2020. Additionally, in January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope,” which provided additional clarification that certain optional expedients and exceptions noted above apply to derivative instruments that use an interest rate for margining, discounting or contract price alignment that is modified as a result of reference rate reform. We have established an officer level committee to guide our transition from LIBOR and have begun efforts to transitionare transitioning to alternative rates consistent with industry timelines. We continue to evaluate our LIBOR exposure, and note that we have the option to have certain of our interest rate swaps fall back to an adjusted SOFR index. Additionally, we anticipate the trust preferred subordinated debentures will transition to a SOFR index once the Federal Reserve completes the relevant rule. We have identified our products that utilize LIBOR and are implementinghave implemented enhanced fallback language to facilitate the transition to alternative reference rates. We are evaluating existing systems and have begun offering newalternative rates. We are no longer offering LIBOR indexed rates on a limited basis.newly originated loans. ASU 2020-04 and ASU 2021-01 are not expected to have a material impact on our consolidated financial statements.
In March 2022, the FASB issued ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 eliminates the accounting guidance for TDRs, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, ASU 2022-02 requires an entity to disclose current-period gross write-offs by year of origination for financing receivables within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. ASU 2022-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 for companies that have adopted CECL, which we adopted on January 1, 2020. Early adoption is permitted. The guidance should be applied prospectively with the option to use a modified retrospective transition method for the recognition and measurement of TDRs, resulting in a cumulative-effect adjustment to retained earnings. ASU 2022-02 is not expected to have a material impact on our consolidated financial statements.


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2.     Earnings Per Share

Earnings per share on a basic and diluted basis are calculated as follows (in thousands, except per share amounts):
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
March 31,
2021202020212020 20222021
Basic and Diluted Earnings:Basic and Diluted Earnings:    Basic and Diluted Earnings:  
Net incomeNet income$21,317 $21,554 $55,408 $25,507 Net income$24,996 $34,091 
Basic weighted-average shares outstandingBasic weighted-average shares outstanding32,632 33,016 32,730 33,353 Basic weighted-average shares outstanding32,357 32,829 
Add: Stock awardsAdd: Stock awards167 67 130 92 Add: Stock awards180 108 
Diluted weighted-average shares outstandingDiluted weighted-average shares outstanding32,799 33,083 32,860 33,445 Diluted weighted-average shares outstanding32,537 32,937 
Basic earnings per share:Basic earnings per share:Basic earnings per share:
Net incomeNet income$0.65 $0.65 $1.69 $0.76 Net income$0.77 $1.04 
Diluted earnings per share:Diluted earnings per share:Diluted earnings per share:
Net incomeNet income$0.65 $0.65 $1.69 $0.76 Net income$0.77 $1.04 
For the three and six months ended June 30,March 31, 2022, there were no anti-dilutive shares. For the three months ended March 31, 2021, there were approximately 3,000 and 231,000679,000 anti-dilutive shares, respectively. For the three and six months ended June 30, 2020, there were approximately and 860,000 and 813,000 anti-dilutive shares, respectively.shares.

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3.     Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component are as follows (in thousands):
Three Months Ended June 30, 2021Three Months Ended March 31, 2022
Pension Plans
Unrealized Gains (Losses) on SecuritiesUnrealized Gains (Losses) on Derivatives
Net Prior
 Service
 (Cost)
 Credit
Net Gain (Loss)TotalUnrealized Gains (Losses) on SecuritiesUnrealized Gains (Losses) on DerivativesRetirement PlansTotal
Beginning balance, net of taxBeginning balance, net of tax$76,131 $(7,144)$149 $(29,550)$39,586 Beginning balance, net of tax$84,716 $(1,257)$(23,754)$59,705 
Other comprehensive income (loss):Other comprehensive income (loss):Other comprehensive income (loss):
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications33,166 (3,104)30,062 Other comprehensive income (loss) before reclassifications(201,045)20,546 — (180,499)
Reclassification adjustments included in net incomeReclassification adjustments included in net income375 1,599 (9)1,965 Reclassification adjustments included in net income1,786 1,322 206 3,314 
Income tax (expense) benefitIncome tax (expense) benefit(7,044)315 (6,726)Income tax (expense) benefit41,844 (4,593)(42)37,209 
Net current-period other comprehensive income (loss), net of taxNet current-period other comprehensive income (loss), net of tax26,497 (1,190)(6)25,301 Net current-period other comprehensive income (loss), net of tax(157,415)17,275 164 (139,976)
Ending balance, net of taxEnding balance, net of tax$102,628 $(8,334)$149 $(29,556)$64,887 Ending balance, net of tax$(72,699)$16,018 $(23,590)$(80,271)
Six Months Ended June 30, 2021
Pension Plans
Unrealized Gains (Losses) on SecuritiesUnrealized Gains (Losses) on DerivativesNet Prior
Service
(Cost)
Credit
Net Gain (Loss)Total
Beginning balance, net of tax$116,078 $(17,091)$149 $(30,056)$69,080 
Other comprehensive income (loss):
Other comprehensive (loss) income before reclassifications(15,813)7,919 (7,894)
Reclassification adjustments included in net income(1,212)3,167 632 2,587 
Income tax benefit (expense)3,575 (2,329)(132)1,114 
Net current-period other comprehensive (loss) income, net of tax(13,450)8,757 500 (4,193)
Ending balance, net of tax$102,628 $(8,334)$149 $(29,556)$64,887 
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Three Months Ended June 30, 2020Three Months Ended March 31, 2021
Pension Plans
Unrealized Gains (Losses) on SecuritiesUnrealized Gains (Losses) on Derivatives
Net Prior
 Service
 (Cost)
 Credit
Net Gain (Loss)TotalUnrealized Gains (Losses) on SecuritiesUnrealized Gains (Losses) on DerivativesRetirement PlansTotal
Beginning balance, net of taxBeginning balance, net of tax$82,330 $(17,236)$(146)$(31,409)$33,539 Beginning balance, net of tax$116,078 $(17,091)$(29,907)$69,080 
Other comprehensive income (loss):Other comprehensive income (loss):Other comprehensive income (loss):
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications25,813 (5,439)163 (7,558)12,979 Other comprehensive income (loss) before reclassifications(48,979)11,023 — (37,956)
Reclassification adjustments included in net incomeReclassification adjustments included in net income(2,447)797 (3)664 (989)Reclassification adjustments included in net income(1,587)1,568 641 622 
Income tax (expense) benefitIncome tax (expense) benefit(4,906)974 (34)1,448 (2,518)Income tax (expense) benefit10,619 (2,644)(135)7,840 
Net current-period other comprehensive income (loss), net of taxNet current-period other comprehensive income (loss), net of tax18,460 (3,668)126 (5,446)9,472 Net current-period other comprehensive income (loss), net of tax(39,947)9,947 506 (29,494)
Ending balance, net of taxEnding balance, net of tax$100,790 $(20,904)$(20)$(36,855)$43,011 Ending balance, net of tax$76,131 $(7,144)$(29,401)$39,586 
Six Months Ended June 30, 2020
Pension Plans
Unrealized Gains (Losses) on SecuritiesUnrealized Gains (Losses) on Derivatives
Net Prior
 Service
 (Cost)
 Credit
Net Gain (Loss)Total
Beginning balance, net of tax$38,038 $(1,672)$(145)$(31,985)$4,236 
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassifications87,299 (25,039)163 (7,558)54,865 
Reclassification adjustments included in net income(7,867)696 (4)1,392 (5,783)
Income tax (expense) benefit(16,680)5,111 (34)1,296 (10,307)
Net current-period other comprehensive income (loss), net of tax62,752 (19,232)125 (4,870)38,775 
Ending balance, net of tax$100,790 $(20,904)$(20)$(36,855)$43,011 



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The reclassification adjustments out of accumulated other comprehensive income (loss) included in net income are presented below (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
March 31,
202120202021202020222021
Unrealized gains and losses on securities transferred:Unrealized gains and losses on securities transferred:Unrealized gains and losses on securities transferred:
Amortization of unrealized gains and losses (1)
Amortization of unrealized gains and losses (1)
$(390)$(215)$(806)$(336)
Amortization of unrealized gains and losses (1)
$(243)$(416)
Tax benefitTax benefit82 46 169 71 Tax benefit51 87 
Net of taxNet of tax(308)(169)(637)(265)Net of tax(192)(329)
Unrealized gains and losses on available for sale securities:Unrealized gains and losses on available for sale securities:Unrealized gains and losses on available for sale securities:
Realized net gain on sale of securities (2)
15 2,662 2,018 8,203 
Realized net gain (loss) on sale of securities (2)
Realized net gain (loss) on sale of securities (2)
(1,543)2,003 
Tax expense(4)(559)(424)(1,723)
Tax (expense) benefitTax (expense) benefit324 (420)
Net of taxNet of tax11 2,103 1,594 6,480 Net of tax(1,219)1,583 
Derivatives:Derivatives:Derivatives:
Realized net loss on interest rate swap derivatives (3)
(1,599)(803)(3,167)(710)
Realized net gain (loss) on interest rate swap derivatives (3)
Realized net gain (loss) on interest rate swap derivatives (3)
(1,322)(1,568)
Tax benefitTax benefit336 168 665 149 Tax benefit278 329 
Net of taxNet of tax(1,263)(635)(2,502)(561)Net of tax(1,044)(1,239)
Amortization of unrealized gains on terminated interest rate swap derivatives (3)
14 
Tax expense(2)(3)
Net of tax11 
Amortization of pension plan:Amortization of pension plan:Amortization of pension plan:
Net actuarial gain (loss) (4)
(664)(632)(1,392)
Prior service credit (4)
Total before tax(661)(632)(1,388)
Tax (expense) benefit(3)139 132 291 
Net actuarial loss (4)
Net actuarial loss (4)
(206)(641)
Tax benefitTax benefit42 135 
Net of taxNet of tax(522)(500)(1,097)Net of tax(164)(506)
Total reclassifications for the period, net of taxTotal reclassifications for the period, net of tax$(1,554)$781 $(2,045)$4,568 Total reclassifications for the period, net of tax$(2,619)$(491)
(1)    Included in interest income on the consolidated statements of income.
(2)    Listed as net gain (loss) on sale of securities AFS on the consolidated statements of income.
(3)    Included in interest expense for FHLB borrowings and deposits on the consolidated statements of income.
(4)    These AOCI components are included in the computation of net periodic pension cost (income) presented in “Note 8 – Employee Benefit Plans.”
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4.     Securities

Debt securities

The amortized cost, gross unrealized gains and losses and estimated fair value of investment and mortgage-backed AFS and HTM securities as of June 30, 2021March 31, 2022 and December 31, 20202021 are reflected in the tables below (in thousands):
June 30, 2021 March 31, 2022
Amortized
Gross
Unrealized
Gross UnrealizedEstimatedAmortized
Gross
Unrealized
Gross UnrealizedEstimated
AVAILABLE FOR SALEAVAILABLE FOR SALECostGainsLossesFair ValueAVAILABLE FOR SALECostGainsLossesFair Value
Investment securities:Investment securities:Investment securities:
U.S. Treasury$42,753 $983 $$43,736 
State and political subdivisionsState and political subdivisions1,765,231 101,074 1,426 1,864,879 State and political subdivisions$1,614,421 $10,637 $58,873 $1,566,185 
Corporate bonds and otherCorporate bonds and other112,387 2,191 331 114,247 Corporate bonds and other144,264 253 3,191 141,326 
MBS: (1)
MBS: (1)
   
MBS: (1)
   
ResidentialResidential606,765 26,387 252 632,900 Residential280,804 2,581 2,694 280,691 
CommercialCommercial106,938 3,585 250 110,273 Commercial78,108 262 588 77,782 
TotalTotal$2,634,074 $134,220 $2,259 $2,766,035 Total$2,117,597 $13,733 $65,346 $2,065,984 
HELD TO MATURITYHELD TO MATURITYHELD TO MATURITY
Investment securities:Investment securities:   Investment securities:   
State and political subdivisionsState and political subdivisions$908 $$$913 State and political subdivisions$386,573 $944 $12,767 $374,750 
MBS: (1)
MBS: (1)
MBS: (1)
ResidentialResidential42,171 3,002 45,173 Residential37,986 387 64 38,309 
CommercialCommercial51,771 3,511 55,282 Commercial49,760 62 260 49,562 
TotalTotal$94,850 $6,518 $$101,368 Total$474,319 $1,393 $13,091 $462,621 

December 31, 2020 December 31, 2021
Amortized
Gross
Unrealized
Gross UnrealizedEstimatedAmortized
Gross
Unrealized
Gross UnrealizedEstimated
AVAILABLE FOR SALEAVAILABLE FOR SALECostGainsLossesFair ValueAVAILABLE FOR SALECostGainsLossesFair Value
Investment securities:Investment securities: Investment securities: 
U.S. TreasuryU.S. Treasury$58,084 $843 $50 $58,877 
State and political subdivisionsState and political subdivisions$1,475,030 $105,601 $37 $1,580,594 State and political subdivisions1,962,257 93,893 4,214 2,051,936 
Corporate bonds and otherCorporate bonds and other77,224 1,053 22 78,255 Corporate bonds and other133,333 2,408 209 135,532 
MBS: (1)
MBS: (1)
 
MBS: (1)
 
ResidentialResidential771,409 38,674 73 810,010 Residential411,727 14,895 272 426,350 
CommercialCommercial113,850 4,746 150 118,446 Commercial90,193 1,642 205 91,630 
TotalTotal$2,437,513 $150,074 $282 $2,587,305 Total$2,655,594 $113,681 $4,950 $2,764,325 
HELD TO MATURITYHELD TO MATURITYHELD TO MATURITY
Investment securities:Investment securities:Investment securities:
State and political subdivisionsState and political subdivisions$907 $13 $$920 State and political subdivisions$788 $$— $791 
MBS: (1)
MBS: (1)
 
MBS: (1)
 
ResidentialResidential47,948 4,187 52,135 Residential38,644 2,103 — 40,747 
CommercialCommercial60,143 5,000 65,143 Commercial51,348 2,349 — 53,697 
TotalTotal$108,998 $9,200 $$118,198 Total$90,780 $4,455 $— $95,235 
(1) All MBS are issued and/or guaranteed by U.S. government agencies or U.S. GSEs.

From time to time, we transfer securities from AFS to HTM due to overall balance sheet strategies. We transferred securities from AFS to HTM with an estimated fair value of $385.8 million during the three months ended March 31, 2022. There were no securities transferred from AFS to HTM during the year ended December 31, 2021. The remaining net unamortized, unrealized loss on the transferred securities included in AOCI in the accompanying balance sheets totaled $40.4 million ($31.9 million, net of tax) at March 31, 2022 and $1.5 million ($1.2 million, net of tax) at December 31, 2021. Any net unrealized gain or loss on the transferred securities included in AOCI at the time of transfer will be amortized over the remaining life of the underlying security as an adjustment to the yield on those securities. Securities transferred with losses included in AOCI continue to be included in management’s assessment for impairment for each individual security. We transferred these securities due to overall balance sheet strategies and our management has the current intent and ability to hold these securities until maturity.
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Investment securities and MBS with carrying values of $1.49 billion and $1.56$1.61 billion were pledged as of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, to collateralize FHLB borrowings, borrowings from the FRDW, repurchase agreements and public fund deposits, for potential liquidity needs or other purposes as required by law.
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The following tables representpresent the fair value and unrealized losses on AFS and HTM investment securities and MBS, if applicable, for which an allowance for credit losses has not been recorded as of June 30, 2021March 31, 2022 and December 31, 2020,2021, segregated by major security type and length of time in a continuous loss position (in thousands):
June 30, 2021March 31, 2022
Less Than 12 MonthsMore Than 12 MonthsTotal Less Than 12 MonthsMore Than 12 MonthsTotal
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
AVAILABLE FOR SALEAVAILABLE FOR SALE      AVAILABLE FOR SALE      
Investment securities:Investment securities:Investment securities:
State and political subdivisionsState and political subdivisions$154,122 $1,426 $$$154,122 $1,426 State and political subdivisions$1,030,604 $58,873 $— $— $1,030,604 $58,873 
Corporate bonds and otherCorporate bonds and other37,452 331 37,452 331 Corporate bonds and other108,153 3,191 — — 108,153 3,191 
MBS:MBS:MBS:
ResidentialResidential15,619 252 15,619 252 Residential106,742 2,113 4,572 581 111,314 2,694 
CommercialCommercial4,637 250 4,637 250 Commercial9,939 32 3,709 556 13,648 588 
TotalTotal$207,193 $2,009 $4,637 $250 $211,830 $2,259 Total$1,255,438 $64,209 $8,281 $1,137 $1,263,719 $65,346 
HELD TO MATURITYHELD TO MATURITY
Investment securities:Investment securities:
State and political subdivisionsState and political subdivisions$223,589 $12,576 $17,255 $191 $240,844 $12,767 
MBS:MBS:
ResidentialResidential3,617 64 — — 3,617 64 
CommercialCommercial22,857 260 — — 22,857 260 
TotalTotal$250,063 $12,900 $17,255 $191 $267,318 $13,091 
December 31, 2020December 31, 2021
Less Than 12 MonthsMore Than 12 MonthsTotalLess Than 12 MonthsMore Than 12 MonthsTotal
Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
AVAILABLE FOR SALEAVAILABLE FOR SALE      AVAILABLE FOR SALE      
Investment securities:Investment securities:Investment securities:
U.S. TreasuryU.S. Treasury$9,947 $50 $— $— $9,947 $50 
State and political subdivisionsState and political subdivisions$17,305 $37 $$$17,305 $37 State and political subdivisions260,509 3,622 7,608 592 268,117 4,214 
Corporate bonds and otherCorporate bonds and other11,562 22 11,562 22 Corporate bonds and other35,597 209 — — 35,597 209 
MBS:MBS:MBS:
ResidentialResidential6,287 73 6,287 73 Residential1,225 5,168 269 6,393 272 
CommercialCommercial4,744 150 4,744 150 Commercial4,274 4,674 198 8,948 205 
TotalTotal$39,898 $282 $$$39,898 $282 Total$311,552 $3,891 $17,450 $1,059 $329,002 $4,950 

With the adoption of ASU 2016-13, forFor those AFS debt securities in an unrealized loss position where management (i) has the intent to sell or (ii) where it will more-likely-than-not be required to sell the security before the recovery of its amortized cost basis, we write the security down to fair value with an adjustment to earnings. As of March 31, 2022, management had the intent to sell certain AFS securities with unrealized losses which were insignificant to the financial statements. For those AFS debt securities in an unrealized loss position that do not meet either of these criteria, management assesses whether the decline in fair value has resulted from credit-related factors, using both qualitative and quantitative criteria. Determining the allowance under the credit loss method requires the use of a discounted cash flow method to assess the credit losses. Any credit-related impairment will be recognized in allowance for credit losses on the balance sheet with a corresponding adjustment to earnings. Noncredit-related impairment, the portion of the impairment relating to factors other than credit (such as changes in market interest rates), is recognized in other comprehensive income, net of tax.
BasedAs of March 31, 2022 and December 31, 2021, we did not have an allowance for credit losses on our AFS securities, based on our consideration of the qualitative factors associated with each security type in our AFS portfolio, we did 0t recognize anyportfolio. The unrealized losses in income on our
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investment and MBS are due to changes in interest rates and spreads and other market conditions. At March 31, 2022, we had 500 AFS debt securities during the three and six months ended June 30, 2021 or 2020.in an unrealized loss position. Our state and political subdivisions are highly rated municipal securities with a long history of no credit losses. Our AFS MBS are highly rated securities which are either explicitly or implicitly backed by the U.S. Government through its agencies which are highly rated by major ratings agencies and also have a long history of no credit losses. Our corporate bonds and other investment securities as of June 30, 2021 consist of highly rated investment grade bonds. Management does not intend to sell and it is likely we will not be required to sell those securities in an unrealized loss position prior to the anticipated recovery of the amortized cost basis. These unrealized losses on our investment and MBS are largely due to changes in interest rates and spreads and other market conditions impacted by COVID-19. As of June 30, 2021 and December 31, 2020, we did 0t have an allowance for credit losses on our AFS securities.
We assess the likelihood of default and the potential amount of default when assessing our HTM securities for credit losses. We utilize term structures and, due to no prior loss exposure on our state and political subdivision securities, we currently apply a third-party average loss given default rate to model our securities. Due to a small number of HTM municipal securities in our portfolio as of June 30,March 31, 2022 and 2021, and 2020, we elected to use the specific identification method to model these securities which aligns with our third-party fair value measurement process. The model determined any expected credit loss over the life of these securities to be remote. Management further evaluated the remote expectation of loss along with the qualitative factors
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associated with these securities and concluded that, due to the securities being highly rated municipals with a long history of no credit losses, 0no credit loss should be recognized for these securities for the three and six months ended June 30, 2021March 31, 2022 or 2020.
From time to time, we have transferred securities from AFS to HTM due to overall balance sheet strategies. The remaining net unamortized, unrealized loss on the transferred securities included in AOCI in the accompanying balance sheets totaled $2.1 million ($1.6 million, net of tax) at June 30, 2021 and $2.9 million ($2.3 million, net of tax) at December 31, 2020. Any net unrealized gain or loss on the transferred securities included in AOCI at the time of transfer will be amortized over the remaining life of the underlying security as an adjustment to the yield on those securities. Securities transferred with losses included in AOCI continue to be included in management’s assessment for impairment for each individual security. There were 0 securities transferred from AFS to HTM during the six months ended June 30, 2021 or the year ended December 31, 2020.2021.
The accrued interest receivable on our debt securities is excluded from the credit loss estimate and is included in interest receivable on our consolidated balance sheets. As of June 30,March 31, 2022, accrued interest receivable on AFS and HTM debt securities totaled $13.0 million and $2.8 million, respectively. As of December 31, 2021, accrued interest receivable on AFS and HTM debt securities totaled $22.9$25.6 million and $251,000,$244,000, respectively. As of December 31, 2020, accrued interest receivable on AFS and HTM debt securities totaled $22.0 million and $298,000, respectively. NaNNo HTM debt securities were past-due or on 0naccrualnonaccrual status as of June 30, 2021March 31, 2022 or December 31, 2020.2021.
The following table reflects interest income recognized on securities for the periods presented (in thousands):
Three Months Ended
June 30,
Three Months Ended
March 31,
20212020 20222021
U.S. TreasuryU.S. Treasury$169 $U.S. Treasury$168 $37 
State and political subdivisionsState and political subdivisions10,939 9,869 State and political subdivisions13,332 10,406 
Corporate bonds and otherCorporate bonds and other986 84 Corporate bonds and other1,327 845 
MBSMBS4,647 9,044 MBS4,017 6,088 
Total interest income on securitiesTotal interest income on securities$16,741 $18,997 Total interest income on securities$18,844 $17,376 
 Six Months Ended
June 30,
 20212020
U.S. Treasury$206 $
State and political subdivisions21,345 16,494 
Corporate bonds and other1,831 177 
MBS10,735 20,578 
Total interest income on securities$34,117 $37,249 

There was a $1.5 million net realized loss from the AFS securities portfolio for the three months ended March 31, 2022, which consisted of $1.8 million in realized losses and $238,000 in realized gains.  There was a $2.0 million net realized gain from the AFS securities portfolio for the sixthree months ended June 30,March 31, 2021, which consisted of $2.1 million in realized gains and $52,000 in realized losses. There was a $8.2 million net realized gain from the AFS securities portfolio for the six months ended June 30, 2020, which consisted of $8.3 million in realized gains and $89,000 in realized losses. There were 0no sales from the HTM portfolio during the sixthree months ended June 30, 2021March 31, 2022 or 2020.2021.  We calculate realized gains and losses on sales of securities under the specific identification method.
Expected maturities on our securities may differ from contractual maturities because issuers may have the right to call or prepay obligations.  MBS are presented in total by category since MBS are typically issued with stated principal amounts and are backed by pools of mortgages that have loans with varying maturities.  The characteristics of the underlying pool of mortgages, such as fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the security holder.  The term of a mortgage-backed pass-through security thus approximates the term of the underlying mortgages and can vary significantly due to prepayments.
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The amortized cost and estimated fair value of AFS and HTM securities at June 30, 2021,March 31, 2022, are presented below by contractual maturity (in thousands):
June 30, 2021 March 31, 2022
Amortized CostFair Value Amortized CostFair Value
AVAILABLE FOR SALEAVAILABLE FOR SALEAVAILABLE FOR SALE
Investment securities:Investment securities:  Investment securities:  
Due in one year or lessDue in one year or less$4,026 $4,071 Due in one year or less$2,247 $2,265 
Due after one year through five yearsDue after one year through five years30,715 31,829 Due after one year through five years24,972 25,187 
Due after five years through ten yearsDue after five years through ten years163,900 167,864 Due after five years through ten years157,846 155,194 
Due after ten yearsDue after ten years1,721,730 1,819,098 Due after ten years1,573,620 1,524,865 
1,920,371 2,022,862  1,758,685 1,707,511 
MBS:MBS:713,703 743,173 MBS:358,912 358,473 
TotalTotal$2,634,074 $2,766,035 Total$2,117,597 $2,065,984 

June 30, 2021 March 31, 2022
Amortized CostFair Value Amortized CostFair Value
HELD TO MATURITYHELD TO MATURITYHELD TO MATURITY
Investment securities:Investment securities:  Investment securities:  
Due in one year or lessDue in one year or less$120 $120 Due in one year or less$120 $120 
Due after one year through five yearsDue after one year through five years509 512 Due after one year through five years529 530 
Due after five years through ten yearsDue after five years through ten years279 281 Due after five years through ten years139 140 
Due after ten yearsDue after ten yearsDue after ten years385,785 373,960 
908 913  386,573 374,750 
MBS:MBS:93,942 100,455 MBS:87,746 87,871 
TotalTotal$94,850 $101,368 Total$474,319 $462,621 

Equity Investments
Equity investments on our consolidated balance sheets include Community Reinvestment Act funds with a readily determinable fair value as well as equity investments without readily determinable fair values. At June 30, 2021March 31, 2022 and December 31, 2020,2021, we had equity investments recorded in our consolidated balance sheets of $11.8$11.5 million and $11.9$11.8 million, respectively.
Any realized and unrealized gains and losses on equity investments are reported in income. Equity investments without readily determinable fair values are recorded at cost less impairment, if any.
The following is a summary of unrealized and realized gains and losses on equity investments recognized in other noninterest income in the consolidated statements of income during the periods presented (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
March 31,
2021202020212020 20222021
Net gains (losses) recognized during the period on equity investmentsNet gains (losses) recognized during the period on equity investments$17 $$(90)$54 Net gains (losses) recognized during the period on equity investments$(275)$(107)
Less: Net gains recognized during the period on equity investments sold during the periodLess: Net gains recognized during the period on equity investments sold during the periodLess: Net gains recognized during the period on equity investments sold during the period— — 
Unrealized gains (losses) recognized during the reporting period on equity investments held at the reporting dateUnrealized gains (losses) recognized during the reporting period on equity investments held at the reporting date$17 $$(90)$54 Unrealized gains (losses) recognized during the reporting period on equity investments held at the reporting date$(275)$(107)

Equity investments are assessed quarterly for other-than-temporary impairment. Based upon that evaluation, management does 0tnot consider any of our equity investments to be other-than-temporarily impaired at June 30, 2021.March 31, 2022.
FHLB Stock
Our FHLB stock, which has limited marketability, is carried at cost and is assessed quarterly for other-than-temporary impairment. Based upon evaluation by management at June 30, 2021,March 31, 2022, our FHLB stock was 0tnot impaired and thus was not considered to be other-than-temporarily impaired.
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5.     Loans and Allowance for Loan Losses

Loans in the accompanying consolidated balance sheets are classified as follows (in thousands):    
June 30, 2021December 31, 2020March 31, 2022December 31, 2021
Real estate loans:Real estate loans:  Real estate loans:  
ConstructionConstruction$528,157 $581,941 Construction$490,166 $447,860 
1-4 family residential1-4 family residential678,402 719,952 1-4 family residential647,837 651,140 
CommercialCommercial1,430,900 1,295,746 Commercial1,722,577 1,598,172 
Commercial loansCommercial loans497,513 557,122 Commercial loans401,144 418,998 
Municipal loansMunicipal loans417,398 409,028 Municipal loans455,155 443,078 
Loans to individualsLoans to individuals89,976 93,990 Loans to individuals84,037 85,914 
Total loansTotal loans3,642,346 3,657,779 Total loans3,800,916 3,645,162 
Less: Allowance for loan lossesLess: Allowance for loan losses42,913 49,006 Less: Allowance for loan losses35,524 35,273 
Net loansNet loans$3,599,433 $3,608,773 Net loans$3,765,392 $3,609,889 

Paycheck Protection Program Loans
In April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Loans covered by the PPP may be eligible for loan forgiveness for certain costs incurred related to payroll, group health care benefit costs and qualifying mortgage, rent and utility payments. The remaining loan balance after forgiveness of any amount is still fully guaranteed by the SBA. On December 27, 2020, the Economic Aid Act was signed into law. This second coronavirus relief package granted additional funds for a new round of PPP loans. Additionally, it expanded the eligibility for loans and allowed certain businesses to request a second loan. In return for processing and booking a PPP loan, the SBA paid lenders a processing fee tiered by the size of the loan. These loans are included in commercial loans with an amortized cost basis at June 30, 2021March 31, 2022 and December 31, 20202021 of $132.1$13.9 million and $214.8$31.0 million, respectively.
Construction Real Estate Loans
Our construction loans are collateralized by property located primarily in or near the market areas we serve. A number of our construction loans will be owner occupied upon completion. Construction loans for non-owner occupied projects are financed, but these typically have cash flows from leases with tenants, secondary sources of repayment, and in some cases, additional collateral. Our construction loans have both adjustable and fixed interest rates during the construction period. Construction loans to individuals are typically priced and made with the intention of granting the permanent loan on the completed property. Speculative and commercialCommercial construction loans are subject to underwriting standards similar to that of the commercial portfolio.  Owner occupied 1-4 family residential construction loans are subject to the underwriting standards of the permanent loan.
1-4 Family Residential Real Estate Loans
Residential loan originations are generated by our loan officers, in-house origination staff, marketing efforts, present customers, walk-in customers and referrals from real estate agents and builders.  We focus our lending efforts primarily on the origination of loans secured by first mortgages on owner occupied 1-4 family residences.  Substantially all of our 1-4 family residential originations are secured by properties located in or near our market areas.  
Our 1-4 family residential loans generally have maturities ranging from five15 to 30 years.  These loans are typically fully amortizing with monthly payments sufficient to repay the total amount of the loan.  Our 1-4 family residential loans are made at both fixed and adjustable interest rates.
Underwriting for 1-4 family residential loans includes debt-to-income analysis, credit history analysis, appraised value and down payment considerations. Changes in the market value of real estate can affect the potential losses in the residential portfolio.
Commercial Real Estate Loans
Commercial real estate loans as of June 30, 2021March 31, 2022 consisted of $1.24$1.44 billion of owner and non-owner occupied real estate, $170.4$258.4 million of loans secured by multi-family properties and $18.5$22.8 million of loans secured by farmland. Commercial real estate loans primarily include loans collateralized by retail, commercial office buildings, multi-family residential buildings, medical facilities and offices, senior living, assisted living and skilled nursing facilities, warehouse facilities, hotels and churches. In determining whether to originate commercial real estate loans, we generally consider such factors as the financial condition of the borrower and the debt service coverage of the property. Commercial real estate loans are made at both fixed and adjustable interest rates for terms generally up to 20 years.
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Commercial Loans
Our commercial loans are diversified loan types including short-term working capital loans for inventory and accounts receivable and short- and medium-term loans for equipment or other business capital expansion.  In our commercial loan underwriting, we assess the creditworthiness, ability to repay and the value and liquidity of the collateral being offered.  Terms of commercial loans are generally commensurate with the useful life of the collateral offered.
Municipal Loans
We make loans to municipalities and school districts primarily throughout the state of Texas, with a small percentage originating outside of the state.  The majority of the loans to municipalities and school districts have tax or revenue pledges and in some cases are additionally supported by collateral.  Municipal loans made without a direct pledge of taxes or revenues are usually made based on some type of collateral that represents an essential service. Lending money directly to these municipalities allows us to earn a higher yield than we could if we purchased municipal securities for similar durations.
Loans to Individuals
Substantially all originations of our loans to individuals are made to consumers in our market areas.  The majority of loans to individuals are collateralized by titled equipment, which are primarily automobiles. Loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower.  The underwriting standards we employ for consumer loans include an application, a determination of the applicant’s payment history on other debts, with the greatest weight being given to payment history with us and an assessment of the borrower’s ability to meet existing obligations and payments on the proposed loan.  Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, in relation to the proposed loan amount. Most of our loans to individuals are collateralized, which management believes assists in limiting our exposure.
Credit Quality Indicators
We categorize loans into risk categories on an ongoing basis based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors.  We use the following definitions for risk ratings:
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 the 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 is warranted 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.
Special Mention (Rating 6) – A Special Mention loan 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 loan or in our credit position at some future date.  Special Mention loans are not adversely classified and do not expose us to sufficient risk to warrant adverse classification.
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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The following tables set forth the amortized cost basis by class of financing receivable and credit quality indicator for the periods presented (in thousands):
June 30, 2021Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisTotal
March 31, 2022March 31, 2022Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisTotal
20212020201920182017Prior20222021202020192018Prior
Construction real estate:Construction real estate:Construction real estate:
PassPass$71,711 $121,423 $144,531 $62,296 $2,301 $7,587 $118,005 $527,854 Pass$40,882 $187,212 $82,190 $14,657 $3,053 $7,810 $154,086 $489,890 
Pass watchPass watch22 22 Pass watch— — — — — — — — 
Special mentionSpecial mentionSpecial mention— — — — — — — — 
SubstandardSubstandard224 224 Substandard— 48 — 12 47 169 — 276 
DoubtfulDoubtful57 57 Doubtful— — — — — — — — 
Total construction real estateTotal construction real estate$71,711 $121,423 $144,531 $62,353 $2,301 $7,833 $118,005 $528,157 Total construction real estate$40,882 $187,260 $82,190 $14,669 $3,100 $7,979 $154,086 $490,166 
1-4 family residential real estate:1-4 family residential real estate:1-4 family residential real estate:
PassPass$79,835 $141,033 $94,589 $56,732 $41,836 $253,907 $2,284 $670,216 Pass$32,446 $137,747 $123,318 $76,147 $43,826 $227,959 $2,282 $643,725 
Pass watchPass watch813 813 Pass watch— — — — — — — — 
Special mentionSpecial mention63 63 Special mention— — 82 — — — — 82 
SubstandardSubstandard10 1,035 55 926 4,261 92 6,379 Substandard— 48 394 162 154 3,033 42 3,833 
DoubtfulDoubtful12 33 886 931 Doubtful— — — — — 197 — 197 
Total 1-4 family residential real estateTotal 1-4 family residential real estate$79,845 $142,080 $94,644 $56,732 $42,795 $259,930 $2,376 $678,402 Total 1-4 family residential real estate$32,446 $137,795 $123,794 $76,309 $43,980 $231,189 $2,324 $647,837 
Commercial real estate:Commercial real estate:Commercial real estate:
PassPass$272,014 $251,630 $269,339 $102,178 $151,519 $233,346 $6,849 $1,286,875 Pass$290,462 $619,098 $188,513 $144,351 $112,117 $329,299 $5,536 $1,689,376 
Pass watchPass watch4,214 23,257 36,867 5,414 69,752 Pass watch— — — 2,151 2,127 253 — 4,531 
Special mentionSpecial mention24,142 199 8,883 6,963 307 12,826 53,320 Special mention— — 2,057 2,175 118 2,364 — 6,714 
SubstandardSubstandard4,526 1,869 1,800 40 12,587 20,822 Substandard596 800 656 10,904 1,319 7,681 — 21,956 
DoubtfulDoubtful131 131 Doubtful— — — — — — — — 
Total commercial real estateTotal commercial real estate$300,682 $253,698 $282,436 $134,198 $188,733 $264,304 $6,849 $1,430,900 Total commercial real estate$291,058 $619,898 $191,226 $159,581 $115,681 $339,597 $5,536 $1,722,577 
Commercial loans:Commercial loans:Commercial loans:
PassPass$159,561 $102,900 $33,923 $17,163 $5,633 $7,371 $164,496 $491,047 Pass$37,172 $103,293 $42,475 $12,837 $11,727 $5,021 $184,458 $396,983 
Pass watchPass watch42 133 563 102 244 1,084 Pass watch206 42 — 248 18 — — 514 
Special mentionSpecial mention418 398 211 281 1,308 Special mention— — 54 31 344 132 — 561 
SubstandardSubstandard175 208 492 317 1,483 2,679 Substandard— 88 172 368 189 18 1,457 2,292 
DoubtfulDoubtful121 453 276 440 18 87 1,395 Doubtful— 283 40 100 300 65 794 
Total commercial loansTotal commercial loans$159,899 $103,694 $35,672 $18,420 $5,654 $7,670 $166,504 $497,513 Total commercial loans$37,378 $103,706 $42,741 $13,584 $12,578 $5,236 $185,921 $401,144 
Municipal loans:Municipal loans:Municipal loans:
PassPass$36,575 $68,625 $64,734 $31,373 $58,798 $157,293 $$417,398 Pass$33,909 $79,304 $63,144 $59,531 $27,773 $191,494 $— $455,155 
Pass watchPass watchPass watch— — — — — — — — 
Special mentionSpecial mentionSpecial mention— — — — — — — — 
SubstandardSubstandardSubstandard— — — — — — — — 
DoubtfulDoubtfulDoubtful— — — — — — — — 
Total municipal loansTotal municipal loans$36,575 $68,625 $64,734 $31,373 $58,798 $157,293 $$417,398 Total municipal loans$33,909 $79,304 $63,144 $59,531 $27,773 $191,494 $— $455,155 
Loans to individuals:Loans to individuals:Loans to individuals:
PassPass$24,593 $34,063 $16,940 $6,403 $2,872 $1,454 $3,458 $89,783 Pass$11,288 $34,246 $20,609 $9,783 $3,165 $1,980 $2,820 $83,891 
Pass watchPass watchPass watch— — — — — — — — 
Special mentionSpecial mention44 48 Special mention— — — — 32 — — 32 
SubstandardSubstandard32 17 24 82 Substandard— — — 28 45 11 85 
DoubtfulDoubtful33 27 63 Doubtful— — 19 — — 10 — 29 
Total loans to individualsTotal loans to individuals$24,593 $34,066 $16,972 $6,467 $2,929 $1,485 $3,464 $89,976 Total loans to individuals$11,288 $34,246 $20,628 $9,811 $3,242 $2,001 $2,821 $84,037 
Total loansTotal loans$673,305 $723,586 $638,989 $309,543 $301,210 $698,515 $297,198 $3,642,346 Total loans$446,961 $1,162,209 $523,723 $333,485 $206,354 $777,496 $350,688 $3,800,916 
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December 31, 2020Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisTotal
December 31, 2021December 31, 2021Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisTotal
20202019201820172016Prior20212020201920182017Prior
Construction real estate:Construction real estate:Construction real estate:
PassPass$155,693 $180,536 $76,090 $55,636 $3,191 $8,297 $101,793 $581,236 Pass$179,521 $82,862 $38,788 $5,666 $2,126 $6,080 $132,592 $447,635 
Pass watchPass watch23 23 Pass watch— — — — — — — — 
Special mentionSpecial mentionSpecial mention— — — — — — — — 
SubstandardSubstandard382 62 58 502 Substandard— — — — — 175 — 175 
DoubtfulDoubtful180 180 Doubtful— — — 50 — — — 50 
Total construction real estateTotal construction real estate$155,693 $180,918 $76,152 $55,636 $3,214 $8,535 $101,793 $581,941 Total construction real estate$179,521 $82,862 $38,788 $5,716 $2,126 $6,255 $132,592 $447,860 
1-4 family residential real estate:1-4 family residential real estate:1-4 family residential real estate:
PassPass$154,003 $114,063 $70,621 $55,557 $57,680 $255,003 $2,833 $709,760 Pass$141,058 $129,681 $81,607 $47,566 $34,236 $209,470 $2,238 $645,856 
Pass watchPass watch267 564 831 Pass watch— — — — — 777 — 777 
Special mentionSpecial mention10 10 Special mention— 82 — — — — — 82 
SubstandardSubstandard1,473 135 427 1,588 5,134 96 8,853 Substandard57 403 55 — 295 3,257 88 4,155 
DoubtfulDoubtful36 103 359 498 Doubtful— — — — — 270 — 270 
Total 1-4 family residential real estateTotal 1-4 family residential real estate$155,476 $114,063 $70,756 $56,020 $59,638 $261,070 $2,929 $719,952 Total 1-4 family residential real estate$141,115 $130,166 $81,662 $47,566 $34,531 $213,774 $2,326 $651,140 
Commercial real estate:Commercial real estate:Commercial real estate:
PassPass$270,087 $307,161 $143,177 $162,180 $98,828 $179,919 $6,957 $1,168,309 Pass$648,002 $207,370 $209,923 $114,788 $143,350 $209,368 $7,566 $1,540,367 
Pass watchPass watch3,153 40,125 1,696 2,582 47,556 Pass watch21,669 — 2,163 3,074 374 — — 27,280 
Special mentionSpecial mention4,555 33,020 7,041 140 4,531 7,850 57,137 Special mention— 2,062 2,217 119 163 1,877 — 6,438 
SubstandardSubstandard7,542 2,097 65 704 12,282 22,690 Substandard3,299 667 10,830 1,480 — 7,691 — 23,967 
DoubtfulDoubtful54 54 Doubtful— — — — — 120 — 120 
Total commercial real estateTotal commercial real estate$282,184 $340,181 $155,468 $202,510 $105,759 $202,687 $6,957 $1,295,746 Total commercial real estate$672,970 $210,099 $225,133 $119,461 $143,887 $219,056 $7,566 $1,598,172 
Commercial loans:Commercial loans:Commercial loans:
PassPass$313,688 $47,446 $20,386 $7,505 $3,392 $6,142 $140,018 $538,577 Pass$140,628 $51,866 $24,688 $13,204 $2,516 $4,062 $178,263 $415,227 
Pass watchPass watch2,599 1,318 2,410 1,981 370 8,678 Pass watch— — 280 22 — — — 302 
Special mentionSpecial mention304 809 433 39 286 265 455 2,591 Special mention— 57 78 363 — 157 — 655 
SubstandardSubstandard405 1,081 473 4,417 6,383 Substandard— 283 296 174 16 — 1,457 2,226 
DoubtfulDoubtful310 53 475 54 893 Doubtful26 124 359 — 72 — 588 
Total commercial loansTotal commercial loans$317,306 $50,707 $24,177 $9,586 $3,679 $6,407 $145,260 $557,122 Total commercial loans$140,635 $52,232 $25,466 $14,122 $2,532 $4,291 $179,720 $418,998 
Municipal loans:Municipal loans:Municipal loans:
PassPass$72,542 $68,132 $33,735 $61,170 $25,387 $148,062 $$409,028 Pass$80,167 $64,803 $61,348 $29,168 $56,274 $151,318 $— $443,078 
Pass watchPass watchPass watch— — — — — — — — 
Special mentionSpecial mentionSpecial mention— — — — — — — — 
SubstandardSubstandardSubstandard— — — — — — — — 
DoubtfulDoubtfulDoubtful— — — — — — — — 
Total municipal loansTotal municipal loans$72,542 $68,132 $33,735 $61,170 $25,387 $148,062 $$409,028 Total municipal loans$80,167 $64,803 $61,348 $29,168 $56,274 $151,318 $— $443,078 
Loans to individuals:Loans to individuals:Loans to individuals:
PassPass$46,722 $25,302 $10,132 $4,716 $1,867 $917 $3,900 $93,556 Pass$40,252 $24,028 $11,813 $4,121 $1,684 $849 $3,052 $85,799 
Pass watchPass watchPass watch— — — — — — — — 
Special mentionSpecial mention51 55 Special mention— — — 36 — — — 36 
SubstandardSubstandard35 28 30 11 120 Substandard— 24 23 10 64 
DoubtfulDoubtful73 20 55 81 24 259 Doubtful— — — 15 
Total loans to individualsTotal loans to individuals$46,801 $25,357 $10,217 $4,801 $1,957 $952 $3,905 $93,990 Total loans to individuals$40,252 $24,029 $11,838 $4,168 $1,710 $863 $3,054 $85,914 
Total loansTotal loans$1,030,002 $779,358 $370,505 $389,723 $199,634 $627,713 $260,844 $3,657,779 Total loans$1,254,660 $564,191 $444,235 $220,201 $241,060 $595,557 $325,258 $3,645,162 

Watchlisted loans reported as 2022 originations as of March 31, 2022 and watchlisted loans reported as 2021 originations as of December 31, 2021 were, for the majority, first originated in various years prior to 2022 and 2021, respectively, but were renewed in the respective year.
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The following tables present the aging of the amortized cost basis in past due loans by class of loans (in thousands):
June 30, 2021 March 31, 2022
30-59 Days
Past Due
60-89 Days
Past Due
Greater than 90 Days Past Due
Total Past
Due
CurrentTotal
30-59 Days
Past Due
60-89 Days
Past Due
Greater than 90 Days Past Due
Total Past
Due
CurrentTotal
Real estate loans:Real estate loans:     Real estate loans:     
ConstructionConstruction$170 $12 $$182 $527,975 $528,157 Construction$38 $12 $— $50 $490,116 $490,166 
1-4 family residential1-4 family residential1,563 522 752 2,837 675,565 678,402 1-4 family residential3,040 437 254 3,731 644,106 647,837 
CommercialCommercial687 147 80 914 1,429,986 1,430,900 Commercial747 122 — 869 1,721,708 1,722,577 
Commercial loansCommercial loans1,246 535 454 2,235 495,278 497,513 Commercial loans1,100 245 512 1,857 399,287 401,144 
Municipal loansMunicipal loans417,398 417,398 Municipal loans— — — — 455,155 455,155 
Loans to individualsLoans to individuals197 62 259 89,717 89,976 Loans to individuals173 — 30 203 83,834 84,037 
TotalTotal$3,863 $1,278 $1,286 $6,427 $3,635,919 $3,642,346 Total$5,098 $816 $796 $6,710 $3,794,206 $3,800,916 
December 31, 2020December 31, 2021
30-59 Days Past Due60-89 Days Past DueGreater than 90 Days
Past Due
Total Past
Due
CurrentTotal30-59 Days Past Due60-89 Days Past DueGreater than 90 Days
Past Due
Total Past
Due
CurrentTotal
Real estate loans:Real estate loans:Real estate loans:
ConstructionConstruction$95 $14 $444 $553 $581,388 $581,941 Construction$82 $58 $— $140 $447,720 $447,860 
1-4 family residential1-4 family residential7,872 2,469 2,830 13,171 706,781 719,952 1-4 family residential3,226 606 227 4,059 647,081 651,140 
CommercialCommercial467 315 86 868 1,294,878 1,295,746 Commercial1,191 — 99 1,290 1,596,882 1,598,172 
Commercial loansCommercial loans1,423 4,516 323 6,262 550,860 557,122 Commercial loans1,523 251 537 2,311 416,687 418,998 
Municipal loansMunicipal loans64 64 408,964 409,028 Municipal loans170 — — 170 442,908 443,078 
Loans to individualsLoans to individuals519 123 27 669 93,321 93,990 Loans to individuals315 41 364 85,550 85,914 
TotalTotal$10,440 $7,437 $3,710 $21,587 $3,636,192 $3,657,779 Total$6,507 $956 $871 $8,334 $3,636,828 $3,645,162 


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The following table sets forth the amortized cost basis of nonperforming assets for the periods presented (in thousands):
June 30, 2021December 31, 2020 March 31, 2022December 31, 2021
Nonaccrual loans:Nonaccrual loans:Nonaccrual loans:
Real estate loans:Real estate loans:Real estate loans:
ConstructionConstruction$69 $640 Construction$$57 
1-4 family residential1-4 family residential2,397 3,922 1-4 family residential709 969 
CommercialCommercial1,212 1,269 Commercial574 668 
Commercial loansCommercial loans1,414 1,592 Commercial loans1,029 815 
Loans to individualsLoans to individuals62 291 Loans to individuals41 27 
Total nonaccrual loans (1)
Total nonaccrual loans (1)
5,154 7,714 
Total nonaccrual loans (1)
2,357 2,536 
Accruing loans past due more than 90 daysAccruing loans past due more than 90 daysAccruing loans past due more than 90 days— — 
TDR loansTDR loans9,549 9,646 TDR loans9,098 9,073 
OREOOREO566 106 OREO— — 
Repossessed assetsRepossessed assets14 Repossessed assets— — 
Total nonperforming assetsTotal nonperforming assets$15,269 $17,480 Total nonperforming assets$11,455 $11,609 

(1)    Includes $810,000$1.0 million and $976,000$1.1 million of restructuredTDR loans as of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.

We reversed $12,000 and $25,000 of$18,000 interest income on nonaccrual loans during the three and six months ended June 30,March 31, 2022 and 2021, respectively, and $14,000 and $143,000 for the three and six months ended June 30, 2020, respectively. We had $1.4 million$946,000 and $2.2$1.2 million of loans on nonaccrual for which there was no related allowance for credit losses as of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
Collateral-dependent loans are loans that we expect the repayment to be provided substantially through the operation or sale of the collateral of the loan and we have determined that the borrower is experiencing financial difficulty. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for selling costs. As of June 30, 2021March 31, 2022 and December 31, 2020,2021, we had $10.1$8.9 million and $11.5$8.5 million, respectively, of collateral-dependent loans, secured mainly by real estate and equipment. There have been no significant changes to the collateral that secures the collateral-dependent assets. Foreclosed assets include OREO and repossessed assets. For 1-4 family residential real estate properties, a loan is recognized as a foreclosed property once legal title to the real estate property has been received upon completion of foreclosure or the borrower has conveyed all interest in the residential property through a deed in lieu of foreclosure. There were $34,000 and $1.2 million inno loans secured by 1-4 family residential properties for which formal foreclosure proceedings were in process as of June 30, 2021 andMarch 31, 2022. As of December 31, 2020, respectively.2021, there were $21,000 in loans secured by 1-4 family residential properties for which formal foreclosure proceedings were in process.

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Troubled Debt Restructurings
The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.  Concessions may include interest rate reductions or below market interest rates, restructuring amortization schedules and other actions intended to minimize potential losses. We may provide a combination of concessions which 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.
In response to the impact of the COVID-19 pandemic on the economy, the CARES Act was signed into law. Under the CARES Act, banks may elect to deem that loan modifications do not result in TDRs if they are: (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the national emergency declaration or (B) December 31, 2020. The Economic Aid Act extended this relief to the earlier of 60 days after the national emergency termination date or January 1, 2022. Additionally, in accordance with the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised), other short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs under ASC Subtopic 310-40. This includes short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. Loans modified under this guidance are not considered TDRs and as such are not identified in the table below. At June 30, 2021 and December 31, 2020, we had outstanding loans with payment deferrals totaling $182,000 and $47.2 million, respectively.
The following tables set forth the recorded balance of loans considered to be TDRs that were restructured and the type of concession by class of loans during the periods presented (dollars in thousands):
Three Months Ended June 30, 2021Three Months Ended March 31, 2022
Extend Amortization
 Period
Interest Rate ReductionsCombinationTotal ModificationsNumber of Loans
Extend Amortization
 Period
Interest Rate ReductionsCombinationTotal ModificationsNumber of Loans
Real estate loans:Real estate loans:  
1-4 family residential1-4 family residential$— $— $211 $211 
Commercial loansCommercial loans$$$106 $106 Commercial loans— — 13 13 
Loans to individualsLoans to individuals— — 
TotalTotal$$$106 $106 Total$— $— $229 $229 
 Six Months Ended June 30, 2021
 
Extend Amortization
 Period
Interest Rate ReductionsCombinationTotal ModificationsNumber of Loans
Real estate loans:
1-4 family residential$$$128 $128 
Commercial loans122 122 
Total$$$250 $250 
Three Months Ended June 30, 2020
 
Extend Amortization
 Period
Interest Rate ReductionsCombinationTotal ModificationsNumber of Loans
Commercial loans$$$148 $148 
Total$$$148 $148 
Six Months Ended June 30, 2020 Three Months Ended March 31, 2021
Extend Amortization
 Period
Interest Rate ReductionsCombinationTotal ModificationsNumber of Loans
Extend Amortization
 Period
Interest Rate ReductionsCombinationTotal ModificationsNumber of Loans
Real estate loans:Real estate loans:  Real estate loans:  
1-4 family residential1-4 family residential$— $— $130 $130 
Commercial$$$59 $59 
Commercial loansCommercial loans150 150 Commercial loans— — 18 18 
TotalTotal$$$209 $209 Total$— $— $148 $148 

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Interest continues to be charged on principal balances outstanding during the extended term. Therefore, the financial effects of the recorded investment of loans restructured as TDRs during the sixthree months ended June 30,March 31, 2022 and 2021 and 2020 were not significant. Generally, the loans identified as TDRs were previously reported as impaired loans prior to restructuring, and therefore, the modification did not impact our determination of the allowance for loans losses.
On an ongoing basis, the performance of the TDRs is monitored for subsequent payment default. Payment default for TDRs is recognized when the borrower is 90 days or more past due. For the three and six months ended June 30,March 31, 2022 and 2021 TDRs in default totaled $230,000. For the three and six months ended June 30, 2020 the amount of TDRs in default was not significant. Payment defaults for TDRs did not significantly impact the determination of the allowance for loan losses in the periods presented.
At June 30,March 31, 2022 and 2021, and 2020, there were 0no commitments to lend additional funds to borrowers whose terms had been modified in TDRs.
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Allowance for Loan Losses
In accordance with ASC 326, the allowance for credit losses on loans is estimated and recognized upon origination of the loan based on expected credit losses. The CECL model uses historical experience and current conditions for homogeneous pools of loans, and reasonable and supportable forecasts about future events. The impact of varying economic conditions and portfolio stress factors are a component of the credit loss models applied to each portfolio. Reserve factors are specific to the loan segments that share similar risk characteristics based on the probability of default assumptions and loss given default assumptions, over the contractual term. The forecasted periods gradually mean-revert the economic inputs to their long-run historical trends. Management evaluates the economic data points used in the Moody’s forecasting scenarios on a quarterly basis to determine the most appropriate impact to the various portfolio characteristics based on management’s view and applies weighting to various forecasting scenarios as deemed appropriate based on known and expected economic activities. Management also considers and may apply relevant qualitative factors, not previously considered, to determine the appropriate allowance level. The use of the CECL model includes significant judgment by management and may differ from those of our peers due to different historical loss patterns, economic forecasts, and the length of time of the reasonable and supportable forecast period and reversion period.
We utilize Moody’s Analytics economic forecast scenarios and assign probability weighting to those scenarios which best reflect management’s views on the economic forecast. The probability weighting and scenarios utilized for the estimate of the allowance were generally reflective of an improved economic forecast based on known and knowable information as of June 30, 2021.
When determining the appropriate allowance for credit losses on our loan portfolio, our commercial construction and real estate loans, commercial loans and municipal loans utilize the probability of default/loss given default discounted cash flow approach. Reserves on these loans are based upon risk factors including the loan type and structure, collateral type, leverage ratio, refinancing risk and origination quality, among others. Our consumer construction real estate loans, 1-4 family residential loans and our loans to individuals use a loss rate based upon risk factors including loan types, origination year and credit scores. Loans covered by the PPP may be eligible for loan forgiveness. The remaining loan balance after forgiveness of any amount is still fully guaranteed by the SBA and therefore does 0t have an associated allowance.
Loans evaluated collectively in a pool are monitored to ensure they continue to exhibit similar risk characteristics with other loans in the pool. If a loan does not share similar risk characteristics with other loans, expected credit losses for that loan are evaluated individually.













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The following tables detail activity in the allowance for loan losses by portfolio segment for the periods presented (in thousands):
Three Months Ended June 30, 2021 Three Months Ended March 31, 2022
Real Estate     Real Estate    
Construction
1-4 Family
Residential
Commercial
Commercial
Loans
Municipal
Loans
Loans to
Individuals
Total Construction
1-4 Family
Residential
Commercial
Commercial
Loans
Municipal
Loans
Loans to
Individuals
Total
Balance at beginning of periodBalance at beginning of period$8,201 $2,508 $27,236 $3,108 $46 $355 $41,454 Balance at beginning of period$3,787 $1,866 $26,980 $2,397 $47 $196 $35,273 
Loans charged-offLoans charged-off(28)(116)(383)(527)Loans charged-off— — — (131)— (424)(555)
Recoveries of loans charged-offRecoveries of loans charged-off12 179 274 466 Recoveries of loans charged-off— 39 47 216 — 238 540 
Net loans (charged-off) recoveredNet loans (charged-off) recovered(16)63 (109)(61)Net loans (charged-off) recovered— 39 47 85 — (186)(15)
Provision for (reversal of) loan lossesProvision for (reversal of) loan losses(183)28 1,693 (74)55 1,520 Provision for (reversal of) loan losses(183)77 198 (28)201 266 
Balance at end of periodBalance at end of period$8,018 $2,520 $28,930 $3,097 $47 $301 $42,913 Balance at end of period$3,604 $1,982 $27,225 $2,454 $48 $211 $35,524 
 Six Months Ended June 30, 2021
 Real Estate    
 Construction
1-4 Family
Residential
Commercial
Commercial
Loans
Municipal
Loans
Loans to
Individuals
Total
Balance at beginning of period$6,490 $2,270 $35,709 $4,107 $46 $384 $49,006 
Loans charged-off(101)(435)(786)(1,322)
Recoveries of loans charged-off67 461 558 1,088 
Net loans (charged-off) recovered(34)26 (228)(234)
Provision for (reversal of) loan losses1,527 284 (6,780)(1,036)145 (5,859)
Balance at end of period$8,018 $2,520 $28,930 $3,097 $47 $301 $42,913 
Three Months Ended June 30, 2020 Three Months Ended March 31, 2021
Real Estate     Real Estate    
Construction
1-4 Family
Residential
Commercial
Commercial
Loans
Municipal
Loans
Loans to
Individuals
Total Construction
1-4 Family
Residential
Commercial
Commercial
Loans
Municipal
Loans
Loans to
Individuals
Total
Balance at beginning of periodBalance at beginning of period$9,654 $2,640 $36,120 $4,519 $47 $658 $53,638 Balance at beginning of period$6,490 $2,270 $35,709 $4,107 $46 $384 $49,006 
Loans charged-offLoans charged-off(2)(225)(319)(546)Loans charged-off— (73)— (319)— (403)(795)
Recoveries of loans charged-offRecoveries of loans charged-off16 12 56 352 436 Recoveries of loans charged-off55 — 282 — 284 622 
Net loans (charged-off) recoveredNet loans (charged-off) recovered14 12 (169)33 (110)Net loans (charged-off) recovered(18)— (37)— (119)(173)
Provision for (reversal of) loan losses(1)
(1,154)48 7,653 (129)(78)6,340 
Provision for (reversal of) loan lossesProvision for (reversal of) loan losses1,710 256 (8,473)(962)— 90 (7,379)
Balance at end of periodBalance at end of period$8,500 $2,702 $43,785 $4,221 $47 $613 $59,868 Balance at end of period$8,201 $2,508 $27,236 $3,108 $46 $355 $41,454 
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Six Months Ended June 30, 2020
Real Estate
Construction
1-4 Family
Residential
Commercial
Commercial
Loans
Municipal
Loans
Loans to
Individuals
Total
Balance at beginning of period$3,539 $3,833 $9,572 $6,351 $570 $932 $24,797 
Impact of CECL adoption - cumulative effect adjustment2,968 (1,447)7,730 (3,532)(522)(125)5,072 
Impact of CECL adoption - purchased loans with credit deterioration(15)(6)333 (22)(59)231 
Loans charged-off(33)(56)(21)(521)(910)(1,541)
Recoveries of loans charged-off11 20 81 130 645 887 
Net loans (charged-off) recovered(22)(36)60 (391)(265)(654)
Provision for (reversal of) loan losses(1)
2,030 358 26,090 1,815 (1)130 30,422 
Balance at end of period$8,500 $2,702 $43,785 $4,221 $47 $613 $59,868 

(1)    The increase in the provision for credit losses during 2020 was primarily due to the economic impact of COVID-19 on macroeconomic factors used in the CECL model.

The accrued interest receivable on our loan receivables is excluded from the allowance for credit loss estimate and is included in interest receivable on our consolidated balance sheets. As of June 30, 2021March 31, 2022 and December 31, 2020,2021, the accrued interest on our loan portfolio was $13.4$12.6 million and $16.4$13.3 million, respectively.

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6. Borrowing Arrangements
Information related to borrowings is provided in the table below (dollars in thousands):
June 30, 2021December 31, 2020March 31, 2022December 31, 2021
Other borrowings:Other borrowings:  Other borrowings:  
Balance at end of periodBalance at end of period$23,783 $23,172 Balance at end of period$30,196 $23,219 
Average amount outstanding during the period (1)
Average amount outstanding during the period (1)
22,769 91,940 
Average amount outstanding during the period (1)
21,961 22,257 
Maximum amount outstanding during the period (2)
Maximum amount outstanding during the period (2)
24,549 219,259 
Maximum amount outstanding during the period (2)
30,196 24,549 
Weighted average interest rate during the period (3)
Weighted average interest rate during the period (3)
0.2 %0.4 %
Weighted average interest rate during the period (3)
0.2 %0.2 %
Interest rate at end of period (4)
Interest rate at end of period (4)
0.2 %0.1 %
Interest rate at end of period (4)
0.2 %0.2 %
FHLB borrowings:FHLB borrowings:  FHLB borrowings:  
Balance at end of periodBalance at end of period$721,368 $832,527 Balance at end of period$3,871 $344,038 
Average amount outstanding during the period (1)
Average amount outstanding during the period (1)
698,413 1,032,269 
Average amount outstanding during the period (1)
122,783 665,384 
Maximum amount outstanding during the period (2)
Maximum amount outstanding during the period (2)
723,584 1,274,370 
Maximum amount outstanding during the period (2)
133,983 723,584 
Weighted average interest rate during the period (3)
Weighted average interest rate during the period (3)
1.1 %1.1 %
Weighted average interest rate during the period (3)
1.2 %1.1 %
Interest rate at end of period (5)
Interest rate at end of period (5)
1.0 %1.0 %
Interest rate at end of period (5)
4.4 %1.3 %
(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 (annualized for interim periods) by the average amount outstanding during the period. The weighted average interest rate on the FHLB borrowings includes the effect of interest rate swaps.
(4)Stated rate.
(5)The interest rate on the FHLB borrowings includes the effect of interest rate swaps.

Maturities of the obligations associated with our borrowing arrangements based on scheduled repayments at June 30, 2021March 31, 2022 are as follows (in thousands):
Payments Due by PeriodPayments Due by Period
Less than
1 Year
1-2 Years2-3 Years3-4 Years4-5 YearsThereafterTotal Less than
1 Year
1-2 Years2-3 Years3-4 Years4-5 YearsThereafterTotal
Other borrowingsOther borrowings$23,783 $$$$$$23,783 Other borrowings$30,196 $— $— $— $— $— $30,196 
FHLB borrowingsFHLB borrowings717,666 695 725 756 679 847 721,368 FHLB borrowings687 717 748 775 392 552 3,871 
Total obligationsTotal obligations$741,449 $695 $725 $756 $679 $847 $745,151 Total obligations$30,883 $717 $748 $775 $392 $552 $34,067 

Other borrowings may include federal funds purchased, repurchase agreements and borrowings from the FRDW. Southside Bank has 3 unsecured lines of credit for the purchase of overnight federal funds at prevailing rates with Frost Bank, TIB – The Independent Bankers Bank and Comerica Bank for $40.0 million, $15.0 million and $7.5 million, respectively. There were 0no federal funds purchased at June 30, 2021March 31, 2022 or December 31, 2020.2021.  To provide more liquidity in response to the economic impact of the COVID-19 pandemic, the Federal Reserve took steps to encourage broader use of the discount window. At June 30, 2021,March 31, 2022, the amount of additional funding the Bank could obtain from the FRDW, collateralized by securities, was approximately $487.7$435.9 million. There were 0no borrowings from the FRDW at June 30, 2021March 31, 2022 or December 31, 2020.2021. Southside Bank has a $5.0 million line of credit with Frost Bank to be used to issue letters of credit, and at June 30, 2021,March 31, 2022, the line had 1 outstanding letter of credit for $91,000.$155,000. Southside Bank currently has 0no outstanding letters of credit from FHLB held as collateral for its public fund deposits.
Southside Bank enters into sales of securities under repurchase agreements. These repurchase agreements totaled $23.8$30.2 million at June 30, 2021March 31, 2022 and $23.2 million at December 31, 2020,2021, and had maturities of less than one year.  Repurchase agreements are secured by investment and MBS securities and are stated at the amount of cash received in connection with the transaction.
FHLB borrowings represent borrowings with fixed interest rates ranging from 0.08%3.73% to 4.799% and with remaining maturities of one day3.9 years to 7.06.3 years at June 30, 2021.March 31, 2022.  FHLB borrowings may be collateralized by FHLB stock, nonspecified loans and/or securities. At June 30, 2021,March 31, 2022, the amount of additional funding Southside Bank could obtain from FHLB, collateralized by
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securities, FHLB stock and nonspecified loans and securities, was approximately $1.23$1.72 billion, net of FHLB stock purchases required.  
Southside Bank has entered into various variable rate agreements and fixed rate short-term pay agreements with third-party financial institutions with rates tied to LIBOR. These agreements totaled $605.0 million at June 30, 2021 and $670.0 million at December 31, 2020. NaN of the agreements have an interest rate tied to three-month LIBOR, and the remaining agreements have interest rates tied to one-month LIBOR. In connection with all of these agreements, Southside Bank also entered into various interest rate swap contracts that are treated as cash flow hedges under ASC Topic 815, “Derivatives and Hedging” that are expected to be effective in hedging the variability in future cash flows attributable to fluctuations in the underlying LIBOR interest rate. The interest rate swap contracts had a weighted average rate of 1.14% with a weighted average maturity of 3.7 years at June 30, 2021. Refer to “Note 9 – Derivative Financial Instruments and Hedging Activities” in our consolidated financial statements included in this report for a detailed description of our hedging policy and methodology related to derivative instruments.
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7. Long-term Debt

Information related to our long-term debt is summarized as follows for the periods presented (in thousands):    
June 30, 2021December 31, 2020March 31, 2022December 31, 2021
Subordinated notes: (1)
Subordinated notes: (1)
Subordinated notes: (1)
3.875% Subordinated notes, net of unamortized debt issuance costs (2)
3.875% Subordinated notes, net of unamortized debt issuance costs (2)
$98,466 $98,497 
3.875% Subordinated notes, net of unamortized debt issuance costs (2)
$98,569 $98,534 
5.50% Subordinated notes, net of unamortized debt issuance costs (3)
98,846 98,754 
Total Subordinated notesTotal Subordinated notes197,312 197,251 Total Subordinated notes98,569 98,534 
Trust preferred subordinated debentures: (4)(3)
Trust preferred subordinated debentures: (4)(3)
Trust preferred subordinated debentures: (4)(3)
Southside Statutory Trust III, net of unamortized debt issuance costs (5)(4)
Southside Statutory Trust III, net of unamortized debt issuance costs (5)(4)
20,566 20,563 
Southside Statutory Trust III, net of unamortized debt issuance costs (5)(4)
20,569 20,568 
Southside Statutory Trust IVSouthside Statutory Trust IV23,196 23,196 Southside Statutory Trust IV23,196 23,196 
Southside Statutory Trust VSouthside Statutory Trust V12,887 12,887 Southside Statutory Trust V12,887 12,887 
Magnolia Trust Company IMagnolia Trust Company I3,609 3,609 Magnolia Trust Company I3,609 3,609 
Total Trust preferred subordinated debenturesTotal Trust preferred subordinated debentures60,258 60,255 Total Trust preferred subordinated debentures60,261 60,260 
Total Long-term debtTotal Long-term debt$257,570 $257,506 Total Long-term debt$158,830 $158,794 

(1)This debt consists of subordinated notes with a remaining maturity greater than one year that qualify under the risk-based capital guidelines as Tier 2 capital, subject to certain limitations.
(2)The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $1.4 million at March 31, 2022 and $1.5 million at June 30, 2021 and December 31, 2020.2021.
(3)The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $1.2 million at June 30, 2021 and December 31, 2020.
(4)This debt consists of trust preferred securities that qualify under the risk-based capital guidelines as Tier 1 capital, subject to certain limitations.
(5)(4)The unamortized debt issuance costs reflected in the carrying amount of the Southside Statutory Trust III junior subordinated debentures totaled $53,000$50,000 at June 30, 2021March 31, 2022 and $56,000$51,000 at December 31, 2020.2021.

As of June 30, 2021,March 31, 2022, the details of the subordinated notes and the trust preferred subordinated debentures are summarized below (dollars in thousands):
Date IssuedAmount IssuedFixed or Floating RateInterest RateMaturity DateDate IssuedAmount IssuedFixed or Floating RateInterest RateMaturity Date
3.875% Subordinated Notes3.875% Subordinated NotesNovember 6, 2020$100,000 Fixed-to-Floating3.875%November 15, 20303.875% Subordinated NotesNovember 6, 2020$100,000 Fixed-to-Floating3.875%November 15, 2030
5.50% Subordinated NotesSeptember 19, 2016$100,000 Fixed-to-Floating5.50%September 30, 2026
Southside Statutory Trust IIISouthside Statutory Trust IIISeptember 4, 2003$20,619 Floating3 month LIBOR + 2.94%September 4, 2033Southside Statutory Trust IIISeptember 4, 2003$20,619 Floating3 month LIBOR + 2.94%September 4, 2033
Southside Statutory Trust IVSouthside Statutory Trust IVAugust 8, 2007$23,196 Floating3 month LIBOR + 1.30%October 30, 2037Southside Statutory Trust IVAugust 8, 2007$23,196 Floating3 month LIBOR + 1.30%October 30, 2037
Southside Statutory Trust VSouthside Statutory Trust VAugust 10, 2007$12,887 Floating3 month LIBOR + 2.25%September 15, 2037Southside Statutory Trust VAugust 10, 2007$12,887 Floating3 month LIBOR + 2.25%September 15, 2037
Magnolia Trust Company I (1)
Magnolia Trust Company I (1)
May 20, 2005$3,609 Floating3 month LIBOR + 1.80%November 23, 2035
Magnolia Trust Company I (1)
May 20, 2005$3,609 Floating3 month LIBOR + 1.80%November 23, 2035
(1)On October 10, 2007, as part of an acquisition we assumed $3.6 million of floating rate junior subordinated debentures issued in 2005 to Magnolia Trust Company I.

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On September 19, 2016, the Company issued $100.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that mature on September 30, 2026. This debt initially bears interest at a fixed rate of 5.50% through September 29, 2021 and thereafter, adjusts quarterly at a floating rate equal to three-month LIBOR plus 429.7 basis points. The proceeds from the sale of the subordinated notes were used for general corporate purposes, which included advances to the Bank to finance its activities. We anticipate the redemption of these subordinated notes on September 30, 2021, subject to regulatory approval.
On November 6, 2020, the Company issued $100.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that mature on November 15, 2030. This debt initially bears interest at a fixed rate of 3.875% per year through November
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14, 2025 and thereafter, adjusts quarterly at a floating rate equal to the then current three-month term SOFR, as published by the FRBNY, plus 366 basis points. The proceeds from the sale of the subordinated notes were used for general corporate purposes.

8.     Employee Benefit Plans

The components of net periodic benefit cost (income) related to our employee benefit plans are as follows (in thousands):
 Three Months Ended June 30,
Defined Benefit
Pension Plan
Defined Benefit
Pension Plan Acquired
Restoration
Plan
202120202021202020212020
Service cost$$405 $$$$46 
Interest cost657 850 22 40 139 156 
Expected return on assets(1,273)(1,320)(47)(67)
Net loss amortization(19)553 10 108 
Prior service (credit) cost amortization(4)
Loss due to curtailment151 12 
Net periodic benefit (income) cost$(635)$635 $(25)$(24)$149 $323 
 Three Months Ended March 31,
Retirement PlanAcquired Retirement PlanRestoration
Plan
202220212022202120222021
Interest cost$680 $628 $26 $24 $139 $121 
Expected return on assets(1,461)(1,437)(59)(58)— — 
Net loss amortization151 520 — 55 118 
Net periodic benefit cost (income)$(630)$(289)$(33)$(31)$194 $239 
Six Months Ended June 30,
Defined Benefit
Pension Plan
Defined Benefit
Pension Plan Acquired
Restoration
Plan
202120202021202020212020
Service cost$$828 $$$$131 
Interest cost1,285 1,687 46 81 260 316 
Expected return on assets(2,710)(2,988)(105)(151)
Net loss amortization501 1,086 128 301 
Prior service (credit) cost amortization(7)
Loss due to curtailment151 12 
Net periodic benefit (income) cost$(924)$757 $(56)$(65)$388 $763 

Prior to the freeze of all future benefit accruals and accrual of benefit service as of December 31, 2020, the service cost component was recorded on our consolidated income statements as salaries and employee benefits in noninterest expense. All other components other than service costs are recorded in other noninterest expense.
During the three months ended June 30, 2021, we updated our expected long-term rate of return on plan assets for the Retirement Plan and the Acquired Retirement Plan from 6.50% to 6.125%.
The noncash adjustment to the employee benefit plan liabilities, consisting of changes in prior service cost and net loss, was $206,000 and $641,000 for the three months ended March 31, 2022 and 2021, respectively.


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9.    Derivative Financial Instruments and Hedging Activities
Our hedging policy allows the use of interest rate derivative instruments to manage our exposure to interest rate risk or hedge specified assets and liabilities. These instruments may include interest rate swaps and interest rate caps and floors. All derivative instruments are carried on the balance sheet at their estimated fair value and are recorded in other assets or other liabilities, as appropriate.
Derivative instruments may be designated as cash flow hedges of variable rate assets or liabilities, cash flow hedges of forecasted transactions, fair value hedges of a recognized asset or liability or as non-hedging instruments. Gains and losses on derivative instruments designated as cash flow hedges are recorded in AOCI to the extent they are effective. If the hedge is effective, the amount recorded in other comprehensive income is reclassified to earnings in the same periods that the hedged cash flows impact earnings. The ineffective portion of changes in fair value is reported in current earnings. Gains and losses on derivative instruments designated as fair value hedges, as well as the change in fair value on the hedged item, are recorded in interest income in the consolidated statements of income. Gains and losses due to changes in fair value of the interest rate swap agreements completely offset changes in the fair value of the hedged portion of the hedged item. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change.
We have entered into certain interest rate swap contracts on specific variable rate agreements and fixed rate short-term pay agreements with third-party financial institutions.third-parties. These interest rate swap contracts were designated as hedging instruments in cash flow hedges under ASC Topic 815. The objective of the interest rate swap contracts is to manage the expected future cash flows on $605.0$575.0 million of debt.Bank liabilities. The cash flows from the swap contracts are expected to be effective in hedging the variability in future cash flows attributable to fluctuations in the underlying LIBOR interest rate.
In accordance with ASC Topic 815, if a hedging item is terminated prior to maturity for a cash settlement, the existing gain or loss within AOCI will continue to be reclassified into earnings during the period or periods in which the hedged forecasted transaction affects earnings unless it is probable the forecasted transaction will not occur by the end of the originally specified time period. These transactions are reevaluated on a monthly basis to determine if the hedged forecasted transactions are still probable of occurring. If at a subsequent evaluation, it is determined that the transactions will not occur, any related gains or losses recorded in AOCI are immediately recognized in earnings.
From time to time, we may enter into certain interest rate swaps, cap and floor contracts that are not designated as hedging instruments. These interest rate derivative contracts relate to transactions in which we enter into an interest rate swap, cap or floor with a customer while concurrently entering into an offsetting interest rate swap, cap or floor with a third party financial institution. We agree to pay interest to the customer on a notional amount at a variable rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, we agree to pay a third party financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These interest rate derivative contracts allow our customers to effectively convert a variable rate loan to a fixed rate loan. The changes in the fair value of the underlying derivative contracts primarily offset each other and do not significantly impact our results of operations. We recognized swap fee income associated with these derivative contracts immediately based upon the difference in the bid/ask spread of the underlying transactions with the customer and the third party financial institution. The swap fee income is included in other noninterest income in our consolidated statements of income.
At June 30, 2021 andMarch 31, 2022, net derivative asset included $21.5 million of cash collateral received from counterparties under master netting agreements. At December 31, 2020,2021, net derivative liabilities included $25.9$12.8 million, and $39.3 million, respectively, of cash collateral held by counterparties subject to master netting agreements.
The notional amounts of the derivative instruments represent the contractual cash flows pertaining to the underlying agreements. These amounts are not exchanged and are not reflected in the consolidated balance sheets. The fair value of the interest rate swaps are presented at net in other assets and other liabilities when a right of offset exists, based on transactions with a single counterparty that are subject to a legally enforceable master netting agreement.








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The following tables present the notional and estimated fair value amount of derivative positions outstanding (in thousands):
June 30, 2021December 31, 2020March 31, 2022December 31, 2021
Estimated Fair ValueEstimated Fair ValueEstimated Fair ValueEstimated Fair Value
Notional
Amount
(1)
Asset DerivativeLiability Derivative
Notional
Amount
(1)
Asset DerivativeLiability Derivative
Notional
Amount
(1)
Asset DerivativeLiability Derivative
Notional
Amount
(1)
Asset DerivativeLiability Derivative
Derivatives designated as hedging instrumentsDerivatives designated as hedging instrumentsDerivatives designated as hedging instruments
Interest rate contracts:Interest rate contracts:Interest rate contracts:
Swaps-Cash Flow Hedge-Financial institution counterpartiesSwaps-Cash Flow Hedge-Financial institution counterparties$605,000 $1,092 $11,640 $670,000 $$21,635 Swaps-Cash Flow Hedge-Financial institution counterparties$575,000 $21,174 $898 $605,000 $4,274 $5,866 
Derivatives designated as non-hedging instrumentsDerivatives designated as non-hedging instrumentsDerivatives designated as non-hedging instruments
Interest rate contracts:Interest rate contracts:Interest rate contracts:
Swaps-Financial institution counterpartiesSwaps-Financial institution counterparties216,593 354 16,580 152,280 18,537 Swaps-Financial institution counterparties233,226 4,003 2,781 214,379 545 13,412 
Swaps-Customer counterpartiesSwaps-Customer counterparties216,593 16,580 354 152,280 18,537 Swaps-Customer counterparties233,226 2,781 4,003 214,379 13,412 545 
Gross derivativesGross derivatives18,026 28,574 18,537 40,172 Gross derivatives27,958 7,682 18,231 19,823 
Offsetting derivative assets/liabilitiesOffsetting derivative assets/liabilities(1,446)(1,446)Offsetting derivative assets/liabilities(3,679)(3,679)(4,819)(4,819)
Cash collateral received/postedCash collateral received/posted(25,930)(39,270)Cash collateral received/posted(21,498)— — (12,810)
Net derivatives included in the consolidated balance sheets (2)
Net derivatives included in the consolidated balance sheets (2)
$16,580 $1,198 $18,537 $902 
Net derivatives included in the consolidated balance sheets (2)
$2,781 $4,003 $13,412 $2,194 
(1)    Notional amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the consolidated balance sheets.
(2)    Net derivative assets are included in other assets and net derivative liabilities are included in other liabilities on the consolidated balance sheets. Included in the fair value of net derivative assets and net derivative liabilities are credit valuation adjustments reflecting counterparty credit risk and our credit risk. We had 0 no credit exposure related to interest rate swaps with financial institutions and $16.6$2.8 million related to interest rate swaps with customers at June 30, 2021.March 31, 2022. We had 0no credit exposure related to interest rate swaps with financial institutions and $18.5$13.4 million related to interest rate swaps with customers at December 31, 2020.2021. The credit risk associated with customer transactions is partially mitigated as these are generally secured by the non-cash collateral securing the underlying transaction being hedged.
The summarized expected weighted average remaining maturity of the notional amount of interest rate swaps and the weighted average interest rates associated with the amounts expected to be received or paid on interest rate swap agreements are presented below (dollars in thousands). Variable rates received on fixed pay swaps are based on one-month or three-month LIBOR rates in effect at June 30, 2021March 31, 2022 and December 31, 2020:2021:
June 30, 2021December 31, 2020March 31, 2022December 31, 2021
Weighted AverageWeighted AverageWeighted AverageWeighted Average
Notional AmountRemaining Maturity
 (in years)
Receive Rate
Pay
Rate
Notional AmountRemaining Maturity
 (in years)
Receive RatePay
Rate
Notional AmountRemaining Maturity
 (in years)
Receive Rate
Pay
Rate
Notional AmountRemaining Maturity
 (in years)
Receive RatePay
Rate
Swaps-Cash Flow hedgeSwaps-Cash Flow hedgeSwaps-Cash Flow hedge
Financial institution counterpartiesFinancial institution counterparties$605,000 3.70.10 %1.14 %$670,000 3.80.17 %1.12 %Financial institution counterparties$575,000 3.10.54 %0.83 %$605,000 3.20.13 %1.10 %
Swaps-Non-hedgingSwaps-Non-hedgingSwaps-Non-hedging
Financial institution counterpartiesFinancial institution counterparties216,593 10.80.45 %2.43 %152,280 9.80.50 %2.57 %Financial institution counterparties233,226 9.60.93 %2.69 %214,379 10.30.47 %2.42 %
Customer counterpartiesCustomer counterparties216,593 10.82.43 %0.45 %152,280 9.82.57 %0.50 %Customer counterparties233,226 9.62.69 %0.93 %214,379 10.32.42 %0.47 %
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10.  Fair Value Measurement
Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants.  A fair value measurement assumes the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.  The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs.  An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction.  Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
Valuation techniques including the market approach, the income approach and/or the cost approach are utilized to determine fair value.  Inputs to valuation techniques refer to the assumptions market participants would use in pricing the asset or liability.  Valuation policies and procedures are determined by our investment department and reported to our ALCO for review.  An entity must consider all aspects of nonperforming risk, including the entity’s own credit standing, when measuring fair value of a liability.  Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  A fair value hierarchy for valuation inputs gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Certain financial assets are measured at fair value in accordance with GAAP.  Adjustments to the fair value of these assets usually result from the application of fair value accounting or write-downs of individual assets. A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
Securities AFS and Equity Investments with readily determinable fair values – U.S. Treasury securities and equity investments with readily determinable fair values are reported at fair value utilizing Level 1 inputs.  Other securities classified as AFS are reported at fair value utilizing Level 2 inputs.  For these securities, we obtain fair value measurements from independent pricing services and obtain an understanding of the pricing methodologies used by these independent pricing services. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things, as stated in the pricing methodologies of the independent pricing services.
We review and validate the prices supplied by the independent pricing services for reasonableness by comparison to prices obtained from, in some cases, 2 additional third-party sources. For securities where prices are outside a reasonable range, we further review those securities, based on internal ALCO approved procedures, to determine what a reasonable fair value measurement is for those securities, given available data.
Derivatives – Derivatives are reported at fair value utilizing Level 2 inputs. We obtain fair value measurements from 2 sources including an independent pricing service and the counterparty to the derivatives designated as hedges.  The fair value measurements consider observable data that may include dealer quotes, market spreads, the U.S. Treasury yield curve, live trading levels, trade execution data, credit information and the derivatives’ terms and conditions, among other things. We review the prices supplied by the sources for reasonableness.  In addition, we obtain a basic understanding of their underlying pricing methodology.  We validate prices supplied by the sources by comparison to one another.
Certain nonfinancial assets and nonfinancial liabilities measured at fair value on a recurring basis include reporting units measured at fair value and tested for goodwill impairment. 
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Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis, which means that the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a nonrecurring basis included foreclosed assets and collateral-dependent loans at June 30, 2021March 31, 2022 and December 31, 2020.2021.
Foreclosed Assets – Foreclosed assets are initially recorded at fair value less costs to sell.  The fair value measurements of foreclosed assets can include Level 2 measurement inputs such as real estate appraisals and comparable real estate sales information, in conjunction with Level 3 measurement inputs such as cash flow projections, qualitative adjustments and sales cost estimates.  As a result, the categorization of foreclosed assets is Level 3 of the fair value hierarchy.  In connection with the measurement and initial recognition of certain foreclosed assets, we may recognize charge-offs through the allowance for credit losses.
Collateral-Dependent Loans (Impaired loans prior to the adoption of ASU 2016-13) – Certain loans may be reported at the fair value of the underlying collateral if repayment is expected substantially from the operation or sale of the collateral.  Collateral values are estimated using Level 3 inputs based on customized discounting criteria or appraisals.  At June 30, 2021March 31, 2022 and December 31, 2020,2021, the impact of the fair value of collateral-dependent loans was reflected in our allowance for loan losses.
The fair value estimate of financial instruments for which quoted market prices are unavailable is dependent upon the assumptions used.  Consequently, those estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.  Accordingly, the aggregate fair value amounts presented in the fair value tables do not necessarily represent their underlying value.

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The following tables summarize assets measured at fair value on a recurring and nonrecurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):
 Fair Value Measurements at the End of the Reporting Period Using  Fair Value Measurements at the End of the Reporting Period Using
June 30, 2021
Carrying
Amount
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
March 31, 2022March 31, 2022
Carrying
Amount
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Recurring fair value measurementsRecurring fair value measurements    Recurring fair value measurements    
Investment securities:Investment securities:    Investment securities:    
U.S. Treasury$43,736 $43,736 $$
State and political subdivisionsState and political subdivisions1,864,879 1,864,879 State and political subdivisions$1,566,185 $— $1,566,185 $— 
Corporate bonds and otherCorporate bonds and other114,247 114,247 Corporate bonds and other141,326 — 141,326 — 
MBS: (1)
MBS: (1)
  
MBS: (1)
  
ResidentialResidential632,900 632,900 Residential280,691 — 280,691 — 
CommercialCommercial110,273 110,273 Commercial77,782 — 77,782 — 
Equity investments:Equity investments:Equity investments:
Equity investmentsEquity investments6,004 6,004 Equity investments5,645 5,645 — — 
Derivative assets:Derivative assets:Derivative assets:
Interest rate swapsInterest rate swaps18,026 18,026 Interest rate swaps27,958 — 27,958 — 
Total asset recurring fair value measurementsTotal asset recurring fair value measurements$2,790,065 $49,740 $2,740,325 $Total asset recurring fair value measurements$2,099,587 $5,645 $2,093,942 $— 
Derivative liabilities:Derivative liabilities:Derivative liabilities:
Interest rate swapsInterest rate swaps$28,574 $$28,574 $Interest rate swaps$7,682 $— $7,682 $— 
Total liability recurring fair value measurementsTotal liability recurring fair value measurements$28,574 $$28,574 $Total liability recurring fair value measurements$7,682 $— $7,682 $— 
Nonrecurring fair value measurementsNonrecurring fair value measurements   Nonrecurring fair value measurements   
Foreclosed assets$566 $$$566 
Collateral-dependent loans (2)
Collateral-dependent loans (2)
9,004 9,004 
Collateral-dependent loans (2)
$8,449 $— $— $8,449 
Total asset nonrecurring fair value measurementsTotal asset nonrecurring fair value measurements$9,570 $$$9,570 Total asset nonrecurring fair value measurements$8,449 $— $— $8,449 
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 Fair Value Measurements at the End of the Reporting Period Using  Fair Value Measurements at the End of the Reporting Period Using
December 31, 2020
Carrying
Amount
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
December 31, 2021December 31, 2021
Carrying
Amount
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Recurring fair value measurementsRecurring fair value measurements    Recurring fair value measurements    
Investment securities:Investment securities:    Investment securities:    
U.S. TreasuryU.S. Treasury$58,877 $58,877 $— $— 
State and political subdivisionsState and political subdivisions$1,580,594 $$1,580,594 $State and political subdivisions2,051,936 — 2,051,936 — 
Corporate bonds and otherCorporate bonds and other78,255 0��78,255 Corporate bonds and other135,532 — 135,532 — 
MBS: (1)
MBS: (1)
 
MBS: (1)
 
ResidentialResidential810,010 810,010 Residential426,350 — 426,350 — 
CommercialCommercial118,446 118,446 Commercial91,630 — 91,630 — 
Equity investments:Equity investments:Equity investments:
Equity investmentsEquity investments6,094 6,094 Equity investments5,920 5,920 — — 
Derivative assets:Derivative assets:Derivative assets:
Interest rate swapsInterest rate swaps18,537 18,537 Interest rate swaps18,231 — 18,231 — 
Total asset recurring fair value measurementsTotal asset recurring fair value measurements$2,611,936 $6,094 $2,605,842 $Total asset recurring fair value measurements$2,788,476 $64,797 $2,723,679 $— 
Derivative liabilities:Derivative liabilities:Derivative liabilities:
Interest rate swapsInterest rate swaps$40,172 $$40,172 $Interest rate swaps$19,823 $— $19,823 $— 
Total liability recurring fair value measurementsTotal liability recurring fair value measurements$40,172 $$40,172 $Total liability recurring fair value measurements$19,823 $— $19,823 $— 
Nonrecurring fair value measurementsNonrecurring fair value measurements    Nonrecurring fair value measurements    
Foreclosed assets$120 $$$120 
Collateral-dependent loans (2)
Collateral-dependent loans (2)
10,653 10,653 
Collateral-dependent loans (2)
$8,458 $— $— $8,458 
Total asset nonrecurring fair value measurementsTotal asset nonrecurring fair value measurements$10,773 $$$10,773 Total asset nonrecurring fair value measurements$8,458 $— $— $8,458 
(1)All MBS are issued and/or guaranteed by U.S. government agencies or U.S. GSEs.
(2)Consists of individually evaluated loans. Loans for which the fair value of the collateral and commercial real estate fair value of the properties is less than cost basis are presented net of allowance. Losses on these loans represent charge-offs which are netted against the allowance for loan losses.

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Disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, is required when it is practicable to estimate that value.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other estimation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Such techniques and assumptions, as they apply to individual categories of our financial instruments, are as follows:
Cash and cash equivalents – The carrying amount for cash and cash equivalents is a reasonable estimate of those assets’ fair value.
Investment and MBS HTM – Fair values for these securities are based on quoted market prices, where available.  If quoted market prices are not available, fair values are based on quoted market prices for similar securities or estimates from independent pricing services.
FHLB stock – The carrying amount of FHLB stock is a reasonable estimate of the fair value of those assets.
Equity investments – The carrying value of equity investments without readily determinable fair values are measured at cost less impairment, if any, adjusted for observable price changes for an identical or similar investment of the same issuer. This carrying value is a reasonable estimate of the fair value of those assets.
Loans receivable – We estimate the fair value of our loan portfolio to an exit price notion with adjustments for liquidity, credit and prepayment factors. Nonperforming loans continue to be estimated using discounted cash flow analyses or the underlying value of the collateral where applicable.
Loans held for sale – The fair value of loans held for sale is determined based on expected proceeds, which are based on sales contracts and commitments.
Deposit liabilities – The fair value of demand deposits, savings accounts and certain money market deposits is the amount on demand at the reporting date, which is the carrying value.  Fair values for fixed rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities.
Other borrowings – Federal funds purchased generally have original terms to maturity of one day and repurchase agreements generally have terms of less than one year, and therefore both are considered short-term borrowings. Consequently, their carrying value is a reasonable estimate of fair value.
FHLB borrowings – The fair value of these borrowings is estimated by discounting the future cash flows using rates at which borrowings would be made to borrowers with similar credit ratings and for the same remaining maturities.
Subordinated notes – The fair value of the subordinated notes is estimated by discounting future cash flows using estimated rates at which long-term debt would be made to borrowers with similar credit ratings and for the remaining maturities.
Trust preferred subordinated debentures – The fair value of the long-term debt is estimated by discounting future cash flows using estimated rates at which long-term debt would be made to borrowers with similar credit ratings and for the remaining maturities.


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The following tables present our financial assets and financial liabilities measured on a nonrecurring basis at both their respective carrying amounts and estimated fair value (in thousands):
 Estimated Fair Value  Estimated Fair Value
June 30, 2021Carrying
Amount
TotalLevel 1Level 2Level 3
March 31, 2022March 31, 2022Carrying
Amount
TotalLevel 1Level 2Level 3
Financial assets:Financial assets:     Financial assets:     
Cash and cash equivalentsCash and cash equivalents$128,488 $128,488 $128,488 $$Cash and cash equivalents$187,107 $187,107 $187,107 $— $— 
Investment securities:Investment securities:Investment securities:
HTM, at carrying valueHTM, at carrying value908 913 913 HTM, at carrying value386,573 374,750 — 374,750 — 
MBS:MBS:MBS:
HTM, at carrying valueHTM, at carrying value93,942 100,455 100,455 HTM, at carrying value87,746 87,871 — 87,871 — 
FHLB stock, at costFHLB stock, at cost28,081 28,081 28,081 FHLB stock, at cost3,757 3,757 — 3,757 — 
Equity investmentsEquity investments5,817 5,817 5,817 Equity investments5,830 5,830 — 5,830 — 
Loans, net of allowance for loan lossesLoans, net of allowance for loan losses3,599,433 3,765,725 3,765,725 Loans, net of allowance for loan losses3,765,392 3,814,740 — — 3,814,740 
Loans held for saleLoans held for sale2,510 2,510 2,510 Loans held for sale1,576 1,576 — 1,576 — 
Financial liabilities:Financial liabilities:Financial liabilities:
DepositsDeposits$5,156,167 $5,158,210 $$5,158,210 $Deposits$6,070,399 $6,045,868 $— $6,045,868 $— 
Other borrowingsOther borrowings23,783 23,783 23,783 Other borrowings30,196 30,196 — 30,196 — 
FHLB borrowingsFHLB borrowings721,368 732,425 732,425 FHLB borrowings3,871 4,092 — 4,092 — 
Subordinated notes, net of unamortized debt issuance costsSubordinated notes, net of unamortized debt issuance costs197,312 201,322 201,322 Subordinated notes, net of unamortized debt issuance costs98,569 96,709 — 96,709 — 
Trust preferred subordinated debentures, net of unamortized debt issuance costsTrust preferred subordinated debentures, net of unamortized debt issuance costs60,258 49,267 49,267 Trust preferred subordinated debentures, net of unamortized debt issuance costs60,261 47,238 — 47,238 — 
 Estimated Fair Value  Estimated Fair Value
December 31, 2020Carrying
Amount
TotalLevel 1Level 2Level 3
December 31, 2021December 31, 2021Carrying
Amount
TotalLevel 1Level 2Level 3
Financial assets:Financial assets:     Financial assets:     
Cash and cash equivalentsCash and cash equivalents$108,408 $108,408 $108,408 $$Cash and cash equivalents$201,753 $201,753 $201,753 $— $— 
Investment securities:Investment securities:Investment securities:
HTM, at carrying valueHTM, at carrying value907 920 920 HTM, at carrying value788 791 — 791 — 
Mortgage-backed securities:Mortgage-backed securities: Mortgage-backed securities: 
HTM, at carrying valueHTM, at carrying value108,091 117,278 117,278 HTM, at carrying value89,992 94,444 — 94,444 — 
Federal Home Loan Bank stock, at cost25,259 25,259 25,259 
FHLB stock, at costFHLB stock, at cost14,375 14,375 — 14,375 — 
Equity investmentsEquity investments5,811 5,811 5,811 Equity investments5,921 5,921 — 5,921 — 
Loans, net of allowance for loan lossesLoans, net of allowance for loan losses3,608,773 3,784,291 3,784,291 Loans, net of allowance for loan losses3,609,889 3,748,116 — — 3,748,116 
Loans held for saleLoans held for sale3,695 3,695 3,695 Loans held for sale1,684 1,684 — 1,684 — 
Financial liabilities:Financial liabilities:Financial liabilities:
DepositsDeposits$4,932,322 $4,936,188 $$4,936,188 $Deposits$5,722,327 $5,721,694 $— $5,721,694 $— 
Other borrowingsOther borrowings23,172 23,172 23,172 Other borrowings23,219 23,219 — 23,219 — 
FHLB borrowingsFHLB borrowings832,527 854,865 854,865 FHLB borrowings344,038 346,604 — 346,604 — 
Subordinated notes, net of unamortized debt issuance costsSubordinated notes, net of unamortized debt issuance costs197,251 198,391 198,391 Subordinated notes, net of unamortized debt issuance costs98,534 98,642 — 98,642 — 
Trust preferred subordinated debentures, net of unamortized debt issuance costsTrust preferred subordinated debentures, net of unamortized debt issuance costs60,255 51,993 51,993 Trust preferred subordinated debentures, net of unamortized debt issuance costs60,260 48,480 — 48,480 — 

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11.     Income Taxes

The income tax expense included in the accompanying consolidated statements of income consists of the following (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
March 31,
2021202020212020 20222021
Current income tax expenseCurrent income tax expense$3,026 $2,689 $5,615 $8,243 Current income tax expense$2,861 $2,589 
Deferred income tax (benefit) expense(139)120 2,022 (4,955)
Deferred income tax expense (benefit)Deferred income tax expense (benefit)285 2,161 
Income tax expenseIncome tax expense$2,887 $2,809 $7,637 $3,288 Income tax expense$3,146 $4,750 

The net deferred tax liabilityasset totaled $16.5$19.1 million at June 30, 2021 and $15.5March 31, 2022 as compared to a net deferred tax liability of $17.8 million at December 31, 2020.  NaN2021.  No valuation allowance was recorded at June 30, 2021March 31, 2022 or December 31, 2020,2021, as management believes it is more likely than not that all of the deferred tax asset items will be realized in future years. Unrecognized tax benefits were not material at June 30, 2021March 31, 2022 or December 31, 2020.2021.
We recognized income tax expense of $2.9 million and $7.6$3.1 million for an ETR of 11.9% and 12.1%11.2% for the three and six months ended June 30, 2021, respectively,March 31, 2022, compared to income tax expense of $2.8 million and $3.3$4.8 million, for an ETR of 11.5% and 11.4%12.2%, for the three and six months ended June 30, 2020, respectively.March 31, 2021. The higherlower ETR for the sixthree months ended June 30, 2021March 31, 2022 was primarily due to a decreasean increase in tax-exempt income as a percentage of pre-tax income as compared to the same periodperiods in 2020.2021. The ETR differs from the statutory rate of 21% for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 primarily due to the effect of tax-exempt income from municipal loans and securities, as well as BOLI. We file income tax returns in the U.S. federal jurisdictions and in certain states. We are no longer subject to U.S. federal income tax examinations by tax authorities for years before 20172018 or Texas state tax examinations by tax authorities for years before 2016.2017.
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12.     Off-Balance-Sheet Arrangements, Commitments and Contingencies

Financial Instruments with Off-Balance-Sheet Risk. In the normal course of business, we are a party to certain financial instruments with off-balance-sheet risk to meet the financing needs of our customers. These off-balance-sheet instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount reflected in the financial statements. The contract or notional amounts of these instruments reflect the extent of involvement and exposure to credit loss that we have in these particular classes of financial instruments. The allowance for credit losses on these off-balance-sheet credit exposures is calculated using the same methodology as loans including a conversion or usage factor to anticipate ultimate exposure and expected losses and is included in other liabilities on our consolidated balance sheets.
Allowance for off-balance-sheet credit exposures were as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
March 31,
202120202021202020222021
Balance at beginning of periodBalance at beginning of period$3,616 $7,460 $6,386 $1,455 Balance at beginning of period$2,384 $6,386 
Impact of CECL adoption
4,840 
Provision for (reversal of) off-balance-sheet credit exposuresProvision for (reversal of) off-balance-sheet credit exposures157 (1,095)(2,613)70 Provision for (reversal of) off-balance-sheet credit exposures28 (2,770)
Balance at end of periodBalance at end of period$3,773 $6,365 $3,773 $6,365 Balance at end of period$2,412 $3,616 

Contractual commitments to extend credit are agreements to lend to a customer provided the terms established in the contract are met.  Commitments to extend credit generally have fixed expiration dates and may require the payment of fees.  Since some commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in commitments to extend credit and similarly do not necessarily represent future cash obligations.
Financial instruments with off-balance-sheet risk were as follows (in thousands):
June 30, 2021December 31, 2020 March 31, 2022December 31, 2021
    
Commitments to extend creditCommitments to extend credit$922,234 $793,138 Commitments to extend credit$1,100,541 $1,053,002 
Standby letters of creditStandby letters of credit10,785 13,658 Standby letters of credit9,386 12,708 
TotalTotal$933,019 $806,796 Total$1,109,927 $1,065,710 

We apply the same credit policies in making commitments to extend credit and standby letters of credit as we do for on-balance-sheet instruments.  We evaluate each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary, upon extension of credit is based on management’s credit evaluation of the borrower.  Collateral held varies but may include cash or cash equivalents, negotiable instruments, real estate, accounts receivable, inventory, oil, gas and mineral interests, property, plant and equipment.
Leases. During the three months ended June 30, 2021,March 31, 2022, there were 0no operating lease ROU assets obtained in exchange for new operating lease liabilities. During the sixthree months ended June 30,March 31, 2021, there werewas $1.1 million of operating lease ROU assets obtained in exchange for new operating lease liabilities, primarily due to 1 lease that commenced in January 2021 with an initial ROU asset of $1.1 million. During the three and six months ended June 30, 2020, there were $7.8 million and $8.0 million, respectively, of operating lease ROU assets obtained in exchange for new operating lease liabilities, primarily due to 1 lease that commenced in May 2020 with an initial ROU asset of $6.6 million.
Securities. In the normal course of business we buy and sell securities. At June 30, 2021,March 31, 2022, there were $41.9$2.1 million of unsettled trades to purchase securities and 0$47.0 million unsettled trades to sell securities. At December 31, 2020,2021, there were 0$19.0 million unsettled trades to purchase securities and 0no unsettled trades to sell securities.
Deposits. There were 0no unsettled issuances of brokered CDs at June 30, 2021March 31, 2022 or December 31, 2020.2021.
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Litigation. We are involved with various litigation in the normal course of business.  Management, after consulting with our legal counsel, believes that any liability resulting from litigation will not have a material effect on our financial position, results of operations or liquidity.
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13. Subsequent Events

Subsequent to March 31, 2022 and through April 26, 2022, we purchased 173,005 shares of common stock at an average price of $39.57 pursuant to the Stock Repurchase Plan.
Subsequent to March 31, 2022, on April 1, 2022, we transferred tax-free municipal securities and U.S. Agency MBS with fair values of approximately $247.7 million and $28.3 million, respectively, to HTM. All transfers from AFS to HTM were at the fair market value on the date of transfer. There was no impact to the income statement as a result of these transfers.
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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of our consolidated financial condition, changes in our financial condition and results of our operations, and should be read and reviewed in conjunction with the financial statements, and the notes thereto, in this Quarterly Report on Form 10-Q and in our 20202021 Form 10-K. Certain risks, uncertainties and other factors, including those set forth under "Risk Factors" in Part I, Item 1A. of the 20202021 Form 10-K and elsewhere in this Quarterly Report on Form 10-Q, may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this discussion and analysis.
Forward-Looking Statements
Certain statements of other than historical fact that are contained in this report may be considered to be “forward-looking statements” within the meaning of and subject to the safe harbor protections of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date.  These statements may include words such as “expect,” “estimate,” “project,” “anticipate,” “appear,” “believe,” “could,” “should,” “may,” “might,” “will,” “would,” “seek,” “intend,” “probability,” “risk,” “goal,” “target,” “objective,” “plans,” “potential,” and similar expressions. Forward-looking statements are statements with respect to our beliefs, plans, expectations, objectives, goals, anticipations, assumptions, estimates, intentions and future performance and are subject to significant known and unknown risks and uncertainties, which could cause our actual results to differ materially from the results discussed in the forward-looking statements.  For example, discussions of the effect of our expansion, benefits of the Share Repurchase Plan, trends in asset quality, capital, liquidity, our ability to sell nonperforming assets, expense reductions, planned operational efficiencies and earnings from growth and certain market risk disclosures, including the impact of interest rates, tax reform, inflation, andthe impacts related to or resulting from other economic factors are based upon information presently available to management and are dependent on choices about key model characteristics and assumptions and are subject to various limitations.  By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future.  Accordingly, our results could materially differ from those that have been estimated.  The most recent factor that could cause future results to differ materially from those anticipated by our forward-looking statements include the negativeongoing impact of the COVID-19 pandemic and related variants on our business, financial position, operations and prospects, including our ability to continue our business activities in certain communities we serve, the duration of the pandemic and its continued effects on financial markets, a reduction in financial transactions and business activities resulting in decreased deposits and reduced loan originations, increases in unemployment rates impacting our borrowers’ ability to repay their loans, our ability to manage liquidity in a rapidly changing and unpredictable market, additionalsupply chain disruptions, labor shortages and interest rate changes by the Federal Reserve and other government actions in response to the pandemic including regulations or laws enacted to counter the effects of the COVID-19 pandemic on the economy. Other factors that could cause actual results to differ materially from those indicated by forward-looking statements include, but are not limited to, the following:
the ongoing impact of the COVID-19 pandemic and related variants on our future consolidated financial condition and results of operations;
general (i) political conditions, including, without limitation, governmental action and uncertainty resulting from U.S. and global political trends and (ii) 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 or 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;
current or future legislation, regulatory changes or changes in monetary or fiscal policy that adversely affect the businesses in which we or our customers or our borrowers are engaged, including the impact of the Dodd-Frank Act, the Federal Reserve’s actions with respect to interest rates, the capital requirements promulgated by the Basel Committee, the CARES Act, the Economic Aid Act, uncertainty relating to calculation of LIBOR and other regulatory responses to economic conditions;
adverse changes in the status or financial condition of the GSEs which impact the GSEs’ guarantees or ability to pay or issue debt;
adverse changes in the credit portfolios 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, Europewar or other areas;conflicts, including the Russia-Ukraine conflict, natural disasters, such as hurricanes, freezes, flooding and other man-made disasters, such as oil spills or power outages, health emergencies, epidemics or pandemics or other catastrophic events;
technological changes, including potential cyber-security incidents and other disruptions, or innovations to the financial services industry, including as a result of the increased telework environment;
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our ability to identify and address cyber-security risks such as data security breaches, malware, “denial of service” attacks, “hacking” and identity theft, which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage of our systems, increased costs, significant losses, or adverse effects to our reputation;
the risk that our enterprise risk management framework, compliance program or our corporate governance and supervisory oversight functions may not identify or address risks adequately, which may result in unexpected losses;
changes in the interest rate yield curve such as flat, inverted or steep yield curves, or changes in the interest rate environment that impact net interest margins and may impact prepayments on our MBS portfolio;
increases in our nonperforming assets;
our ability to maintain adequate liquidity to fund operations and growth;
any applicable regulatory limits or other restrictions on the Bank and its ability to pay dividends to us;
the failure of our assumptions underlying our allowance for credit losses and other estimates;
the failure to maintain an effective system of controls and procedures, including internal control over financial reporting;
the effectiveness of our derivative financial instruments and hedging activities to manage risk;
unexpected outcomes of, and the costs associated with, existing or new litigation involving us, including the costs and effects of litigation related to our participation in government stimulus programs associated with the COVID-19 pandemic;us;
changes impacting our balance sheet and leverage strategy;
risks related to actual mortgage prepayments diverging from projections;
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;
risks related to fluctuations in 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, including as a result of rising inflation and the economic impact of COVID-19;
execution of future acquisitions, reorganization or disposition transactions, including the risk that the anticipated benefits of such transactions are not realized;
our ability to increase market share and control expenses;
our ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by our customers;
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, including the implementation of the CECL model;practices;
credit risks of borrowers, including any increase in those risks due to changing economic conditions;
risks related to loans secured by real estate, including the risk that the value and marketability of collateral could decline;
risks related to environmental liability as a result of certain lending activity;
risks associated with our common stock and our other securities, including fluctuations in our stock price and general volatility in the stock market; and
other risks and uncertainties discussed in “Part I - Item 1A. Risk Factors” in the 20202021 Form 10-K.
All written or oral forward-looking statements made by us or attributable to us are expressly qualified by this cautionary notice.  We disclaim any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments, unless otherwise required by law.
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Critical Accounting Estimates
Our accounting and reporting estimates conform with U.S. GAAP and general practices within the financial services industry.  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We consider accounting estimates that can (1) be replaced by other reasonable estimates and/or (2) changes to an estimate from period to period that have a material impact on the presentation of our financial condition, changes in financial condition or results of operations as well as (3) those estimates that require significant and complex assumptions about matters that are highly uncertain to be critical accounting estimates. We consider our critical accounting policies to include allowance for credit losses on loans estimation of fair value and pension plan accounting.off-balance-sheet credit exposure.
Critical accounting estimates include a high degree of uncertainty in the underlying assumptions. Management bases its estimates on historical experience, current information and other factors deemed relevant. The development, selection and disclosure of our critical accounting estimates are reviewed with the Audit Committee of the Company's Board of Directors. Actual results could differ from these estimates. For additional information regarding critical accounting policies, refer to “Note 1 – Summary of Significant Accounting and Reporting Policies” and “Note 5 – Loans and Allowance for Loan Losses” in the notes to the consolidated financial statements and refer to “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates,,“Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Allowance for Credit Losses - Loans and Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures,” “Note 1 – Summary of Significant Accounting and Reporting Policies”Policies,” “Note 5 – Loans and Allowance for Loan Losses” and “Note 17 - Off-Balance-Sheet Arrangements, Commitments and Contingencies” in the 20202021 Form 10-K. As of June 30, 2021,March 31, 2022, there have been no significant changes to our critical accounting estimates.

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Non-GAAP Financial Measures
Certain non-GAAP measures are used by management to supplement the evaluation of our performance. These include the following fully taxable-equivalent measures: Net interest income (FTE), net interest margin (FTE) and net interest spread (FTE), which include the effects of taxable-equivalent adjustments using a federal income tax rate of 21% for the three and six months ended June 30, 2021 and 2020, to increase tax-exempt interest income to a tax-equivalent basis. Interest income earned on certain assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments.
Net interest income (FTE), net interest margin (FTE) and net interest spread (FTE).  Net interest income (FTE) is a non-GAAP measure that adjusts for the tax-favored status of net interest income from certain loans and investments and is not permitted under GAAP in the consolidated statements of income. We believe this measure to be the preferred industry measurement of net interest income, and that it enhances comparability of net interest income arising from taxable and tax-exempt sources. The most directly comparable financial measure calculated in accordance with GAAP is our net interest income. Net interest margin (FTE) is the ratio of net interest income (FTE) to average earning assets. The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin. Net interest spread (FTE) is the difference in the average yield on average earning assets on a tax-equivalent basis and the average rate paid on average interest bearing liabilities. The most directly comparable financial measure calculated in accordance with GAAP is our net interest spread.
These non-GAAP financial measures should not be considered alternatives to GAAP-basis financial statements and other bank holding companies may define or calculate these non-GAAP measures or similar measures differently. Whenever we present a non-GAAP financial measure in an SEC filing, we are also required to present the most directly comparable financial measure calculated and presented in accordance with GAAP and reconcile the differences between the non-GAAP financial measure and such comparable GAAP measure.
In the following table we present the reconciliation of net interest income to net interest income adjusted to a fully taxable-equivalent basis assuming a 21% marginal tax rate for the three and six months ended June 30, 2021 and 2020, for interest earned on tax-exempt assets such as municipal loans and investment securities (dollars in thousands), along with the calculation of net interest margin (FTE) and net interest spread (FTE).
Non-GAAP ReconciliationsNon-GAAP ReconciliationsNon-GAAP Reconciliations
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
March 31,
202120202021202020222021
Net interest income (GAAP)Net interest income (GAAP)$45,647 $47,271 $91,950 $91,972 Net interest income (GAAP)$48,906 $46,303 
Tax equivalent adjustments:Tax equivalent adjustments:Tax equivalent adjustments:
LoansLoans722 679 1,458 1,347 Loans745 736 
Tax-exempt investment securitiesTax-exempt investment securities2,412 2,339 4,623 3,970 Tax-exempt investment securities2,464 2,211 
Net interest income (FTE) (1)
Net interest income (FTE) (1)
$48,781 $50,289 $98,031 $97,289 
Net interest income (FTE) (1)
$52,115 $49,250 
Average earning assetsAverage earning assets$6,395,251 $6,696,235 $6,318,767 $6,472,497 Average earning assets$6,553,710 $6,241,434 
Net interest marginNet interest margin2.86 %2.84 %2.93 %2.86 %Net interest margin3.03 %3.01 %
Net interest margin (FTE) (1)
Net interest margin (FTE) (1)
3.06 %3.02 %3.13 %3.02 %
Net interest margin (FTE) (1)
3.22 %3.20 %
Net interest spreadNet interest spread2.70 %2.64 %2.77 %2.62 %Net interest spread2.89 %2.84 %
Net interest spread (FTE) (1)
Net interest spread (FTE) (1)
2.89 %2.82 %2.96 %2.79 %
Net interest spread (FTE) (1)
3.09 %3.03 %
(1)    These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.
Management believes adjusting net interest income, net interest margin and net interest spread to a fully taxable-equivalent basis is a standard practice in the banking industry as these measures provide useful information to make peer comparisons. Tax-equivalent adjustments are reported in the respective earning asset categories as listed in the “Average Balances with Average Yields and Rates” tables under Results of Operations.
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OVERVIEW
COVID-19
During March 2020, the World Health Organization declared COVID-19 a global pandemic in response to the rapidly growing outbreak of the virus. COVID-19 significantly impacted local, national and global economies due to stay-at-home orders and social distancing guidelines. In compliance with social distancing guidelines issued by federal, state and local governments, we initially closed all of our grocery store branches. As stay-at-home orders were issued by local governments in our market areas to combat the spread of the virus, we closed all traditional lobbies and wealth management and trust offices to walk-in customers, however, most of these traditional locations were offering certain services by appointment only. All other banking services were available to customers through our drive-thrus, ATMs/ITMs and automated telephone, internet and mobile banking products. After careful consideration and implementation of additional safety precautions, all locations were reopened on June 1, 2020. We have since made adjustments to select branch hours and openings, and we continue to closely monitor the COVID-19 situation. Approximately 45% of our workforce has remote working capabilities, however most of our workforce have returned to our office and branch locations.
COVID-19 significantly disrupted supply chains, business activity and the overall economic and financial markets.  These disruptions havemarkets globally and are likely to continue to result in a decline in demand for banking products or services, including loans and deposits which could impact our future financial condition, results of operations and liquidity.footprint.  As of June 30, 2021, most businessesMarch 31, 2022, economic conditions in Texas are re-opened without restrictions.have returned close to pre-pandemic levels. Commercial activity has improved but has not returnedresumed to the levels close to those existing prior to the outbreak of the pandemic. The extent to which the COVID-19 pandemic affects our business, operations and financial condition, as well as our regulatory capital and liquidity ratios and credit ratings, is highly uncertain and unpredictable and depends on, among other things, new information that may emerge concerning the scope, duration and severity of the COVID-19 pandemic, actions taken by governmental authorities and other parties in responses to the pandemic, the scale of the distribution and public acceptance of the vaccines for COVID-19 and the effectiveness of such vaccines in stemming or stopping the spread of COVID-19 and any related variants. While the overall outlook has improved based on the availability of the vaccine, there has been a recent rise in hospitalization and infection rates caused by the Delta variant, a rapidly spreading strain of coronavirus. Therefore, the risk of further resurgence and possible reimplementation of restrictions remains. The adverseongoing pandemic could continue to adversely impact on the markets in which we operate and on our business, operations and financial condition is expected to remain elevated until the pandemic subsides.condition.   
In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020. The CARES Act provided an estimated $2.2 trillion to address the economic impact of the COVID-19 pandemic and stimulate the economy by supporting individuals and businesses through loans, grants, tax changes, and other types of financial relief. The CARES Act also included provisions to encourage financial institutions to work prudently with borrowers. As an SBA lender, we were well positioned to assist business customers in accessing funds available through the PPP implemented in April of 2020. On December 27, 2020, the Economic Aid Act was signed into law. This second coronavirus relief package granted additional funds for a new round of PPP loans. Additionally, it expandsexpanded the eligibility for loans and allowsallowed certain businesses to request a second loan. The SBA began accepting applications for the second round of PPP loans on January 13, 2021, and we accepted new applications through April 6, 2021. During the six months ended June 30, 2021,In total, we originated $112.3over $420 million of additional PPP loans, under this second round of PPP loans. At June 30,which $13.9 million were still outstanding as of March 31, 2022. On March 11, 2021, we had $132.1 millionthe American Rescue Plan was signed into law granting additional funds for unemployment benefits, individuals and other types of approved PPP loans outstanding.financial relief.
Additionally, we assisted both our consumer and commercial borrowers that experienced financial hardship due to COVID-19 related challenges. As of June 30,March 31, 2022 and December 31, 2021, we had twothere were no remaining loans with payment deferrals totaling $182,000, a decrease from $326.0 million reported in our second quarter earnings release in July 2020.deferrals. As of July 26,March 31, 2021, we had a 1-4 family residential loan outstanding of $158,000loans with payment deferrals.deferrals, generally for up to three months, totaling $1.7 million. The decrease in the COVID-19 modified loans are the result of the loans coming out of the deferral periods and resuming performance.
Operating Results
Net income decreased $237,000,$9.1 million, or 1.1%26.7%, for the three months ended June 30, 2021,March 31, 2022, to $21.3$25.0 million compared to the same period in 2020.2021. The decrease in net income was primarily a result of a provision for credit losses of $294,000 for the $5.9three months ended March 31, 2022, compared to a reversal of provision for credit losses of $10.1 million decreasefor the same period in interest income,2021 due to the $1.3improved economic forecast during the first quarter of 2021, and to a lesser extent, a $2.9 million decrease in noninterest income, and the increase in noninterest expense of $843,000, partially offset by the $4.3$2.6 million increase in net interest income and the $1.6 million decrease in interest expense and the $3.6 million decrease in provision for credit losses.income tax expense. Earnings per diluted common share were $0.65decreased $0.27, or 26.0%, to $0.77 for the three months ended June 30, 2021 and 2020.March 31, 2022, compared to $1.04 for the three months ended March 31, 2021.
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During the six months ended June 30, 2021, our net income increased $29.9Financial Condition
Our total assets decreased $140.5 million, or 117.2%1.9%, to $55.4$7.12 billion at March 31, 2022 from $7.26 billion at December 31, 2021. Our securities portfolio decreased by $314.8 million, from $25.5 million for the same period in 2020. The increase in net income was a direct result of a reversal of provision for credit losses of $8.5 millionor 11.0%, to $2.54 billion, compared to a large build-up in the allowance for credit losses of $30.5 million in the same period in 2020.$2.86 billion at December 31, 2021. The decrease in the provision was primarily due to an improved economic forecast since the second quarter of 2020 and its effect on macroeconomic factors used in the CECL model. This was partially offset by the $4.3 million increase in income tax expense, the $3.1 million decrease in noninterest income and the $1.6 million increase in noninterest expense. Earnings per diluted common share increased $0.93, or 122.4%, to $1.69 for the six months ended June 30, 2021, from $0.76 for the same period in 2020.
Financial Condition
Our total assets increased $174.2 million, or 2.5%, to $7.18 billion at June 30, 2021 from $7.01 billion at December 31, 2020. Our securities portfolio increased by $164.6 million, or 6.1%, to $2.86 billion, compared to $2.70 billion at December 31, 2020. The increase in our securities portfolio was compriseddue to the increase in the unrealized loss in the portfolio, sales of an increase of $364.0 million in investment securities, partiallyand principal payments, which more than offset by a decrease of $199.4 million in MBS, as the composition of the securities portfolio continued to change as municipal and corporate bonds and, to a lesser extent, U.S. Treasury Notes increased while MBS decreased. purchased during the quarter.Our FHLB stock increased $2.8decreased $10.6 million, or 11.2%73.9%, to $28.1$3.8 million from $25.3$14.4 million at December 31, 2020, primarily2021, due to increasesthe decline in our FHLB borrowings during the first quarter of 2022, reducing the amount of FHLB stock we wereare required to hold in relation to our FHLB borrowings.hold.
Loans decreased $15.4at March 31, 2022 were $3.80 billion, an increase of $155.8 million, or 0.4%4.3%, compared to $3.64 billion at June 30, 2021 from $3.66$3.65 billion at December 31, 2020. The net decrease in our loan portfolio was comprised of decreases of $59.6 million of commercial loans, $53.8 million of construction loans, $41.6 million of 1-4 family residential loans and $4.0 million of loans to individuals, partially offset by increases of $135.2 million of commercial real estate loans and $8.4 million of municipal loans.2021. Our PPP loans, a component of the commercial loan category, experienced a decrease of $82.7decreased $17.1 million or 38.5%, to $132.1 million as of June 30, 2021, from $214.8 million at December 31, 2020,during the quarter due to forgiveness payments received fromfor loans funded under the CARES Act. Excluding PPP loans, total loans increased $172.9 million, or 4.8%, due to increases of $124.4 million in commercial real estate loans, $42.3 million in construction loans and $12.1 million in municipal loans. The increases were partially offset by decreases of $3.3 million in 1-4 family residential loans, $1.9 million in loans to individuals and $706,000 in commercial loans (excluding PPP loans). Loans held for sale decreased $1.2 million,$108,000, or 32.1%6.4%, to $2.5$1.6 million at June 30, 2021March 31, 2022 from $3.7$1.7 million at December 31, 2020.2021.
Our nonperforming assets at June 30, 2021March 31, 2022 decreased $2.2 million,$154,000, or 12.6%1.3%, to $15.3$11.5 million and represented 0.21%0.16% of total assets, compared to $17.5$11.6 million, or 0.25%0.16% of total assets at December 31, 2020.2021.  Nonaccruing loans decreased $2.6 million,$179,000, or 33.2%7.1%, to $5.2$2.4 million, and the ratio of nonaccruing loans to total loans decreased to 0.14%0.06% at June 30, 2021March 31, 2022 compared to 0.21%0.07% at December 31, 2020.2021.  Restructured loans were $9.5$9.1 million at June 30, 2021, a decrease of 1.0%, from $9.6 million atMarch 31, 2022 and December 31, 2020.2021. There was no OREO increased to $566,000 at June 30, 2021 from $106,000 atMarch 31, 2022 or December 31, 2020.2021. 
Our deposits increased $223.8$348.1 million, or 4.5%6.1%, to $5.16$6.07 billion at June 30, 2021March 31, 2022 from $4.93$5.72 billion at December 31, 2020, which was comprised of an increase of $146.3 million in noninterest bearing deposits and $77.5 million in interest bearing deposits.2021. The increase was largely driven by PPP loan disbursements and stimulus checks deposited duringprimarily due to the first halfincrease in our brokered deposits of 2021. Brokered deposits decreased $80.5$380.8 million, or 58.3%129.2%, forassociated with funding our cash flow hedge swaps in place of the six months ended June 30, 2021.FHLB advances to obtain lower cost funding.
Total FHLB borrowings decreased $111.2$340.2 million, or 13.4%98.9%, to $721.4$3.9 million at June 30, 2021March 31, 2022 from $832.5$344.0 million at December 31, 2020.2021.
Our total shareholders’ equity at June 30, 2021 increased 2.2%March 31, 2022 decreased 14.0%, or $19.1$127.9 million, to $894.4$784.2 million, or 12.5%11.0% of total assets, compared to $875.3$912.2 million, or 12.5%12.6% of total assets, at December 31, 2020.2021. The increasedecrease in shareholders’ equity was the result of other comprehensive loss of $140.0 million, cash dividends paid of $11.0 million, and the repurchase of $3.4 million of our common stock. These decreases were partially offset by net income of $55.4$25.0 million, stock compensation expense of $819,000, common stock issued under our dividend reinvestment plan of $322,000 and net issuance of common stock under employee stock plans of $5.8 million, stock compensation expense of $1.4 million and common stock issued under our dividend reinvestment plan of $662,000. These increases were partially offset by cash dividends paid of $21.3 million, the repurchase of $18.7 million of our common stock and other comprehensive loss of $4.2 million.$269,000.
Economic conditions were significantly impacted by the COVID-19 pandemic in 2020; however, Texas still outperformed the nation in 2020, and our Fort Worth and Austin market areas have continuedare relatively strong with economic activity having quickly returned close to perform generally better than many other partspre-pandemic levels. Worker shortages especially in the restaurant, hospitality and retail industries combined with supply chain disruptions impacting numerous industries has had some impact on the level of the country.economic growth. Overall, Texas continues to experience economic growth due to in-migration from other statescompany relocations and company relocation from other states, although such growth is difficult to predict and remains uncertain.expansions combined with overall population growth.
Key financial indicators management follows include, but are not limited to, numerous interest rate sensitivity and interest rate risk indicators, credit risk, operations risk, liquidity risk, capital risk, regulatory risk, inflation risk, competition risk, yield curve risk, U.S. agency MBS prepayment risk and economic risk indicators.
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Balance Sheet Strategy
Determining the appropriate size of the balance sheet is one of the critical decisions any bank makes. Our balance sheet is not merely the result of a series of micro-decisions, but rather the size is controlled based on the economics of assets compared to the economics of funding and funding sources. Changing interest rate environments and economic conditions require that we monitor the interest rate sensitivity of the assets, the funding driving our growth and closely align ALCO objectives accordingly.
During the first quarter of 2022, we replaced $310 million of FHLB advances with brokered deposits as the funding source of our cash flow hedge swaps to lower our funding cost. Over the past two years, management has used the significant increase in non-maturity deposits, net of brokered deposits, to reduce dependence on more interest rate sensitive wholesale funding. At March 31, 2022, of the remaining wholesale funding, 85% is swapped at a fixed rate, providing protection from rising interest rates. The securities portfolio is currently funded primarily by non-maturity deposits with wholesale funding accounting for approximately 27% of the funding source.
We utilize wholesale funding and securities to enhance overall profitability by maximizing the use of our profitability and balance sheet composition bycapital, determining acceptable levels of credit, interest rate and liquidity risk consistent with prudent capital management.  This balance sheet strategy currently consists of borrowing a combination of long- and short-term funds from the FHLB, the FRDW or the brokered funds market.market and the FHLB.  These funds are invested primarily in U.S. agency MBS and long-term municipal securities.  Although U.S. agency MBS often carry lower yields than traditional mortgage loans and other types of loans we make, these securities generally (i) increase the overall quality of our assets because of either the implicit or explicit guarantees of the U.S. Government, (ii) are more liquid than individual loans and (iii) may be used to collateralize our borrowings or other obligations.  While the strategy of investing a portion of our assets in U.S. Agency MBS and municipal securities has historically resulted in lower interest rate spreads and margins, we believe the lower operating expenses and reduced credit risk, combined with the managed interest rate risk of this strategy, have enhanced our overall profitability for many years.  At this time, we utilize this balance sheet strategy with the goal of enhancing overall profitability by maximizing the use of our capital.
Risks associated with thethis asset structure we maintain include a potentially lower net interest rate spread and margin when compared to our peers, changes in the slope of the yield curve, which can reduce our net interest rate spread and margin, increased interest rate risk, the length of interest rate cycles, changes in volatility or spreads associated with the MBS and municipal securities, the unpredictable nature of MBS prepayments and credit risks associated with the municipal securities.  See “Part I - Item 1A.  Risk Factors – Risks Related to Our Business” in the 20202021 Form 10-K for a discussion of risks related to interest rates.  Our asset structure, net interest spread and net interest margin require us to closely monitor our interest rate risk. An additional risk is the change in fair value of the AFS securities portfolio as a result of changes in interest rates.  Significantsignificant increases in interest rates, especially long-term interest rates, which could adversely impact the fair value of the AFS securities portfolio whichand could also significantly impact our equity capital.  Due to the unpredictable nature of MBS prepayments, the length of interest rate cycles and the slope of the interest rate yield curve, net interest income could fluctuate more than simulated under the scenarios modeled by our ALCO and described under “Item 3.  Quantitative and Qualitative Disclosures about Market Risk” in this Quarterly Report on Form 10-Q.
Determining the appropriate size of the balance sheet is one of the critical decisions any bank makes.  Our balance sheet is not merely the result of a series of micro-decisions, but rather the size is controlled based on the economics of assets compared to the economics of funding and funding sources. The low interest rate environment and economic landscape requires that we monitor the interest rate sensitivity of the assets driving our growth and closely align ALCO objectives accordingly.
The management of our securities portfolio as a percentage of earning assets is guided by the current economics associated with the securities portfolio, changes in our overall loan and deposit levels and changes in our wholesale funding levels.  Our balance sheet strategy is designed such that our securities portfolio should help mitigate financial performance associated with potential business and economic cycles that include slower loan growth and higher credit costs.
Our investment securities and U.S. Agency MBS increaseddecreased from $2.70$2.86 billion at December 31, 20202021 to $2.86$2.54 billion at June 30, 2021.March 31, 2022. The increasedecrease in the securities portfolio was due to the increase in conjunction with our balance sheet strategythe unrealized loss in the portfolio, sales of securities, and ALCO objectives.principal payments, which more than offset the securities purchased during the quarter.
During the first halfquarter of 2021,2022, the composition of the securities portfolio continued to change as municipal bonds, U.S. Treasury Notes and corporate bonds increased while MBS and US. Treasury Notes decreased. The decrease in MBS was attributable to higherthe sale of $99 million in U.S. Agency MBS prepayment speeds due toand regular principal payments, with no additional MBS purchases during the significantly low interest rate environment that was slightly offset by MBS purchases.first quarter. During the first half of 2021,three months ended March 31, 2022, we increased security purchases when compared to the latter half of 2020, including $334.0purchased $107.3 million in highly-ratedhighly rated primarily Texas municipal securities, $174.2$41.2 million of which were taxable, $35.3and $11 million in investment grade subordinated debt $13.1 million in U.S. Agency MBS, and $52.3$10 million in U.S. Treasury Notes. WeIn March of 2022, we sold approximately $35.1$68.1 million tax-free AFS electric utility revenue municipalsof U.S. Treasury Notes due to uncertainty caused by the severe winter storm in Texas during February. We also sold $9.6 million in U.S. Treasury Notes.rising rate environment. Sales of AFS securities for the three and six months ended June 30, 2021,March 31, 2022, resulted in a net realized gainloss of $15,000$1.5 million.
In March of 2022, management transferred to HTM, long duration AFS taxable municipal securities with fair values of approximately $385.8 million. These transfers were made due to management’s intent and $2.0 million, respectively.ability to hold these securities to maturity. Long duration securities experience greater fair value volatility when interest rates either rise or fall. These transfers reduce any future volatility resulting from unrealized gains or losses, reflected in AOCI. These transfers were made to align the investment portfolio with the current balance sheet strategy.
At June 30, 2021,March 31, 2022, securities as a percentage of assets totaled 39.8%35.7%, compared to 38.5%39.3% at December 31, 2020,2021, due to the $164.6$314.8 million, or 6.1%11.0%, increasedecrease in the securities portfolio.portfolio, partially offset by a decrease in total assets of $140.5 million. Our balance sheet management strategy is dynamic and is continually evaluated as market conditions warrant. As interest rates, yield curves, MBS prepayments, funding costs, security spreads and loan and deposit portfolios change, our determination of the proper types, amount and maturities of securities to invest in, as well as funding needs and funding sources, will continue to be evaluated.  Should the economics of purchasing securities decrease, we may allow the securities portfolio to shrink through run-off or security sales. However, should the economics become more attractive, we may strategically increase the securities portfolio and the balance sheet.
With respect to liabilities,funding sources, we continue to primarily utilize a combination of deposits and FHLB borrowingsto a lesser extent wholesale funding to achieve our strategy of minimizing cost while achieving overall interest rate risk objectives as well as the liability management objectives of the ALCO.  Our primary wholesale funding sources are brokered deposits and FHLB borrowings. Our FHLB borrowings decreased 98.9%, or $340.2 million, to $3.9 million at March 31, 2022 from $344.0 million at December 31, 2021.
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the ALCO. Our primary wholesale funding source is FHLB borrowings and to a lesser extent we utilize federal funds purchased, the FRDW and brokered deposits.
For the sixthree months ended June 30, 2021,March 31, 2022, our total wholesale funding as a percentage of deposits, not including brokered deposits, decreasedincreased slightly to 15.3%12.6%, from 20.2%11.8% at December 31, 2020,2021, and 30.1%decreased from 14.9% at June 30, 2020. The decreaseMarch 31, 2021.
Our brokered deposits consist of CDs and non-maturity deposits. Our brokered CDs increased $68.4 million, or 277.0%, from both of the prior year periods was due to the increase in our deposits and the decreases in FHLB borrowings and brokered deposits.
Our FHLB borrowings decreased 13.4%, or $111.2 million, to $721.4 million at June 30, 2021 from $832.5$24.7 million at December 31, 2020. 2021 to $93.1 million at March 31, 2022. At March 31, 2022, our brokered CDs had a weighted average cost of 25 basis points and remaining maturities of less than 11 months. Our brokered non-maturity deposits increased to $582.5 million at March 31, 2022 from $270.1 million at December 31, 2021, with a weighted average cost of 83 basis points and 91 basis points, respectively. Our wholesale funding policy currently allows for maximum brokered deposits of $800 million, with an additional $50 million of flexibility for deposits maturing within 30 days. Potential higher interest expense and lack of customer loyalty are risks associated with the use of brokered deposits.
In connection with most of our borrowings,wholesale funds, the Bank has entered into various variable rate agreements and fixed or variable rate short-term pay agreements. These agreements totaled $605.0 million and $670.0 million at June 30, 2021 and December 31, 2020, respectively. Six of the agreements havewith an interest rate tied to three-month LIBOR and the remaining agreements have interest rates tiedor to one-month LIBOR. In connection with all$575.0 million and $605.0 million of the agreements outstanding on June 30,at March 31, 2022 and December 31, 2021, respectively, the Bank also entered into various interest rate swap contracts that are treated as cash flow hedges under ASC Topic 815, “Derivatives and Hedging” that are expected to be effective in hedging the variability in future cash flows attributable to fluctuations in the underlying LIBOR interest rate. The interest rate swap contracts had an average interest rate of 1.14%0.83% with ana remaining average weighted maturity of 3.73.1 years at June 30, 2021. These transactions are reevaluated on a monthly basis to determine if the hedged forecasted transactions are still probable of occurring. If at a subsequent evaluation, it is determined that the transactions will not occur, any related gains or losses recorded in AOCIare immediately recognized in earnings.March 31, 2022. Refer to “Note 911 – Derivative Financial Instruments and Hedging Activities” in our consolidated financial statements included in this report for a detailed description of our hedging policy and methodology related to derivative instruments.
Our brokered CDs decreased $80.5 million, or 78.2%, from $102.8 million at December 31, 2020 to $22.4 million at June 30, 2021. At June 30, 2021, our brokered CDs had a weighted average cost of 27 basis points and remaining maturities of less than 13 months. To provide management flexibility in managing the interest rate risk of wholesale funding, the ALCO has approved up to $50.0 million to issue brokered deposits to replace those maturing within 30 days. Our wholesale funding policy allows for maximum brokered deposits of $450.0 million. This brokered deposit maximum limit could increase or decrease depending on changes in ALCO objectives. Potential higher interest expense and lack of customer loyalty are risks associated with the use of brokered CDs.
On November 6, 2020, the Company issued $100.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that mature on November 15, 2030. Refer to “Note 7 – Long-term Debt” in our consolidated financial statements included in this report for a detailed description of the terms of the subordinated notes.
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Results of Operations
Our results of operations are dependent primarily on net interest income, which is the difference between the interest income earned on assets (loans and investments) and interest expense due on our funding sources (deposits and borrowings) during a particular period.  Results of operations are also affected by our noninterest income, provision for credit losses, noninterest expenses and income tax expense.  General economic and competitive conditions, particularly changes in interest rates, changes in interest rate yield curves, prepayment rates of MBS and loans, repricing of loan relationships, government policies and actions of regulatory authorities also significantly affect our results of operations.  Future changes in applicable law, regulations or government policies may also have a material impact on us. The adoption of CECL and the COVID-19 pandemic significantly impacted our results of operations in 2020 and may continue to impact our results of operations for the remainder of 2021.
The following table presents net interest income for the periods presented (in thousands):
Three Months EndedSix Months EndedThree Months Ended
June 30,June 30, March 31,
2021202020212020 20222021
Interest income:Interest income:  Interest income:
LoansLoans$35,720 $39,115 $71,758 $81,010 Loans$34,888 $36,038 
Taxable investment securitiesTaxable investment securities2,921 732 5,244 1,244 Taxable investment securities4,608 2,323 
Tax-exempt investment securitiesTax-exempt investment securities9,173 9,221 18,138 15,427 Tax-exempt investment securities10,219 8,965 
MBSMBS4,647 9,044 10,735 20,578 MBS4,017 6,088 
FHLB stock and equity investmentsFHLB stock and equity investments108 360 244 785 FHLB stock and equity investments113 136 
Other interest earning assetsOther interest earning assets17 23 32 203 Other interest earning assets28 15 
Total interest incomeTotal interest income52,586 58,495 106,151 119,247 Total interest income53,873 53,565 
Interest expense:Interest expense:  Interest expense:
DepositsDeposits2,339 6,229 4,936 16,148 Deposits3,237 2,597 
FHLB borrowingsFHLB borrowings1,817 2,929 3,725 6,903 FHLB borrowings366 1,908 
Subordinated notesSubordinated notes2,423 1,412 4,818 2,823 Subordinated notes998 2,395 
Trust preferred subordinated debenturesTrust preferred subordinated debentures349 491 700 1,091 Trust preferred subordinated debentures356 351 
Other borrowingsOther borrowings11 163 22 310 Other borrowings10 11 
Total interest expenseTotal interest expense6,939 11,224 14,201 27,275 Total interest expense4,967 7,262 
Net interest incomeNet interest income$45,647 $47,271 $91,950 $91,972 Net interest income$48,906 $46,303 

Net Interest Income
Net interest income is one of the principal sources of a financial institution’s earnings stream and represents the difference or spread between interest and fee income generated from interest earning assets and the interest expense paid on interest bearing liabilities.  Fluctuations in interest rates or interest rate yield curves, as well as repricing characteristics and volume and changes in the mix of interest earning assets and interest bearing liabilities, materially impact net interest income. During the first quarter of 2020,2022, the Federal Reserve reducedincreased the target federal funds rate by 15025 basis points to 2550 basis points.points and has indicated it anticipates multiple additional rate increases during 2022.
Net interest income for the three months ended June 30, 2021 decreased $1.6March 31, 2022 increased $2.6 million, or 3.4%5.6%, compared to the same period in 2020.2021. The decreaseincrease in net interest income for the three months ended June 30, 2021March 31, 2022 was due to the decrease in interest income, a result of a decrease in the average yield on our interest earning assets, partially offset by the decrease in interest expense on our interest bearing liabilities due to the overall declinechange in the mix of our interest bearing liabilities, and to a lesser extent, an increase in interest rates.income, a result of an increase in the average balance of investment securities, partially offset by a decrease in the interest income on PPP loans. Total interest income decreased $5.9 million,increased $308,000, or 10.1%0.6%, to $52.6$53.9 million for the three months ended June 30, 2021,March 31, 2022, compared to $58.5$53.6 million during the same period in 2020.2021. Total interest expense decreased $4.3$2.3 million, or 38.2%31.6%, to $6.9$5.0 million for the three months ended June 30, 2021,March 31, 2022, compared to $11.2$7.3 million for the same period in 2020.2021. Our net interest margin (FTE), a non-GAAP measure, increased to 3.06%3.22% for the three months ended June 30, 2021,March 31, 2022, compared to 3.02%3.20% for the same period in 20202021, and our net interest spread (FTE), also a non-GAAP measure, increased to 2.89%3.09%, compared to 2.82%3.03% for the same period in 2020.
Net interest income was $92.0 million for the six months ended June 30, 2021 and 2020, with the decrease in interest income offset by the decrease in interest expense on our interest bearing liabilities, both a result of an overall decline in interest rates. Total interest income decreased $13.1 million, or 11.0%, to $106.2 million for the six months ended June 30, 2021, compared to $119.2 million for the same period in 2020. Total interest expense decreased $13.1 million, or 47.9%, to $14.2 million for the six months ended June 30, 2021, compared to $27.3 million for the same period in 2020. Our net interest margin (FTE), a non-GAAP measure, increased to 3.13% for the six months ended June 30, 2021, compared to 3.02% for the same period in 2020,2021.
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and our net interest spread (FTE), also a non-GAAP measure, increased to 2.96%, compared to 2.79% for the same period in 2020. See “Non-GAAP Financial Measures” for more information and for a reconciliation to GAAP.
Quarterly Analysis of Changes in Interest Income and Interest Expense
The following table presents on a fully taxable-equivalent basis, a non-GAAP measure, the net change in net interest income and sets forth the dollar amount of increase (decrease) in the average volume of interest earning assets and interest bearing liabilities and from changes in yields/rates. Volume/Yield/Rate variances (change in volume times change in yield/rate) have been allocated to amounts attributable to changes in volumes and to changes in yields/rates in proportion to the amounts directly attributable to those changes (in thousands):
Three Months Ended June 30, 2021 Compared to 2020 Three Months Ended March 31, 2022 Compared to 2021
Change Attributable toTotalChange Attributable toTotal
Fully Taxable-Equivalent Basis:Fully Taxable-Equivalent Basis:Average VolumeAverage Yield/RateChangeFully Taxable-Equivalent Basis:Average VolumeAverage Yield/RateChange
Interest income on:Interest income on:   Interest income on:   
Loans (1)
Loans (1)
$(1,217)$(2,120)$(3,337)
Loans (1)
$697 $(1,826)$(1,129)
Loans held for saleLoans held for sale(10)(5)(15)Loans held for sale(16)(12)
Taxable investment securitiesTaxable investment securities2,229 (40)2,189 Taxable investment securities2,510 (225)2,285 
Tax-exempt investment securities (1)
Tax-exempt investment securities (1)
370 (345)25 
Tax-exempt investment securities (1)
2,154 (647)1,507 
Mortgage-backed and related securitiesMortgage-backed and related securities(3,002)(1,395)(4,397)Mortgage-backed and related securities(2,605)534 (2,071)
FHLB stock, at cost, and equity investmentsFHLB stock, at cost, and equity investments(131)(121)(252)FHLB stock, at cost, and equity investments(69)46 (23)
Interest earning depositsInterest earning deposits12 (18)(6)Interest earning deposits
Federal funds soldFederal funds sold— 
Total earning assetsTotal earning assets(1,749)(4,044)(5,793)Total earning assets2,682 (2,112)570 
Interest expense on:Interest expense on:   Interest expense on:   
Savings accountsSavings accounts60 (16)44 Savings accounts56 64 
CDsCDs(1,579)(2,302)(3,881)CDs(247)(388)(635)
Interest bearing demand accountsInterest bearing demand accounts241 (294)(53)Interest bearing demand accounts450 761 1,211 
FHLB borrowingsFHLB borrowings(1,403)291 (1,112)FHLB borrowings(1,772)230 (1,542)
Subordinated notes, net of unamortized debt issuance costsSubordinated notes, net of unamortized debt issuance costs1,236 (225)1,011 Subordinated notes, net of unamortized debt issuance costs(1,049)(348)(1,397)
Trust preferred subordinated debentures, net of unamortized debt issuance costsTrust preferred subordinated debentures, net of unamortized debt issuance costs— (142)(142)Trust preferred subordinated debentures, net of unamortized debt issuance costs— 
Repurchase agreementsRepurchase agreements(1)— (1)
Other borrowingsOther borrowings(108)(44)(152)Other borrowings— — — 
Total interest bearing liabilitiesTotal interest bearing liabilities(1,553)(2,732)(4,285)Total interest bearing liabilities(2,563)268 (2,295)
Net changeNet change$(196)$(1,312)$(1,508)Net change$5,245 $(2,380)$2,865 
(1)Interest yields on loans and securities that are nontaxable for federal income tax purposes are presented on a fully taxable-equivalent basis. See “Non-GAAP Financial Measures” for more information and for a reconciliation to GAAP.
The decreaseincrease in total interest income was primarily attributable to the decreaseincrease in the average yield on interest earning assets to 3.49% for the three months ended June 30, 2021 from 3.69% for the same period in 2020, and by the mix of average interest earning assets for the three months ended June 30, 2021, whenMarch 31, 2022 compared to the same period in 2020. The2021, offset by a decrease in the average yield on totalinterest earning assets during the three months ended June 30, 2021 was a result of decreases in the short-term interest rate yield curve during the first half of 2021 and the tightening credit spreads that occurred primarily during the last half of 2020 and into the first half of 2021. For the three months ended June 30, 2021, average earning assets decreased $301.0 million, or 4.5%, when compared to the same period in 2020.
assets. The decrease in total interest expense for the three months ended June 30, 2021March 31, 2022 was attributable to an overall declinethe change in interest rates paid on totalthe mix of our interest bearing liabilities when compared to 0.60% for the three months ended June 30, 2021 from 0.87% for the same period in 2020, and the decrease in average interest bearing liabilities.    2021.
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The “Average Balances with Average Yields and Rates” table that follows shows average earning assets and interest bearing liabilities together with the average yield on the earning assets and the average rate of the interest bearing liabilities (dollars in thousands) for the three months ended June 30, 2021March 31, 2022 and 2020.2021. The interest and related yields presented are on a fully taxable-equivalent basis and are therefore non-GAAP measures. See "Non-GAAP“Non-GAAP Financial Measures"Measures” for more information, and for a reconciliation to GAAP.
Average Balances with Average Yields and Rates (Annualized)Average Balances with Average Yields and Rates (Annualized)
(unaudited)(unaudited)
Three Months EndedThree Months Ended
June 30, 2021June 30, 2020March 31, 2022March 31, 2021
Average BalanceInterestAverage Yield/RateAverage BalanceInterestAverage Yield/RateAverage BalanceInterestAverage Yield/RateAverage BalanceInterestAverage Yield/Rate
ASSETSASSETSASSETS
Loans (1)
Loans (1)
$3,706,959 $36,429 3.94 %$3,826,383 $39,766 4.18 %
Loans (1)
$3,703,980 $35,625 3.90 %$3,634,053 $36,754 4.10 %
Loans held for saleLoans held for sale1,846 13 2.82 %3,213 28 3.50 %Loans held for sale928 3.50 %2,803 20 2.89 %
Securities:Securities:Securities:
Taxable investment securities (2)
Taxable investment securities (2)
396,504 2,921 2.95 %94,247 732 3.12 %
Taxable investment securities (2)
644,706 4,608 2.90 %295,968 2,323 3.18 %
Tax-exempt investment securities (2)
Tax-exempt investment securities (2)
1,363,678 11,585 3.41 %1,320,772 11,560 3.52 %
Tax-exempt investment securities (2)
1,563,185 12,683 3.29 %1,300,991 11,176 3.48 %
Mortgage-backed and related securities (2)
Mortgage-backed and related securities (2)
847,206 4,647 2.20 %1,359,941 9,044 2.67 %
Mortgage-backed and related securities (2)
566,941 4,017 2.87 %940,815 6,088 2.62 %
Total securitiesTotal securities2,607,388 19,153 2.95 %2,774,960 21,336 3.09 %Total securities2,774,832 21,308 3.11 %2,537,774 19,587 3.13 %
FHLB stock, at cost, and equity investmentsFHLB stock, at cost, and equity investments35,883 108 1.21 %67,582 360 2.14 %FHLB stock, at cost, and equity investments20,677 113 2.22 %35,635 136 1.55 %
Interest earning depositsInterest earning deposits43,175 17 0.16 %24,097 23 0.38 %Interest earning deposits44,642 24 0.22 %31,169 15 0.20 %
Federal funds soldFederal funds sold8,651 0.19 %— — — 
Total earning assetsTotal earning assets6,395,251 55,720 3.49 %6,696,235 61,513 3.69 %Total earning assets6,553,710 57,082 3.53 %6,241,434 56,512 3.67 %
Cash and due from banksCash and due from banks90,735 78,326 Cash and due from banks107,144 86,634 
Accrued interest and other assetsAccrued interest and other assets656,245 660,411 Accrued interest and other assets607,235 677,230 
Less: Allowance for loan lossesLess: Allowance for loan losses(41,768)(55,908)Less: Allowance for loan losses(35,636)(49,240)
Total assetsTotal assets$7,100,463 $7,379,064 Total assets$7,232,453 $6,956,058 
LIABILITIES AND SHAREHOLDERS’ EQUITYLIABILITIES AND SHAREHOLDERS’ EQUITYLIABILITIES AND SHAREHOLDERS’ EQUITY
Savings accountsSavings accounts$571,907 231 0.16 %$426,420 187 0.18 %Savings accounts$652,394 273 0.17 %$517,182 209 0.16 %
CDsCDs658,708 936 0.57 %1,187,665 4,817 1.63 %CDs563,599 594 0.43 %736,099 1,229 0.68 %
Interest bearing demand accountsInterest bearing demand accounts2,459,335 1,172 0.19 %2,013,770 1,225 0.24 %Interest bearing demand accounts3,097,966 2,370 0.31 %2,342,299 1,159 0.20 %
Total interest bearing depositsTotal interest bearing deposits3,689,950 2,339 0.25 %3,627,855 6,229 0.69 %Total interest bearing deposits4,313,959 3,237 0.30 %3,595,580 2,597 0.29 %
FHLB borrowingsFHLB borrowings669,633 1,817 1.09 %1,197,097 2,929 0.98 %FHLB borrowings122,783 366 1.21 %727,513 1,908 1.06 %
Subordinated notes, net of unamortized debt issuance costsSubordinated notes, net of unamortized debt issuance costs197,284 2,423 4.93 %98,641 1,412 5.76 %Subordinated notes, net of unamortized debt issuance costs98,552 998 4.11 %197,252 2,395 4.92 %
Trust preferred subordinated debentures, net of unamortized debt issuance costsTrust preferred subordinated debentures, net of unamortized debt issuance costs60,257 349 2.32 %60,252 491 3.28 %Trust preferred subordinated debentures, net of unamortized debt issuance costs60,261 356 2.40 %60,256 351 2.36 %
Repurchase agreementsRepurchase agreements21,494 10 0.19 %23,522 11 0.19 %
Other borrowingsOther borrowings22,024 11 0.20 %205,724 163 0.32 %Other borrowings467 — — — — — 
Total interest bearing liabilitiesTotal interest bearing liabilities4,639,148 6,939 0.60 %5,189,569 11,224 0.87 %Total interest bearing liabilities4,617,516 4,967 0.44 %4,604,123 7,262 0.64 %
Noninterest bearing depositsNoninterest bearing deposits1,485,383 1,310,651 Noninterest bearing deposits1,642,973 1,389,020 
Accrued expenses and other liabilitiesAccrued expenses and other liabilities97,137 77,431 Accrued expenses and other liabilities84,009 89,222 
Total liabilitiesTotal liabilities6,221,668 6,577,651 Total liabilities6,344,498 6,082,365 
Shareholders’ equityShareholders’ equity878,795 801,413 Shareholders’ equity887,955 873,693 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$7,100,463 $7,379,064 Total liabilities and shareholders’ equity$7,232,453 $6,956,058 
Net interest income (FTE)Net interest income (FTE)$48,781 $50,289 Net interest income (FTE)$52,115 $49,250 
Net interest margin (FTE)Net interest margin (FTE)3.06 %3.02 %Net interest margin (FTE)3.22 %3.20 %
Net interest spread (FTE)Net interest spread (FTE)2.89 %2.82 %Net interest spread (FTE)3.09 %3.03 %
(1)Interest on loans includes net fees on loans that are not material in amount.
(2)For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note: As of June 30,March 31, 2022 and 2021, and 2020, loans totaling $5.2$2.4 million and $5.6 million, 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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Year-to-Date Analysis of Changes in Interest Income and Interest Expense
The following table presents on a fully taxable-equivalent basis, a non-GAAP measure, the net change in net interest income and sets forth the dollar amount of increase (decrease) in the average volume of interest earning assets and interest bearing liabilities and from changes in yields/rates. Volume/Yield/Rate variances (change in volume times change in yield/rate) have been allocated to amounts attributable to changes in volumes and to changes in yields/rates in proportion to the amounts directly attributable to those changes (in thousands):
 Six Months Ended June 30, 2021 Compared to 2020
Change Attributable toTotal
Fully Taxable-Equivalent Basis:Average VolumeAverage Yield/RateChange
Interest income on:   
Loans (1)
$(794)$(8,343)$(9,137)
Loans held for sale(9)(4)
Taxable investment securities3,999 4,000 
Tax-exempt investment securities (1)
3,901 (537)3,364 
Mortgage-backed and related securities(7,317)(2,526)(9,843)
Federal Home Loan Bank stock, at cost, and equity investments(276)(265)(541)
Interest earning deposits28 (199)(171)
Total earning assets(454)(11,878)(12,332)
Interest expense on:   
Savings accounts125 (109)16 
CDs(3,712)(5,286)(8,998)
Interest bearing demand accounts789 (3,019)(2,230)
FHLB borrowings(2,244)(934)(3,178)
Subordinated notes, net of unamortized debt issuance costs2,462 (467)1,995 
Trust preferred subordinated debentures, net of unamortized debt issuance costs— (391)(391)
Other borrowings(171)(117)(288)
Total interest bearing liabilities(2,751)(10,323)(13,074)
Net change$2,297 $(1,555)$742 
(1)Interest yields on loans and securities that are nontaxable for federal income tax purposes are presented on a fully taxable-equivalent basis. See “Non-GAAP Financial Measures” for more information and for a reconciliation to GAAP.
The decrease in total interest income was attributable to the decrease in the average yield on earning assets to 3.58% for the six months ended June 30, 2021 from 3.87% for the same period in 2020, and a decrease in average earning assets of $153.7 million, or 2.4%. The decrease in the average yield on total earning assets during the six months ended June 30, 2021 was a result of decreases in the short-term interest rate yield curve during the first half of 2021 and the tightening credit spreads that occurred primarily during the last half of 2020 and into the first half of 2021. The decrease in average earning assets was primarily the result of a decrease in MBS and loans, partially offset by an increase in investment securities.
The decrease in total interest expense for the six months ended June 30, 2021 was attributable to an overall decline in interest rates paid on total interest bearing liabilities to 0.62% for the six months ended June 30, 2021 from 1.08% for the same period in 2020, and the decrease in average interest bearing liabilities.  
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The “Average Balances with Average Yields and Rates” table that follows shows average earning assets and interest bearing liabilities together with the average yield on the earning assets and the average rate of the interest bearing liabilities (dollars in thousands) for the six months ended June 30, 2021 and 2020. The interest and related yields presented are on a fully taxable-equivalent basis and are therefore non-GAAP measures. See “Non-GAAP Financial Measures” for more information, and for a reconciliation to GAAP.
Average Balances with Average Yields and Rates (Annualized)
(unaudited)
Six Months Ended
June 30, 2021June 30, 2020
Average BalanceInterestAverage Yield/RateAverage BalanceInterestAverage Yield/Rate
ASSETS
Loans (1)
$3,670,708 $73,183 4.02 %$3,706,763 $82,320 4.47 %
Loans held for sale2,321 33 2.87 %2,022 37 3.68 %
Securities:
Taxable investment securities (2)
346,514 5,244 3.05 %82,270 1,244 3.04 %
Tax-exempt investment securities (2)
1,332,507 22,761 3.44 %1,104,839 19,397 3.53 %
Mortgage-backed and related securities (2)
893,752 10,735 2.42 %1,479,157 20,578 2.80 %
Total securities2,572,773 38,740 3.04 %2,666,266 41,219 3.11 %
FHLB stock, at cost, and equity investments35,760 244 1.38 %65,279 785 2.42 %
Interest earning deposits37,205 32 0.17 %32,167 203 1.27 %
Total earning assets6,318,767 112,232 3.58 %6,472,497 124,564 3.87 %
Cash and due from banks88,696 77,533 
Accrued interest and other assets666,280 635,540 
Less:  Allowance for loan losses(45,483)(43,141)
Total assets$7,028,260 $7,142,429 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings accounts$544,696 440 0.16 %$405,642 424 0.21 %
CDs697,190 2,165 0.63 %1,275,046 11,163 1.76 %
Interest bearing demand accounts2,401,140 2,331 0.20 %1,994,803 4,561 0.46 %
Total interest bearing deposits3,643,026 4,936 0.27 %3,675,491 16,148 0.88 %
FHLB borrowings698,413 3,725 1.08 %1,098,083 6,903 1.26 %
Subordinated notes, net of unamortized debt issuance costs197,268 4,818 4.93 %98,619 2,823 5.76 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,256 700 2.34 %60,252 1,091 3.64 %
Other borrowings22,769 22 0.19 %137,785 310 0.45 %
Total interest bearing liabilities4,621,732 14,201 0.62 %5,070,230 27,275 1.08 %
Noninterest bearing deposits1,437,468 1,176,496 
Accrued expenses and other liabilities92,802 82,617 
Total liabilities6,152,002 6,329,343 
Shareholders’ equity876,258 813,086 
Total liabilities and shareholders’ equity$7,028,260 $7,142,429 
Net interest income (FTE)$98,031 $97,289 
Net interest margin (FTE)3.13 %3.02 %
Net interest spread (FTE)2.96 %2.79 %
(1)Interest on loans includes net fees on loans that are not material in amount.
(2)For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note: As of June 30, 2021 and 2020, loans totaling $5.2 million and $5.6$5.3 million, 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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Noninterest Income
Noninterest income consists of revenue generated from a broad range of financial services and activities and other fee generating services that we either provide or in which we participate.
The following table details the categories included in noninterest income (dollars in thousands):
Three Months Ended
June 30,
2021Three Months Ended
March 31,
2022
Change FromThree Months Ended
March 31,
Change From
202120202020202220212021
Deposit servicesDeposit services$6,609 $5,532 $1,077 19.5 %Deposit services$6,628 $6,125 $503 8.2 %
Net gain on sale of securities AFS15 2,662 (2,647)(99.4)%
Net gain (loss) on sale of securities AFSNet gain (loss) on sale of securities AFS(1,543)2,003 (3,546)(177.0)%
Gain on sale of loansGain on sale of loans393 683 (290)(42.5)%Gain on sale of loans178 593 (415)(70.0)%
Trust feesTrust fees1,496 1,221 275 22.5 %Trust fees1,494 1,383 111 8.0 %
BOLIBOLI645 650 (5)(0.8)%BOLI691 626 65 10.4 %
Brokerage servicesBrokerage services850 499 351 70.3 %Brokerage services809 780 29 3.7 %
Other noninterest incomeOther noninterest income925 946 (21)(2.2)%Other noninterest income2,468 2,113 355 16.8 %
Total noninterest incomeTotal noninterest income$10,933 $12,193 $(1,260)(10.3)%Total noninterest income$10,725 $13,623 $(2,898)(21.3)%
Six Months Ended
June 30,
2021
Change From
202120202020
Deposit services$12,734 $11,811 $923 7.8 %
Net gain on sale of securities AFS2,018 8,203 (6,185)(75.4)%
Gain on sale of loans986 853 133 15.6 %
Trust fees2,879 2,526 353 14.0 %
BOLI1,271 1,219 52 4.3 %
Brokerage services1,630 1,079 551 51.1 %
Other noninterest income3,038 2,000 1,038 51.9 %
Total noninterest income$24,556 $27,691 $(3,135)(11.3)%
The 10.3%21.3% decrease in noninterest income for the three months ended June 30, 2021,March 31, 2022, when compared to the same period in 2020,2021, was due to decreases in net gain on sale of securities AFS and gain on sale of loans, partially offset by increases in deposit services income, brokerage services income and trust fees. The 11.3% decrease in noninterest income for the six months ended June 30, 2021, when compared to the same period in 2020, was due to the decrease in net gain on sale of securities AFS, partially offset by increases in other noninterest income, deposit services income, gain on sale of loans, brokerage services income and trust fees.
The increase in deposit services income for the three months ended June 30, 2021,March 31, 2022, when compared to the same period in 2020,2021, was primarily the result of increases in debit card income, overdraft income and service charges on commercial deposit accounts. The increase for the six months ended June 30, 2021, when compared to the same period in 2020, was primarily the result of increases in debit card income and service charges on commercial deposit accounts, partially offset by a decrease in overdraft income due to an increase in funds available to customers through government issued stimulus checks and PPP loans. The increase in debit card income was the result of an increase in debit card transactions for the three and six months ended June 30, 2021.
During the three and six months ended June 30, 2021,March 31, 2022, we sold municipalU.S. Treasury securities, MBS and U.S. Treasurymunicipal securities that resulted in a net gainloss on sale of AFS securities of $15,000 and $2.0 million, respectively.$1.5 million.
Gain on sale of loans decreased for the three months ended June 30, 2021, and increased for the six months ended June 30, 2021, when compared to the same periods in 2020. Overall mortgage loan production increased during 2020 and into 2021 as a result of lower interest rates, however, the volume of loans sold decreased for the three months ended June 30, 2021,March 31, 2022, when compared to the same period in 2020, primarily2021, due to a decrease in the competitive mortgage loan market.volume of loans sold.
Trust fees increased for the three and six months ended June 30, 2021,March 31, 2022, when compared to the same periodsperiod in 2020,2021, primarily due to an increase in assets under management. The market value of our wealth management and trust assets under management, which are not reflected in our consolidated balance sheets, increased 2.7%, and were approximately $1.63 billion at March 31, 2022, compared to $1.59 billion at March 31, 2021.
The increase in BOLI income for the three months ended March 31, 2022, when compared to the same period in 2021, was due to $13.0 million in additional BOLI purchased during the third quarter of 2021.
Other noninterest income increased for the three months ended March 31, 2022, when compared to the same period in 2021, primarily due to an increase in investment income and mortgage servicing fee income, partially offset by a decrease in swap fee income.
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are not reflected in our consolidated balance sheets, increased 10.6%, and were approximately $1.63 billion at June 30, 2021, compared to $1.47 billion at June 30, 2020.
Brokerage services income increased for the three and six months ended June 30, 2021, when compared to the same periods in 2020, due to growth in our client base and recurring revenue.
Other noninterest income increased for the six months ended June 30, 2021, when compared to the same period in 2020, primarily due to increases in mortgage servicing fee income and swap fee income, partially offset by decreases in mortgage derivative income.
Noninterest Expense
We incur certain types of noninterest expenses associated with the operation of our various business activities. The following table details the categories included in noninterest expense (dollars in thousands):
Three Months Ended
June 30,
2021Three Months Ended
March 31,
2022
Change FromThree Months Ended
March 31,
Change From
202120202020202220212021
Salaries and employee benefitsSalaries and employee benefits$20,004 $18,629 $1,375 7.4 %Salaries and employee benefits$19,969 $20,044 $(75)(0.4)%
Net occupancyNet occupancy3,606 3,668 (62)(1.7)%Net occupancy3,656 3,560 96 2.7 %
Advertising, travel & entertainmentAdvertising, travel & entertainment475 292 183 62.7 %Advertising, travel & entertainment737 437 300 68.6 %
ATM expenseATM expense272 233 39 16.7 %ATM expense281 238 43 18.1 %
Professional feesProfessional fees1,040 1,082 (42)(3.9)%Professional fees927 991 (64)(6.5)%
Software and data processingSoftware and data processing1,406 1,295 111 8.6 %Software and data processing1,631 1,312 319 24.3 %
CommunicationsCommunications612 506 106 20.9 %Communications503 525 (22)(4.2)%
FDIC insuranceFDIC insurance435 174 261 150.0 %FDIC insurance472 454 18 4.0 %
Amortization of intangiblesAmortization of intangibles730 931 (201)(21.6)%Amortization of intangibles622 766 (144)(18.8)%
Other noninterest expenseOther noninterest expense2,119 3,046 (927)(30.4)%Other noninterest expense2,397 2,907 (510)(17.5)%
Total noninterest expenseTotal noninterest expense$30,699 $29,856 $843 2.8 %Total noninterest expense$31,195 $31,234 $(39)(0.1)%
Six Months Ended
June 30,
2021
Change From
202120202020
Salaries and employee benefits$40,048 $38,272 $1,776 4.6 %
Net occupancy7,166 6,979 187 2.7 %
Advertising, travel & entertainment912 1,124 (212)(18.9)%
ATM expense510 457 53 11.6 %
Professional fees2,031 2,277 (246)(10.8)%
Software and data processing2,718 2,522 196 7.8 %
Communications1,137 999 138 13.8 %
FDIC insurance889 199 690 346.7 %
Amortization of intangibles1,496 1,911 (415)(21.7)%
Other noninterest expense5,026 5,636 (610)(10.8)%
Total noninterest expense$61,933 $60,376 $1,557 2.6 %

The increaseslight decrease in noninterest expense for the three months ended June 30, 2021,March 31, 2022, when compared to the same period in 2020,2021, was primarily the result of increases in salaries and employee benefits, FDIC insurance and advertising, travel and entertainment expense, partially offset by decreases in other noninterest expense and amortization of intangibles. The increaseintangibles, partially offset by increases in software and data processing expense and advertising, travel and entertainment expense.
Advertising, travel and entertainment expense increased for the sixthree months ended June 30, 2021,March 31, 2022, when compared to the same period in 2020, was the result of increases in salaries and employee benefits and FDIC insurance, partially offset by decreases in other noninterest expense and amortization of intangibles.
Salaries and employee benefits increased for the three and six months ended June 30, 2021, when compared to the same periods in 2020, due to increases in health insurance expense and direct salary expense, partially offset by a decrease in retirement expense.
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Health and life insurance expense, included in salaries and employee benefits, increased $949,000, or 64.9%, and $721,000, or 19.8%, for the three and six months ended June 30, 2021, respectively, when compared to the same periods in 2020. We have a self-insured health plan which is supplemented with a stop loss insurance policy. Health insurance costs are rising nationwide and these costs may increase during the remainder of 2021.
For the three and six months ended June 30, 2021, direct salary expense increased $705,000, or 4.4%, and $1.41 million, or 4.4%, respectively, when compared to the same periods in 2020, primarily due to normal salary increases effectivean increase in the first quarter of 2021, as well as increases in brokerage service commissions.
Retirement expense, included in salariesdonations and employee benefits, decreased $279,000, or 21.1%, and $359,000, or 14.8%, for the three and six months ended June 30, 2021, respectively, when compared to the same periods in 2020. The decrease was due to the freeze of the Retirement Plan and Restoration Plan to further benefit accruals as of December 31, 2020, which resulted in no defined benefit plan service cost expense in the first half of 2021. This decrease was partially offset by increases in our split dollar agreement expense and ESOP expense.
Advertising, travel and entertainment expense decreased for the six months ended June 30, 2021, when compared to the same period in 2020, primarily due to decreases in travel, meals and entertainment, and registration fees due to reduced activity resulting from COVID-19 travel restrictions, when compared to the same period in 2020. Donations, included in advertising, travel and entertainment, also decreased for the six months ended June 30, 2021, when compared to the same period in 2020. As travel restrictions were lifted in the first quarter of 2021, activity increased for the three months ended June 30, 2021, when compared to the same period in 2020, which resulted in increases in travel, meals and entertainment and registration fees. Donations and mediarelated expenses. Media advertising, included in advertising, travel and entertainment, also increased for the three months ended June 30, 2021,March 31, 2022, when compared to the same period in 2020.2021.
ATM expense increased for the three and six months ended June 30, 2021,March 31, 2022, when compared to the same periodsperiod in 2020,2021, due primarily to higher ATM maintenancearmored car expense.
Software and data processing expense as new ATMs and ITMs were put into service and hardware upgrades were completed.
Professional fees decreasedincreased for the three and six months ended June 30, 2021,March 31, 2022, when compared to the same periodsperiod in 2020,2021, due to a decreasenew software contracts and increases in legal fees during the three months ended June 30, 2021, and due to several professional fees paid in connection with training, consulting and data conversion during the six months ended June 30, 2020.
Communications expense increased for the three and six months ended June 30, 2021, when compared to the same periods in 2020, driven by an increase in phone and internetexisting contract renewal costs.
FDIC insurance increased for the three and six months ended June 30, 2021, when compared to the same periods in 2020, due to a small bank assessment credit issued by the FDIC and utilized in the first half of 2020.
Amortization of intangibles decreased for the three and six months ended June 30, 2021,March 31, 2022, when compared to the same periodsperiod in 2020,2021, due primarily to a decrease in core deposit intangible amortization which is recognized on an accelerated method resulting in a decline in expense over time.the amortization period.
Other noninterest expense decreased for the three and six months ended June 30, 2021,March 31, 2022, when compared to the same periodsperiod in 2020,2021, primarily due to a decreasedecreases in retirement expense related to the Retirement Plan and the Restoration Plan partially offset by an increaseand decreases in computer supplies expense.expense and losses on retired assets.

Income Taxes
Pre-tax income for the three and six months ended June 30, 2021March 31, 2022 was $24.2$28.1 million, and $63.0 million, respectively, a decrease of 0.7%, and an increase of 118.9%27.5%, compared to $24.4 million and $28.8$38.8 million for the same periodsperiod in 2020.2021. We recorded income tax expense of $2.9 million and $7.6$3.1 million, for the three and six months ended June 30, 2021, respectively,March 31, 2022, compared to income tax expense of $2.8 million and $3.3$4.8 million for the same periodsperiod in 2020.2021. The ETR as a percentage of pre-tax income was 11.9% and 12.1%11.2% for the three and six months ended June 30, 2021, respectively,March 31, 2022, compared to an ETR as a percentage of pre-tax income of 11.5% and 11.4%12.2% for the same periodsperiod in 2020.2021. The higherlower ETR for the sixthree months ended June 30, 2021March 31, 2022 was primarily due to a decreasean increase in tax-exempt income as a percentage of pre-tax income as compared to the same period in 2020.2021. The decrease in the income tax expense for the three months ended March 31, 2022 as compared to the same period in 2021 is primarily due to the decrease in pre-tax income in 2022 and the decrease in the ETR.
The ETR differs from the statutory rate of 21% for the three and six months ended June 30, 2021 and 2020 primarily due to the effect of tax-exempt income from municipal loans and securities, as well as BOLI. The net deferred tax liabilityasset totaled $16.5$19.1 million at June 30, 2021,March 31, 2022 as compared to $15.5a net deferred tax liability of $17.8 million at December 31, 2020.2021. The increase in the net deferred tax liabilityasset is primarily the result of thean increase in unrealized gainslosses in the AFS securities portfolio.
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See “Note 11 – Income Taxes” to our consolidated financial statements included in this report. No valuation allowance was recorded at June 30, 2021March 31, 2022 or December 31, 2020,2021, as management believes it is more likely than not that all of the deferred tax asset items will be realized in future years.
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Composition of Loans
One of our main objectives is to seek attractive lending opportunities in Texas, primarily in the market areas in which we operate. Refer to “Part I - Item 1. Business - Market Area” in the 20202021 Form 10-K for a discussion of our primary market area and the geographic concentration of our loan portfolio as of December 31, 2020.2021.  There were no substantial changes in these concentrations during the sixthree months ended June 30, 2021.March 31, 2022.  The majority of our loan originations are made to borrowers who live in and/or conduct business in the market areas of Texas in which we operate or adjoin, with the exception of municipal loans, which are made primarily throughout the state of Texas.  Municipal loans are made to municipalities, counties, school districts and colleges.
The following table sets forth loan totals by class as of the dates presented (dollars in thousands):
Compared toCompared to
December 31, 2020June 30, 2020December 31, 2021March 31, 2021
June 30, 2021December 31, 2020June 30, 2020Change (%)Change (%)March 31, 2022December 31, 2021March 31, 2021Change (%)Change (%)
Real estate loans:Real estate loans:   Real estate loans:   
ConstructionConstruction$528,157 $581,941 $570,801 (9.2)%(7.5)%Construction$490,166 $447,860 $605,677 9.4 %(19.1)%
1-4 family residential1-4 family residential678,402 719,952 761,815 (5.8)%(10.9)%1-4 family residential647,837 651,140 700,430 (0.5)%(7.5)%
CommercialCommercial1,430,900 1,295,746 1,406,541 10.4 %1.7 %Commercial1,722,577 1,598,172 1,348,551 7.8 %27.7 %
Commercial loansCommercial loans497,513 557,122 639,162 (10.7)%(22.2)%Commercial loans401,144 418,998 564,745 (4.3)%(29.0)%
Municipal loansMunicipal loans417,398 409,028 377,428 2.0 %10.6 %Municipal loans455,155 443,078 406,377 2.7 %12.0 %
Loans to individualsLoans to individuals89,976 93,990 96,824 (4.3)%(7.1)%Loans to individuals84,037 85,914 90,818 (2.2)%(7.5)%
Total loansTotal loans$3,642,346 $3,657,779 $3,852,571 (0.4)%(5.5)%Total loans$3,800,916 $3,645,162 $3,716,598 4.3 %2.3 %
Our total loan portfolio decreased $15.4increased $155.8 million, or 0.4%4.3%, at June 30, 2021March 31, 2022 compared to December 31, 2020, with decreases in commercial loans, construction loans, 1-4 family residential loans and loans to individuals, partially offset by increases in commercial real estate and municipal loans.2021. For the sixthree months ended June 30, 2021,March 31, 2022, our PPP loans experienced a net decrease of $82.7$17.1 million, or 38.5%55.3%, from $214.8$31.0 million at December 31, 2020,2021, primarily due to forgiveness payments received from loans funded under the CARES Act.
Our loan portfolio decreased $210.2 Excluding PPP loans, total loans increased $172.9 million, or 5.5%4.8%, at June 30, 2021with increases in commercial real estate loans, construction loans, and municipal loans, partially offset by decreases in 1-4 family residential loans, loans to individuals and commercial loans.
Excluding a $207.0 million year-over-year decrease in PPP loans, total loans increased $291.3 million, or 8.3%, compared to June 30, 2020,March 31, 2021, with increases in commercial real estate loans, municipal loans and commercial loans, partially offset by decreases in commercialconstruction loans, 1-4 family residential loans construction loans and loans to individuals, partially offset by increases in municipal loans and commercial real estate loans.individuals.
At June 30, 2021,March 31, 2022, our real estate loans represented 72.4%75.3% of our loan portfolio and were comprised of commercial real estate loans of 54.3%60.2%, 1-4 family residential loans of 25.7%22.7% and construction loans of 20.0%17.1%. Commercial real estate loans primarily include loans collateralized by retail, commercial office buildings, multi-family residential buildings, medical facilities and offices, senior living, assisted living and skilled nursing facilities, warehouse facilities, hotels and churches. Our 1-4 family residential loans consist primarily of loans secured by first mortgages on owner occupied 1-4 family residences. Our construction loans are collateralized by property located primarily in or near the market areas we serve. A number of our construction loans will be owner occupied upon completion. Construction loans for non-owner occupied projects are financed, but these typically have cash flows from leases with tenants, secondary sources of repayment, and in some cases, additional collateral.
Loan Portfolios Most at Risk due to Economic Stress Resulting from Impact of COVID-19
The banking industry is affected by general economic conditions such as interest rates, inflation, recession, unemployment and other factors beyond our control, including the ongoing impact of the COVID-19 pandemic.  During the last 30 years the Texas economy has continued to diversify, decreasing the overall impact of fluctuations in oil and gas prices; however, the oil and gas industry is still a significant component of the Texas economy. Oil prices have experiencedincreased significantly during 2022 as a recovery duringresult of strong demand, global supply disruptions and the six months ended June 30, 2021 following a significant reduction primarily reflective of the economic impact of COVID-19.Ukraine/Russia conflict. We cannot predict whether current economic conditions or oil prices will improve, remain the same or decline.
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As of June 30, 2021,March 31, 2022, the Company’s exposure to the oil and gas industry totaled $94.3$85.9 million, or 2.59%2.26% of gross loans, a decreasean increase of $10.3$16.2 million, or 23.2%, from December 31, 2020,2021, and consisted primarily of (i) support/service loans of 1.82%1.52%, (ii) upstream of 0.60%0.48%, (iii) downstream of 0.14% and (iv) midstream of 0.11%, and (iv) downstream of 0.06%0.12%. Expanded monitoring and analysis of these loans has been implemented to address the uncertainty in oil and gas prices as needed.
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The following table sets forth our loans outstanding in the oil and gas industryinformation for the periods presented (dollars in thousands):
June 30,December 31, 2020
20212020March 31, 2022December 31, 2021March 31, 2021
Oil and gas related loansOil and gas related loans$94,297 $118,493 $104,548 Oil and gas related loans$85,877 $69,688 $104,777 
Oil and gas related loans as a % of loansOil and gas related loans as a % of loans2.59 %3.08 %2.86 %Oil and gas related loans as a % of loans2.26 %1.91 %2.82 %
Classified oil and gas related loansClassified oil and gas related loans$4,899 $7,627 $6,385 Classified oil and gas related loans$3,755 $4,104 $5,237 
Classified oil and gas related loans as a % of oil and gas related loansClassified oil and gas related loans as a % of oil and gas related loans5.20 %6.44 %6.11 %Classified oil and gas related loans as a % of oil and gas related loans4.37 %5.89 %5.00 %
Nonaccrual oil and gas related loansNonaccrual oil and gas related loans$386 $193 $620 Nonaccrual oil and gas related loans$294 $334 $728 
Net (recoveries) charge-offs for oil and gas related loansNet (recoveries) charge-offs for oil and gas related loans$(7)$$Net (recoveries) charge-offs for oil and gas related loans$— $(7)$— 
Allowance for oil and gas related loans as a % of oil and gas loansAllowance for oil and gas related loans as a % of oil and gas loans1.51 %1.57 %1.36 %Allowance for oil and gas related loans as a % of oil and gas loans1.16 %1.19 %1.35 %

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and increased unemployment levels. The resulting temporary closure of many businesses and the implementation of social distancing and sheltering in place policies impacted and could continue to impact many of our customers. As of June 30, 2021, most businessesMarch 31, 2022, economic conditions in Texas are re-opened without restrictions.have returned close to pre-pandemic levels. Commercial activity has improved but has not returnedresumed to the levels close to those existing prior to the outbreak of the pandemic. InWhen the pandemic occurred, in addition to the oil and gas industry, we considerconsidered the sectors set forth in the table below table to be most vulnerable to financial risks from business disruptions caused by the pandemic mitigation efforts based on North American Industry Classification System categories as of June 30, 2021March 31, 2022 (dollars in thousands). We recognize thatAs of March 31, 2022, our customers in these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the pandemic.have not experienced long-term business disruptions initially thought possible. We continueare however continuing to monitor these customers closely.
June 30, 2021March 31, 2022
Loans
Percent of
 Total Loans
Percent
Classified (1)
Loans
Percent of
 Total Loans
Percent
Classified (1)
Retail commercial real estate (2)
Retail commercial real estate (2)
$307,581 8.44 %0.02 %
Retail commercial real estate (2)
$457,347 12.03 %— 
Retail goods and servicesRetail goods and services76,840 2.11 %8.82 %Retail goods and services57,076 1.50 %0.24 %
HotelsHotels68,456 1.88 %— Hotels30,274 0.80 %29.34 %
Food servicesFood services49,772 1.37 %— Food services47,378 1.25 %4.02 %
Arts, entertainment and recreationArts, entertainment and recreation7,498 0.21 %4.20 %Arts, entertainment and recreation5,947 0.15 %2.43 %
TotalTotal$510,147 14.01 %1.40 %Total$598,022 15.73 %1.85 %
December 31, 2020December 31, 2021
Loans
Percent of
 Total Loans
Percent
Classified (1)
Loans
Percent of
 Total Loans
Percent
Classified (1)
Retail commercial real estate (2)
Retail commercial real estate (2)
$342,919 9.38 %0.02 %
Retail commercial real estate (2)
$384,381 10.54 %— 
Retail goods and servicesRetail goods and services82,936 2.27 %9.12 %Retail goods and services72,650 1.99 %0.20 %
HotelsHotels69,578 1.90 %— Hotels61,992 1.70 %14.33 %
Food servicesFood services35,502 0.97 %— Food services45,019 1.24 %4.33 %
Arts, entertainment and recreationArts, entertainment and recreation9,206 0.25 %3.80 %Arts, entertainment and recreation6,039 0.17 %2.95 %
TotalTotal$540,141 14.77 %1.48 %Total$570,081 15.64 %1.96 %





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June 30, 2020March 31, 2021
Loans
Percent of
 Total Loans
Percent
Classified (1)
Loans
Percent of
 Total Loans
Percent
Classified (1)
Retail commercial real estate (2)
Retail commercial real estate (2)
$323,636 8.40 %0.34 %
Retail commercial real estate (2)
$323,729 8.71 %0.02 %
Retail goods and servicesRetail goods and services96,549 2.51 %8.02 %Retail goods and services74,662 2.01 %9.47 %
HotelsHotels69,180 1.80 %6.31 %Hotels69,063 1.86 %— 
Food servicesFood services44,207 1.15 %0.12 %Food services49,729 1.34 %— 
Arts, entertainment and recreationArts, entertainment and recreation10,244 0.26 %0.83 %Arts, entertainment and recreation8,580 0.23 %2.73 %
TotalTotal$543,816 14.12 %2.46 %Total$525,763 14.15 %1.40 %

(1)    Sector classified loans as a percentage of sector total loans.
(2)    Loans in the retail commercial real estate sector are included in our commercial real estate portfolio.

Allowance for Credit Losses - Loans
In accordance with ASC 326, the allowance for credit losses on loans is estimated and recognized upon origination of the loan based on expected credit losses. The CECL model uses historical experience and current conditions for homogeneous pools of loans, and reasonable and supportable forecasts about future events. The impact of varying economic conditions and portfolio stress factors are a component of the credit loss models applied to each portfolio. Reserve factors are specific to the loan segments that share similar risk characteristics based on the probability of default assumptions and loss given default assumptions, over the contractual term. The forecasted periods gradually mean-revert the economic inputs to their long-run historical trends. Management evaluates the economic data points used in the Moody’s forecasting scenarios on a quarterly basis to determine the most appropriate impact to the various portfolio characteristics based on management’s view and applies weighting to various forecasting scenarios as deemed appropriate based on known and expected economic activities. Management also considers and may apply relevant qualitative factors, not previously considered, to determine the appropriate allowance level. The use of the CECL model includes significant judgment by management and may differ from those of our peers due to different historical loss patterns, economic forecasts, and the length of time of the reasonable and supportable forecast period and reversion period.
We utilize Moody’s Analytics economic forecast scenarios and assign probability weighting to those scenarios which best reflect management’s views on the economic forecast. The probability weighting and scenarios utilized for the estimate of the allowance were generally reflective of an improved economic forecast as based on known and knowable information as of June 30, 2021.
When determining the appropriate allowance for credit losses on our loan portfolio, our commercial construction and real estate loans, commercial loans and municipal loans utilize the probability of default/loss given default discounted cash flow approach. Reserves on these loans are based upon risk factors including the loan type and structure, collateral type, leverage ratio, refinancing risk and origination quality, among others. Our consumer construction real estate loans, 1-4 family residential loans and our loans to individuals use a loss rate based upon risk factors including loan types, origination year and credit scores. Loans covered by the PPP may be eligible for loan forgiveness. The remaining loan balance after forgiveness of any amount is still fully guaranteed by the SBA and therefore does not have an associated allowance.
Loans evaluated collectively in a pool are monitored to ensure they continue to exhibit similar risk characteristics with other loans in the pool. If a loan does not share similar risk characteristics with other loans, expected credit losses for that loan are evaluated individually.
As of June 30, 2021, our review of the loan portfolio indicated that an allowance for loan losses of $42.9 million was appropriate to cover expected losses in the portfolio.  Changes in economic and other conditions, including the application of the CECL model and the economic uncertainty related to COVID-19, may require future adjustments to the allowance for loan losses.
During the six months ended June 30, 2021, the allowance for loan losses decreased $6.1 million, or 12.4%, to $42.9 million, or 1.18% of total loans, when compared to $49.0 million, or 1.34% of total loans at December 31, 2020. The decrease in the allowance for credit losses for the first half of 2021 was primarily reflective of an improved economic forecast based on known and knowable information as of June 30, 2021.
For the three and six months ended June 30, 2021, loan charge-offs were $527,000 and $1.3 million, respectively, and recoveries were $466,000 and $1.1 million, respectively. For the three and six months ended June 30, 2020, loan charge-offs were $546,000 and $1.5 million, respectively, and recoveries were $436,000 and $887,000, respectively. For the three months ended June 30, 2021, we recorded a provision for credit losses for loans of $1.5 million, a decrease of $4.8 million, or 76.0%,
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from a provision of $6.3 million for the three months ended June 30, 2020. For the six months ended June 30, 2021, we recorded a reversal of provision of $5.9 million, compared to a provision of $30.4 million for the six months ended June 30, 2020. The decrease during the six months ended June 30, 2021, was primarily due to improvement in the economic forecast since the second quarter of 2020 and its effect on macroeconomic factors used in the CECL model. The provision in the first half of 2020 was due to the estimated economic impact of COVID-19 on the macroeconomic factors, including the potential for credit deterioration.
PCD Loans
We have purchased certain loans that as of the date of purchase have experienced more-than-insignificant deterioration in credit quality since origination. Management evaluates these loans against a probability threshold to determine if substantially all of the contractually required payments will be received. PCD loans are recorded at the purchase price plus an allowance for credit losses which becomes the PCD loan's initial amortized cost. The non-credit related discount or premium, the difference between the initial amortized cost and the par value, will be amortized into interest income over the life of the loan. Any further changes to the allowance for credit losses are recorded through provision expense. In accordance with the adoption of ASU 2016-13, management did not reassess whether PCI assets met the criteria of PCD assets and elected to not maintain pools of loans as of the date of adoption. All PCD loans are evaluated based upon product type within the underlying segment.
Nonperforming Assets
Nonperforming assets consist of delinquent loans 90 days or more past due, nonaccrual loans, OREO, repossessed assets and TDR loans.  Nonaccrual loans are loans 90 days or more delinquent and collection in full of both the principal and interest is not expected.  Additionally, some loans that are not delinquent or that are delinquent less than 90 days may be placed on nonaccrual status if it is probable that we will not receive contractual principal and interest payments in accordance with the terms of the respective loan agreements.  When a loan is categorized as nonaccrual, the accrual of interest is discontinued and any accrued balance is reversed for financial statement purposes.  OREO represents real estate taken in full or partial satisfaction of debts previously contracted.  The dollar amount of OREO is based on a current evaluation of the OREO at the time it is recorded on our books, net of estimated selling costs.  Updated valuations are obtained as needed and any additional impairments are recognized.  Restructured loans represent loans that have been renegotiated to provide a below market interest rate or deferral of interest or principal because of deterioration in the financial position of the borrowers.  The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.  Concessions may include interest rate reductions or below market interest rates, restructuring amortization schedules and other actions intended to minimize potential losses.  Categorization of a loan as nonperforming is not in itself a reliable indicator of potential loan loss.  Other factors, such as the value of collateral securing the loan and the financial condition of the borrower are considered in judgments as to potential loan loss.
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The following table sets forth nonperforming assets for the periods presented (dollars in thousands):
Compared to
December 31, 2020June 30,
2020
 June 30,
2021
December 31, 2020June 30,
2020
Change (%)Change (%)
Loans on nonaccrual:
Real estate loans:
  Construction$69 $640 $630 (89.2)%(89.0)%
  1-4 family residential2,397 3,922 3,138 (38.9)%(23.6)%
  Commercial1,212 1,269 929 (4.5)%30.5 %
Commercial loans1,414 1,592 610 (11.2)%131.8 %
Loans to individuals62 291 332 (78.7)%(81.3)%
Total nonaccrual loans5,154 7,714 5,639 (33.2)%(8.6)%
Accruing loans past due more than 90 days— — — — — 
TDR loans9,549 9,646 11,367 (1.0)%(16.0)%
OREO566 106 586 434.0 %(3.4)%
Repossessed assets— 14 (100.0)%(100.0)%
Total nonperforming assets$15,269 $17,480 $17,600 (12.6)%(13.2)%
Compared to
December 31, 2021March 31,
2021
 March 31,
2022
December 31, 2021March 31,
2021
Change (%)Change (%)
Nonaccrual loans$2,357 $2,536 $5,314 (7.1)%(55.6)%
Accruing loans past due more than 90 days— — — — — 
TDR loans9,098 9,073 9,641 0.3 %(5.6)%
OREO— — 412 — (100.0)%
Repossessed assets— — — — — 
Total nonperforming assets$11,455 $11,609 $15,367 (1.3)%(25.5)%
Total loans$3,800,916 $3,645,162 $3,716,598 
Allowance for loan losses at end of period35,524 35,273 41,454 
Ratio of nonaccruing loans to:Ratio of nonaccruing loans to:   Ratio of nonaccruing loans to:   
Total loansTotal loans0.14 %0.21 %0.15 %Total loans0.06 %0.07 %0.14 %
Ratio of nonperforming assets to:Ratio of nonperforming assets to:Ratio of nonperforming assets to:
Total assetsTotal assets0.21 %0.25 %0.24 %Total assets0.16 %0.16 %0.22 %
Total loansTotal loans0.42 %0.48 %0.46 %Total loans0.30 %0.32 %0.41 %
Total loans and OREOTotal loans and OREO0.42 %0.48 %0.46 %Total loans and OREO0.30 %0.32 %0.41 %
Total loans, excluding PPP loans, and OREOTotal loans, excluding PPP loans, and OREO0.43 %0.51 %0.50 %Total loans, excluding PPP loans, and OREO0.30 %0.32 %0.44 %
Ratio of allowance for loan losses to:Ratio of allowance for loan losses to:Ratio of allowance for loan losses to:
Nonaccruing loansNonaccruing loans832.62 %635.29 %1,061.68 %Nonaccruing loans1,507.17 %1,390.89 %780.09 %
Nonperforming assetsNonperforming assets281.05 %280.35 %340.16 %Nonperforming assets310.12 %303.84 %269.76 %
Total loansTotal loans1.18 %1.34 %1.55 %Total loans0.93 %0.97 %1.12 %
Total loans, excluding PPP loansTotal loans, excluding PPP loans1.22 %1.42 %1.68 %Total loans, excluding PPP loans0.94 %0.98 %1.19 %
Net charge-offs to average loans outstandingNet charge-offs to average loans outstanding0.01 %0.03 %0.04 %Net charge-offs to average loans outstanding— 0.02 %0.02 %

We are actively marketingmarket all OREO properties and none are being helddo not hold them for investment purposes.

Allowance for Credit Losses - Loans
In accordance with ASC 326, the allowance for credit losses on loans is estimated and recognized upon origination of the loan based on expected credit losses. The CECL model uses historical experience and current conditions for homogeneous pools of loans, and reasonable and supportable forecasts about future events. The impact of varying economic conditions and portfolio stress factors are a component of the credit loss models applied to each portfolio. Reserve factors are specific to the loan segments that share similar risk characteristics based on the probability of default assumptions and loss given default assumptions, over the contractual term. The forecasted periods gradually mean-revert the economic inputs to their long-run historical trends. Management evaluates the economic data points used in the Moody’s forecasting scenarios on a quarterly basis to determine the most appropriate impact to the various portfolio characteristics based on management’s view and applies weighting to various forecasting scenarios as deemed appropriate based on known and expected economic activities. Management also considers and may apply relevant qualitative factors, not previously considered, to determine the appropriate allowance level. The use of the CECL model includes significant judgment by management and may differ from those of our peers due to different historical loss patterns, economic forecasts, and the length of time of the reasonable and supportable forecast period and reversion period.
We utilize Moody’s Analytics economic forecast scenarios and assign probability weighting to those scenarios which best reflect management’s views on the economic forecast. The probability weighting and scenarios utilized for the estimate of the allowance were generally reflective of an improved economic forecast as based on known and knowable information as of March 31, 2022.
When determining the appropriate allowance for credit losses on our loan portfolio, our commercial construction and real estate loans, commercial loans and municipal loans utilize the probability of default/loss given default discounted cash flow approach.
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LiquidityReserves on these loans are based upon risk factors including the loan type and Interest Rate Sensitivitystructure, collateral type, leverage ratio, refinancing risk and origination quality, among others. Our consumer construction real estate loans, 1-4 family residential loans and our loans to individuals use a loss rate based upon risk factors including loan types, origination year and credit scores. Loans covered by the PPP may be eligible for loan forgiveness. The remaining loan balance after forgiveness of any amount is still fully guaranteed by the SBA and therefore does not have an associated allowance.
Loans evaluated collectively in a pool are monitored to ensure they continue to exhibit similar risk characteristics with other loans in the pool. If a loan does not share similar risk characteristics with other loans, expected credit losses for that loan are evaluated individually.
As of March 31, 2022, our review of the loan portfolio indicated that an allowance for loan losses of $35.5 million was appropriate to cover expected losses in the portfolio.  Changes in economic and other conditions, including the application of the CECL model and the economic uncertainty related to COVID-19, may require future adjustments to the allowance for loan losses.
During the three months ended March 31, 2022, the allowance for loan losses increased $251,000, or 0.7%, to $35.5 million, or 0.93% of total loans, when compared to $35.3 million, or 0.97% of total loans at December 31, 2021.
For the three months ended March 31, 2022, loan charge-offs were $555,000, and recoveries were $540,000. For the three months ended March 31, 2021, loan charge-offs were $795,000, and recoveries were $622,000. For the three months ended March 31, 2022 we recorded a provision for credit losses for loans of $266,000. For the three months ended March 31, 2021, we recorded a reversal of provision of $7.4 million.

Liquidity management involves
Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures

Allowance for off-balance-sheet credit exposures were as follows (in thousands):
Three Months Ended
March 31,
20222021
Balance at beginning of period$2,384 $6,386 
Provision for (reversal of) off-balance-sheet credit exposures28 (2,770)
Balance at end of period$2,412 $3,616 
Our off-balance-sheet credit exposures include contractual commitments to extend credit and standby letters of credit. For these credit exposures we evaluate the expected credit losses using usage given defaults and credit conversion factors depending on the type of commitment and based upon historical usage rates. These assumptions are reevaluated on an annual basis and adjusted if necessary.  For the three months ended March 31, 2022 there was a provision for credit losses for off-balance-sheet exposures of $28,000, compared to a reversal of provision of $2.8 million for the three months ended March 31, 2021. For additional information regarding our abilitymethodology used to convert assets to cash with minimum risk of loss while enabling us to meet our obligationsestimate the allowance for credit losses on off-balance-sheet credit exposures, see “Note 12 - Off-Balance-Sheet Arrangements, Commitments and Contingencies” to our customers at any time.  This means addressing (1) the immediate cash withdrawal requirements of depositors and other fund providers; (2) the funding requirements of lines and letters of credit; and (3) the short-term credit needs of customers.  Liquidity is provided by cash, interest earning deposits and short-term investments that can be readily liquidated with a minimum risk of loss.  At June 30, 2021, these investments were 6.5% of total assets, as compared with 7.4% for both December 31, 2020 and June 30, 2020. The decrease to 6.5% at June 30, 2021 as compared to December 31, 2020, is reflective of the increase in total assets combined with the decrease in the short-term investment portfolio. Liquidity is further provided through the matching, by time period, of rate sensitive interest earning assets with rate sensitive interest bearing liabilities.  The Bank has three unsecured lines of credit for the purchase of overnight federal funds at prevailing rates with Frost Bank, TIB – The Independent Bankers Bank and Comerica Bank for $40.0 million, $15.0 million and $7.5 million, respectively. There were no federal funds purchased at June 30, 2021 or December 31, 2020.  To provide more liquidity in response to the economic impact of the COVID-19 pandemic, the Federal Reserve took steps to encourage broader use of the discount window. At June 30, 2021, the amount of additional funding the Bank could obtain from the FRDW, collateralized by securities, was approximately $487.7 million. There were no borrowings from the FRDW at June 30, 2021 or December 31, 2020. At June 30, 2021, the amount of additional funding Southside Bank could obtain from FHLB, collateralized by securities, FHLB stock and nonspecified loans and securities, was approximately $1.23 billion, net of FHLB stock purchases required.  The Bank has a $5.0 million line of credit with Frost Bank to be used to issue letters of credit, and at June 30, 2021, the line had one outstanding letter of credit for $91,000. The Bank currently has no outstanding letters of credit from FHLB held as collateral for its public fund deposits.
Management continually evaluates our liquidity position and currently believes the Company has adequate funding to meet ourconsolidated financial needs. During March 2020, in response to COVID-19, the Federal Reserve lowered the primary credit rate by 150 basis points to 0.25 percent and extended terms to 90 days to enhance market liquidity and encourage use of the discount window. In addition, the Federal Reserve announced it would begin quantitative easing, or large-scale asset purchases, consisting primarily of U.S. Treasury securities and MBS to stem the effects of the pandemic on the financial markets. Failure to continue to contain the COVID-19 pandemic could cause a widespread liquidity crisis, and the availability of these funds or the options to sell securities currently held could be hindered.
Interest rate sensitivity management seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates.  The ALCO closely monitors various liquidity ratios and interest rate spreads and margins.  The ALCO utilizes a simulation model to perform interest rate simulation tests that apply various interest rate scenarios including immediate shocks and MVPE to assist in determining our overall interest rate risk and the adequacy of our liquidity position.  In addition, the ALCO utilizes this simulation model to determine the impact on net interest income of various interest rate scenarios.  By utilizing this technology, we can determine changes that need to be made to the asset and liability mix to minimize the change in net interest income under these various interest rate scenarios. See Part I - “Item 3. Quantitative and Qualitative Disclosures about Market Risk”statements included in this Quarterly Report on Form 10-Q.report.

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Capital Resources and Liquidity
Our total shareholders’ equity at June 30, 2021 increased 2.2%March 31, 2022 decreased 14.0%, or $19.1$127.9 million, to $894.4$784.2 million, or 12.5%11.0% of total assets, compared to $875.3$912.2 million, or 12.5%12.6% of total assets, at December 31, 2020.2021. The increasedecrease in shareholders’ equity was the result of other comprehensive loss of $140.0 million, cash dividends paid of $11.0 million, and the repurchase of $3.4 million of our common stock. These decreases were partially offset by net income of $55.4$25.0 million, stock compensation expense of $819,000, common stock issued under our dividend reinvestment plan of $322,000 and net issuance of common stock under employee stock plans of $5.8 million, stock compensation expense of $1.4 million and common stock issued under our dividend reinvestment plan of $662,000. These increases were partially offset by cash dividends paid of $21.3 million, the repurchase of $18.7 million of our common stock and other comprehensive loss of $4.2 million.$269,000.  
The Company’s Common Equity Tier 1 capital includes common stock and related paid-in capital, net of treasury stock, and retained earnings. The Bank’s Common Equity Tier 1 capital includes common stock and related paid-in capital, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include accumulated other comprehensive income in Common Equity Tier 1. We also elected, for a five-year transitional period, the effects of credit loss accounting under CECL from Common Equity Tier 1, as further discussed below. Common Equity Tier 1 for both the Company and the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities.
Tier 1 capital includes Common Equity Tier 1 capital and additional Tier 1 capital. For the Company, additional Tier 1 capital at June 30, 2021March 31, 2022 included $58.4 million of trust preferred securities. For bank holding companies that had assets of less than $15 billion as of December 31, 2009, trust preferred securities issued prior to May 19, 2010 can be treated as Tier 1 capital to the extent that they do not exceed 25% of Tier 1 capital after the application of capital deductions and adjustments. The Bank did not have any additional Tier 1 capital beyond Common Equity Tier 1 at June 30, 2021.March 31, 2022.

Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital for both the Company and the Bank includes a permissible portion of the allowance for credit losses on loans and off-balance sheet exposures. Tier 2 capital for the Company also includes $197.3$98.6 million of qualified subordinated debt as of June 30, 2021.March 31, 2022. The permissible portion of qualified subordinated notes decreases 20% per year during the final five years of the term of the notes.
In April 2020, the FDIC, Federal Reserve, and the Office of the Comptroller of the Currency issued supplemental instructions allowing banking organizations that implement CECL before the end of 2020, the option to delay for two years an estimate of the CECL methodologies’ effect on regulatory capital, relative to the incurred loss methodologies effect on capital, followed by a three-year transition period.  We elected to adopt the five-year transition option. Accordingly,In accordance with CECL guidance, a CECL transitional amount totaling $10.4$6.1 million has been added back to CET1 as of June 30, 2021. The CECLMarch 31, 2022, representing 75% of the $8.2 million transitional amount includes $7.8 million related to a cumulative effect of adopting CECL and $2.6 million related to the estimated incremental effect of CECL since adoption.at December 31, 2021.
Also in April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA. Federal bank regulatory agencies have issued an interim final rule that permits banks to neutralize the regulatory capital effects of participating in the Paycheck Protection Program Lending Facility and clarify that PPP loans have a zero percent risk weight under applicable risk-based capital rules. Specifically, a bank may exclude all PPP loans pledged as collateral to the PPP Facility from its average total consolidated assets for the purposes of calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included. Our PPP loans are included in the calculation of our leverage ratio as of June 30, 2021March 31, 2022, as we did not utilize the PPP Facility for funding purposes.
Management believes that, as of June 30, 2021,March 31, 2022, we met all capital adequacy requirements to which we were subject. It is management’s intention to maintain our capital at a level acceptable to all regulatory authorities and future dividend payments will be determined accordingly.  Regulatory authorities require that any dividend payments made by either us or the Bank not exceed earnings for that year.  Accordingly, shareholders should not anticipate a continuation of the cash dividend payments simply because of the existence of a dividend reinvestment program.  The payment of dividends will depend upon future earnings, our financial condition and other related factors including the discretion of the board of directors.
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To be categorized as well capitalized we must maintain minimum Common Equity Tier 1 risk-based, Tier 1 risk-based, Total capital risk-based and Tier 1 leverage ratios as set forth in the following table (dollars in thousands):
ActualFor Capital
Adequacy Purposes
To Be Well Capitalized
Under Prompt
Corrective Actions
Provisions
ActualFor Capital
Adequacy Purposes
To Be Well Capitalized
Under Prompt
Corrective Actions
Provisions
June 30, 2021AmountRatioAmountRatioAmount Amount
March 31, 2022March 31, 2022AmountRatioAmountRatioAmount Amount
Common Equity Tier 1 (to Risk-Weighted Assets)Common Equity Tier 1 (to Risk-Weighted Assets)      Common Equity Tier 1 (to Risk-Weighted Assets)      
ConsolidatedConsolidated$635,190 14.38 %$198,723 4.50 %N/AN/AConsolidated$667,315 13.67 %$219,751 4.50 %N/AN/A
Bank OnlyBank Only$809,628 18.34 %$198,635 4.50 %$286,918 6.50 %Bank Only$798,983 16.36 %$219,730 4.50 %$317,387 6.50 %
Tier 1 Capital (to Risk-Weighted Assets)Tier 1 Capital (to Risk-Weighted Assets)Tier 1 Capital (to Risk-Weighted Assets)
ConsolidatedConsolidated$693,637 15.71 %$264,964 6.00 %N/AN/AConsolidated$725,765 14.86 %$293,001 6.00 %N/AN/A
Bank OnlyBank Only$809,628 18.34 %$264,847 6.00 %$353,129 8.00 %Bank Only$798,983 16.36 %$292,973 6.00 %$390,631 8.00 %
Total Capital (to Risk-Weighted Assets)Total Capital (to Risk-Weighted Assets)Total Capital (to Risk-Weighted Assets)
ConsolidatedConsolidated$924,974 20.95 %$353,285 8.00 %N/AN/AConsolidated$854,461 17.50 %$390,668 8.00 %N/AN/A
Bank OnlyBank Only$843,653 19.11 %$353,129 8.00 %$441,412 10.00 %Bank Only$829,110 16.98 %$390,631 8.00 %$488,288 10.00 %
Tier 1 Capital (to Average Assets) (1)
Tier 1 Capital (to Average Assets) (1)
Tier 1 Capital (to Average Assets) (1)
ConsolidatedConsolidated$693,637 10.21 %$271,640 4.00 %N/AN/AConsolidated$725,765 10.39 %$279,321 4.00 %N/AN/A
Bank OnlyBank Only$809,628 11.93 %$271,516 4.00 %$339,395 5.00 %Bank Only$798,983 11.45 %$279,221 4.00 %$349,026 5.00 %
ActualFor Capital
Adequacy Purposes
To Be Well Capitalized
Under Prompt
Corrective Actions
Provisions
ActualFor Capital
Adequacy Purposes
To Be Well Capitalized
Under Prompt
Corrective Actions
Provisions
December 31, 2020AmountRatioAmountRatioAmountRatio
December 31, 2021December 31, 2021AmountRatioAmountRatioAmountRatio
Common Equity Tier 1 (to Risk-Weighted Assets)Common Equity Tier 1 (to Risk-Weighted Assets)      Common Equity Tier 1 (to Risk-Weighted Assets)      
ConsolidatedConsolidated$612,703 14.68 %$187,814 4.50 %N/AN/AConsolidated$657,043 14.17 %$208,616 4.50 %N/AN/A
Bank OnlyBank Only$768,200 18.41 %$187,801 4.50 %$271,268 6.50 %Bank Only$793,271 17.11 %$208,576 4.50 %$301,277 6.50 %
Tier 1 Capital (to Risk-Weighted Assets)Tier 1 Capital (to Risk-Weighted Assets)Tier 1 Capital (to Risk-Weighted Assets)
ConsolidatedConsolidated$671,147 16.08 %$250,418 6.00 %N/AN/AConsolidated$715,492 15.43 %$278,155 6.00 %N/AN/A
Bank OnlyBank Only$768,200 18.41 %$250,402 6.00 %$333,869 8.00 %Bank Only$793,271 17.11 %$278,102 6.00 %$370,803 8.00 %
Total Capital (to Risk-Weighted Assets)Total Capital (to Risk-Weighted Assets)      Total Capital (to Risk-Weighted Assets)      
ConsolidatedConsolidated$908,873 21.78 %$333,891 8.00 %N/AN/AConsolidated$841,300 18.15 %$370,874 8.00 %N/AN/A
Bank OnlyBank Only$808,675 19.38 %$333,869 8.00 %$417,336 10.00 %Bank Only$820,545 17.70 %$370,803 8.00 %$463,503 10.00 %
Tier 1 Capital (to Average Assets) (1)
Tier 1 Capital (to Average Assets) (1)
Tier 1 Capital (to Average Assets) (1)
ConsolidatedConsolidated$671,147 9.81 %$273,558 4.00 %N/AN/AConsolidated$715,492 10.33 %$277,065 4.00 %N/AN/A
Bank OnlyBank Only$768,200 11.24 %$273,432 4.00 %$341,790 5.00 %Bank Only$793,271 11.46 %$276,932 4.00 %$346,165 5.00 %
(1)Refers to quarterly average assets as calculated in accordance with policies established by bank regulatory agencies.
As of June 30, 2021,March 31, 2022, Southside Bancshares and Southside Bank met all capital adequacy requirements under the Basel III Capital Rules that became fully phased-in as of January 1, 2019. Refer to the Supervision and Regulation section in the 20202021 Form 10-K for further discussion of our capital requirements.
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The table below summarizes our key equity ratios for the periods presented:
Three Months Ended
June 30,
Three Months Ended
March 31,
20212020 20222021
Return on average assetsReturn on average assets1.20 %1.17 %Return on average assets1.40 %1.99 %
Return on average shareholders’ equityReturn on average shareholders’ equity9.73 %10.82 %Return on average shareholders’ equity11.42 %15.82 %
Dividend payout ratio – BasicDividend payout ratio – Basic50.77 %47.69 %Dividend payout ratio – Basic44.16 %30.77 %
Dividend payout ratio – DilutedDividend payout ratio – Diluted50.77 %47.69 %Dividend payout ratio – Diluted44.16 %30.77 %
Average shareholders’ equity to average total assetsAverage shareholders’ equity to average total assets12.38 %10.86 %Average shareholders’ equity to average total assets12.28 %12.56 %
Six Months Ended
June 30,
20212020
Return on average assets1.59 %0.72 %
Return on average shareholders’ equity12.75 %6.31 %
Dividend payout ratio – Basic38.46 %81.58 %
Dividend payout ratio – Diluted38.46 %81.58 %
Average shareholders’ equity to average total assets12.47 %11.38 %

Off-Balance-Sheet Arrangements, Commitments and ContingenciesManagement of Liquidity
Financial InstrumentsLiquidity management involves our ability to convert assets to cash with Off-Balance-Sheet Risk. In the normal courseminimum risk of business, we are a party to certain financial instruments with off-balance-sheet riskloss while enabling us to meet our current and future obligations to our customers at any time.  This means addressing (1) the financingimmediate cash withdrawal requirements of depositors and other fund providers; (2) the funding requirements of lines and letters of credit; and (3) the short-term credit needs of our customers.  These off-balance-sheet instruments include commitmentsLiquidity is provided by cash, interest earning deposits and short-term investments that can be readily liquidated with a minimum risk of loss.  At March 31, 2022, these investments were 4.4% of total assets, as compared with 5.9% for December 31, 2021 and 6.6% for March 31, 2021. The decrease to extend4.4% at March 31, 2022 as compared to December 31, 2021, is reflective of decreases in the short-term investment portfolio and interest earning deposits, partially offset by the decrease in total assets while the decrease as compared to March 31, 2021, is reflective of the decrease in the short-term investment portfolio combined with the increase in total assets. Liquidity is further provided through the matching, by time period, of rate sensitive interest earning assets with rate sensitive interest bearing liabilities.  The Bank has three unsecured lines of credit for the purchase of overnight federal funds at prevailing rates with Frost Bank, TIB – The Independent Bankers Bank and standbyComerica Bank for $40.0 million, $15.0 million and $7.5 million, respectively. There were no federal funds purchased at March 31, 2022 or December 31, 2021.  To provide more liquidity in response to the economic impact of the COVID-19 pandemic, the Federal Reserve took steps to encourage broader use of the discount window. At March 31, 2022, the amount of additional funding the Bank could obtain from the FRDW, collateralized by securities, was approximately $435.9 million. There were no borrowings from the FRDW at March 31, 2022 or December 31, 2021. At March 31, 2022, the amount of additional funding Southside Bank could obtain from FHLB, collateralized by securities, FHLB stock and nonspecified loans and securities, was approximately $1.72 billion, net of FHLB stock purchases required.  The Bank has a $5.0 million line of credit with Frost Bank to be used to issue letters of credit. These instruments involve, to varying degrees, elements of credit, and at March 31, 2022, the line had one outstanding letter of credit for $155,000. The Bank currently has no outstanding letters of credit from FHLB held as collateral for its public fund deposits.
Interest rate sensitivity management seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates.  The ALCO closely monitors various liquidity ratios and interest rate spreads and margins.  The ALCO utilizes a simulation model to perform interest rate simulation tests that apply various interest rate scenarios including immediate shocks and MVPE to assist in determining our overall interest rate risk and the adequacy of our liquidity position.  In addition, the ALCO utilizes this simulation model to determine the impact on net interest income of various interest rate scenarios.  By utilizing this technology, we can determine changes that need to be made to the asset and liability mix to minimize the change in excess ofnet interest income under these various interest rate scenarios.
Management continually evaluates our liquidity position and currently believes the amount reflected in theCompany has adequate funding to meet our financial statements. The contract or notional amounts of these instruments reflect the extent of involvement and exposure to credit loss that we have in these particular classes of financial instruments. The allowance for credit losses on these off-balance-sheet credit exposures is calculated using the same methodology as loans including conversion or usage factor to anticipate ultimate exposure and expected losses and is included in other liabilities on our consolidated balance sheets.needs.

Allowance for off-balance-sheet credit exposures were as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Balance at beginning of period$3,616 $7,460 $6,386 $1,455 
Impact of CECL adoption— — — 4,840 
Provision for (reversal of) off-balance-sheet credit exposures157 (1,095)(2,613)70 
Balance at end of period$3,773 $6,365 $3,773 $6,365 

Commitments to extend credit are agreements to lend to a customer provided that the terms established in the contract are met. Commitments to extend credit generally have fixed expiration dates and may require the payment of fees. Since some commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in commitments to extend credit and similarly do not necessarily represent future cash obligations.

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Financial instruments with off-balance-sheet risk were as follows (in thousands):
 June 30, 2021December 31, 2020
Unused commitments:  
Commitments to extend credit$922,234 $793,138 
Standby letters of credit10,785 13,658 
Total$933,019 $806,796 

We apply the same credit policies in making commitments to extend credit and standby letters of credit as we do for on-balance-sheet instruments.  We evaluate each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary, upon extension of credit is based on management’s credit evaluation of the borrower.  Collateral held varies but may include cash or cash equivalents, negotiable instruments, real estate, accounts receivable, inventory, oil, gas and mineral interests, property, plant and equipment.
Leases. During the three months ended June 30, 2021, there were no operating lease ROU assets obtained in exchange for new operating lease liabilities. During the six months ended June 30, 2021, there were $1.1 million of operating lease ROU assets obtained in exchange for new operating lease liabilities, primarily due to one lease that commenced in January 2021 with an initial ROU asset of $1.1 million. During the three and six months ended June 30, 2020, there were $7.8 million and $8.0 million, respectively, of operating lease ROU assets obtained in exchange for new operating lease liabilities, primarily due to one lease that commenced in May 2020 with an initial ROU asset of $6.6 million.
Securities. In the normal course of business we buy and sell securities. At June 30, 2021, there were $41.9 million of unsettled trades to purchase securities and no unsettled trades to sell securities. At December 31, 2020, there were no unsettled trades to purchase securities and no unsettled trades to sell securities.
Deposits. There were no unsettled issuances of brokered CDs at June 30, 2021 or December 31, 2020.
Litigation. We are a party to various litigation in the normal course of business.  Management, after consulting with our legal counsel, believes that any liability resulting from litigation will not have a material effect on our financial position, results of operations or liquidity.

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Expansion
On April 12, 2021, we opened a loan production office in Harris County, in Houston’s Uptown District.
Recent Accounting Pronouncements
See “Note 1 – Summary of Significant Accounting and Reporting Policies” in our consolidated financial statements included in this Quarterly Report on Form 10-Q.
Subsequent Events
Subsequent to June 30, 2021March 31, 2022 and through July 27, 2021,April 26, 2022, we purchased 22,406173,005 shares of common stock at an average price of $34.95$39.57 pursuant to the Stock Repurchase Plan.
We anticipateSubsequent to March 31, 2022, on April 1, 2022, we transferred tax-free municipal securities and U.S. Agency MBS with fair values of approximately $247.7 million and $28.3 million, respectively, to HTM. All transfers from AFS to HTM were at the redemptionfair market value on the date of our 5.50% coupon $100.0 million subordinated notes on September 30, 2021, subjecttransfer. There was no impact to regulatory approval.

the income statement as a result of these transfers.
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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The disclosures set forth in this item are qualified by the section captioned “Forward-Looking Statements” included in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report and other cautionary statements set forth elsewhere in this Quarterly Report on Form 10-Q.
Refer to the discussion of market risks included in “Item 7A.  Quantitative and Qualitative Disclosures About Market Risk” in the 20202021 Form 10-K.  
In the banking industry, a major risk exposure is changing interest rates.  The primary objective of monitoring our interest rate sensitivity, or risk, is to provide management the tools necessary to manage the balance sheet to minimize adverse changes in net interest income as a result of changes in the direction and level of interest rates.  Federal Reserve monetary control efforts, the effects of deregulation, economic uncertainty and legislative changes have been significant factors affecting the task of managing interest rate sensitivity positions in recent years.
In an attempt to manage our exposure to changes in interest rates, management closely monitors our exposure to interest rate risk through our ALCO.  Our ALCO meets regularly and reviews our interest rate risk position and makes recommendations to our board for adjusting this position.  In addition, our board regularly reviews our asset/liability position on a monthly basis.position.  We primarily use two methods for measuring and analyzing interest rate risk: net income simulation analysis and MVPE modeling.  We utilize the net income simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates.  This model quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next 12 months.  The model is used to measure the impact on net interest income relative to a base case scenario of rates immediately increasing 100 and 200 basis points or decreasing 50 basis points over the next 12 months.  These simulations incorporate assumptions regarding balance sheet growth and mix, pricing and the repricing and maturity characteristics of the existing and projected balance sheet.  The impact of interest rate-related risks such as prepayment, basis and option risk are also considered.  The model has interest rate floors and no interest rates are assumed to go negative. The interest rate environment declined duringin 2020 toand much of 2021 was at a point where most treasury terms were under 100 basis points; therefore, we do not believe an analysis of an assumed decrease in interest rates beyond 50 basis points would provide meaningful results. We will continueare continuing to monitor interest rates and weanticipate additional rate increases in 2022. We will resume the simulation of rates decreasing 100 and 200 basis points once rates begin to rise.rise further.
The following table reflects the noted increases and decreases in interest rates under the model simulations and the anticipated impact on net interest income relative to the base case over the next 12 months for the periods presented.
Anticipated impact over the next 12 monthsAnticipated impact over the next 12 months
June 30,March, 31
Rate projections:Rate projections:20212020Rate projections:20222021
Increase:Increase:Increase:
100 basis points100 basis points2.13 %1.17 %100 basis points2.50 %3.15 %
200 basis points200 basis points4.58 %(0.35)%200 basis points5.29 %6.85 %
Decrease:Decrease:Decrease:
50 basis points50 basis points(1.64)%(0.63)%50 basis points(2.45)%(2.15)%
100 basis pointsN/A(2.19)%
200 basis pointsN/A(4.41)%
As part of the overall assumptions, certain assets and liabilities are given reasonable floors.  This type of simulation analysis requires numerous assumptions including but not limited to changes in balance sheet mix, prepayment rates on mortgage-related assets and fixed rate loans, cash flows and repricing of all financial instruments, changes in volumes and pricing, future shapes of the yield curve, relationship of market interest rates to each other (basis risk), credit spread and deposit sensitivity.  Assumptions are based on management’s best estimates but may not accurately reflect actual results under certain changes in interest rates.
In addition to interest rate risk, beginning in 2020, the COVID-19 pandemic exposed us and will likelycould continue to expose us to additional market value risk.risk in the future. Protracted business closures, furloughs and lay-offs curtailed economic activity, and will likely continue tocould curtail economic activity in the future and could result in lower fair values for collateral in our commercial and 1-4 family portfolio segments.
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segments in the event that COVID-19 and related variants are not contained.
The ALCO monitors various liquidity ratios to ensure a satisfactory liquidity position for us.  Management continually evaluates the condition of the economy, the pattern of market interest rates and other economic data to determine the types of investments that should be made and at what maturities.  Using this analysis, management from time to time assumes calculated
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interest sensitivity gap positions to maximize net interest income based upon anticipated movements in the general level of interest rates.  Regulatory authorities also monitor our gap position along with other liquidity ratios.  In addition, as described above, we utilize a simulation model to determine the impact of net interest income under several different interest rate scenarios.  By utilizing this model, we can determine changes that need to be made to the asset and liability mixes to mitigate the change in net interest income under these various interest rate scenarios.

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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), undertook an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report, and, based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report, in recording, processing, summarizing and reporting in a timely manner the information that the Company is required to disclose in its reports under the Exchange Act and in accumulating and communicating to the Company’s management, including the Company’s CEO and CFO, such information as appropriate to allow timely decisions regarding required disclosure.  
Changes in Internal Control Over Financial Reporting
No changes were made to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended June 30, 2021March 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS 

We are a party to various litigation in the normal course of business. Management, after consulting with our legal counsel, believes that any liability resulting from litigation will not have a material effect on our financial position, results of operations or liquidity.

ITEM 1A.    RISK FACTORS

There have been no material changes in the risk factors previously disclosed in the 20202021 Form 10-K.

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ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
On September 5, 2019,March 1, 2022, our board of directors authorizedapproved a Stock Repurchase Plan, authorizing the repurchase, from time to time, of up to 1.0 million shares of the Company’s outstanding common stock under the Stock Repurchase Plan. On March 12, 2020, our board of directors increased the authorization under the Stock Repurchase Plan by an additional 1.0 million shares, for a total authorization to repurchase up to 2.0 million shares.stock. Repurchases may be carried out in open market purchases, privately negotiated transactions andor pursuant to any trading plan that might be adopted in accordance with Rule 10b5-1 of the Exchange Act. We haveThe Company has no obligation to repurchase any shares under the Stock Repurchase Plan and may modify, suspend or discontinue the plan at any time.
The following table provides information with respect to purchases made by or on behalf of any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act), of our common stock during the three months ended June 30, 2021:March 31, 2022:
PeriodTotal Number of
 Shares
Purchased
Average Price Paid
 Per Share
Total Number of Shares Purchased as Part of Publicly Announced PlanMaximum Number of Shares That May Yet Be Purchased Under the Stock Repurchase Plan at the End of the Period
April 1, 2021 - April 30, 202190,884 $38.49 90,884 420,204 
May 1, 2021 - May 31, 2021— — — 420,204 
June 1, 2021 - June 30, 2021— — — 420,204 
Total90,884 $38.49 90,884 
PeriodTotal Number of
 Shares
Purchased
Average Price Paid
 Per Share
Total Number of Shares Purchased as Part of Publicly Announced PlanMaximum Number of Shares That May Yet Be Purchased Under the Stock Repurchase Plan at the End of the Period
January 1, 2022 - January 31, 2022— $— — — 
February 1, 2022 - February 28, 2022— — — — 
March 1, 2022 - March 31, 202282,285 40.81 82,285 917,715 
Total82,285 $40.81 82,285 

Subsequent to June 30, 2021March 31, 2022 and through July 27, 2021,April 26, 2022, we purchased 22,406173,005 shares of common stock at an average price of $34.95$39.57 pursuant to the Stock Repurchase Plan.
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ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4.    MINE SAFETY DISCLOSURES
None.

ITEM 5.    OTHER INFORMATION
None.
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ITEM 6.    EXHIBITS

Exhibit Index
Incorporated by Reference
Exhibit NumberExhibit DescriptionFiled HerewithExhibitFormFiling DateFile No.
(3)Articles of Incorporation and Bylaws
3.13.18-K05/14/20180-12247
  
3.23.18-K02/22/20180-12247
(10)Material Contracts
10.110.18-K06/21/20210-12247
(31)Rule 13a-14(a)/15d-14(a) Certifications
31.1X
 
31.2X
  
(32)Section 1350 Certification
†32X
  
(101)Interactive Date File
101.INSXBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.X
  
101.SCHInline XBRL Taxonomy Extension Schema Document.X
  
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.X
  
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.X
  
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.X
  
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.X
  
104Cover Page Interactive Data File (embedded within the Inline XBRL document).X
  
† The certification attached as Exhibit 32 accompanies this Quarterly Report on Form 10-Q and is “furnished” to the Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by us for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Incorporated by Reference
Exhibit NumberExhibit DescriptionFiled HerewithExhibitFormFiling DateFile No.
(3)Articles of Incorporation and Bylaws
3.13.18-K05/14/20180-12247
  
3.23.18-K02/22/20180-12247
(10)Material Contracts
10.1X
(31)Rule 13a-14(a)/15d-14(a) Certifications
31.1X
 
31.2X
  
(32)Section 1350 Certification
†32X
  
(101)Interactive Date File
101.INSXBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.X
  
101.SCHInline XBRL Taxonomy Extension Schema Document.X
  
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.X
  
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.X
  
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.X
  
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.X
  
104Cover Page Interactive Data File (embedded within the Inline XBRL document).X
  
† The certification attached as Exhibit 32 accompanies this Quarterly Report on Form 10-Q and is “furnished” to the Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by us for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 SOUTHSIDE BANCSHARES, INC.
 
DATE:July 30, 2021April 28, 2022BY:/s/ Lee R. Gibson
Lee R. Gibson, CPA
President and Chief Executive Officer
(Principal Executive Officer)
DATE:July 30, 2021April 28, 2022BY:/s/ Julie N. Shamburger
Julie N. Shamburger, CPA
Chief Financial Officer
(Principal Financial and Accounting Officer)
 

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