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Southside Bancshares, Inc. Announces Financial Results for the First Quarter Ended March 31, 2021
Source: Nasdaq GlobeNewswire / 23 Apr 2021 05:00:01 America/Chicago
- Record first quarter net income of $34.1 million, an increase of 762.4%, compared to the same period in 2020;
- Annualized return on first quarter average assets of 1.99%;
- Annualized return on first quarter average tangible common equity of 21.22%(1); and
- Nonperforming assets decreased to 0.22% of total assets.
TYLER, Texas, April 23, 2021 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ: SBSI) today reported its financial results for the quarter ended March 31, 2021. Southside reported net income of $34.1 million for the three months ended March 31, 2021, an increase of $30.1 million, or 762.4%, compared to $4.0 million for the same period in 2020. Earnings per diluted common share increased $0.92, or 766.7%, to $1.04 for the three months ended March 31, 2021, from $0.12 for the same period in 2020. The annualized return on average shareholders’ equity for the three months ended March 31, 2021 was 15.82%, compared to 1.93% for the same period in 2020. The annualized return on average assets was 1.99% for the three months ended March 31, 2021, compared to 0.23% for the same period in 2020.
“We reported outstanding results for the first quarter, highlighted by record net income, annualized linked quarter loan growth of 6.2%, net of Paycheck Protection Program (“PPP”) loans, continued strong asset quality metrics and annualized linked quarter deposit growth of 13.2%,” stated Lee R. Gibson, President and Chief Executive Officer of Southside.
“Our record net income and earnings per diluted common share were primarily due to the $35.4 million decrease in provision for credit losses, from $25.2 million for the first quarter ended March 31, 2020, compared to a $10.1 million reversal of provision for the same period in 2021. This was largely due to our continued strong asset quality ratios, overall improvement in economic conditions, including lower unemployment levels, and a significant improvement in the economic forecast for March 2021 when compared to March 2020.”
“We entered 2021 with an active loan pipeline, several of which closed and were funded during March, contributing to the 6.2% first quarter annualized loan growth. We are encouraged about potential future loan growth as our pipeline continues to remain healthy. We have been actively participating in the second round of the PPP during 2021, and as of April 21, we have originated approximately 1,000 new loans totaling $105 million for small businesses in the market areas we serve.”
“During February, Texas suffered a major power crisis due to the historic Winter Storm Uri, causing a massive electricity generation failure. This power crisis caused shortages of water, food and heat impacting large portions of the state. In addition, large accumulations of snow and ice created extremely hazardous driving conditions. Our technology facilities continued to operate uninterrupted with the use of backup power systems, allowing those team members with power, to work from home and handle virtually all customer transactions with the assistance of our ATM network for cash needs. Utilizing proven methods and technology, we were able to open the bank virtually until conditions improved with very few team members present and minimal customer inconvenience.”
“Economic conditions in our market areas continue to improve, bolstered by company relocations and population growth due to individuals moving to Texas from other states. During the first quarter we hired additional revenue producers, one in Austin and two in the DFW area to generate additional loan growth.”
Operating Results for the Three Months Ended March 31, 2021
Net income was $34.1 million for the three months ended March 31, 2021, compared to $4.0 million for the same period in 2020, an increase of $30.1 million, or 762.4%. Earnings per diluted common share were $1.04 for the three months ended March 31, 2021, compared to $0.12 for the same period in 2020, an increase of 766.7%. The increase in net income was a direct result of a reversal of the provision for credit losses compared to a large build-up in the allowance for credit losses in the same period in 2020. Annualized returns on average assets and average shareholders’ equity for the three months ended March 31, 2021 were 1.99% and 15.82%, respectively. Our efficiency ratio and tax equivalent efficiency ratio(1) was 53.01% and 50.44%, respectively, for the three months ended March 31, 2021, compared to 49.86% and 47.36%, respectively, for the three months ended December 31, 2020.
Net interest income for the three months ended March 31, 2021 was $46.3 million, compared to $44.7 million for the same period in 2020, an increase of 3.6%. The increase in net interest income compared to the same period in 2020 was due to the decrease in interest expense on our interest bearing liabilities, a result of an overall decline in interest rates, partially offset by a decrease in interest income due to a decrease in the average yield on our interest earning assets during the three months ended March 31, 2021. Linked quarter, net interest income decreased $2.4 million, or 4.9%, compared to $48.7 million during the three months ended December 31, 2020. The decrease in interest income is due to the decrease in the average balance of interest earning assets and the average yield, partially offset by a decline in interest expense driven by the decrease in the average balance of interest bearing liabilities and the average interest rate.
Our net interest margin and tax equivalent net interest margin(1) increased to 3.01% and 3.20%, respectively, for the three months ended March 31, 2021, compared to 2.88% and 3.03%, respectively, for the same period in 2020. Linked quarter net interest margin increased one basis point from 3.00% and tax equivalent net interest margin(1) remained unchanged at 3.20% as compared to the three months ended December 31, 2020.
Noninterest income was $13.6 million for the three months ended March 31, 2021, a decrease of $1.9 million, or 12.1%, compared to $15.5 million for the same period in 2020, due to a $3.5 million decrease in net gain on sale of securities available for sale, partially offset by increases in other noninterest income, gain on sale of loans and brokerage services income. On a linked quarter basis, noninterest income increased $2.7 million, or 25.0%, compared to the three months ended December 31, 2020, due to increases in net gain on sale of securities available for sale, brokerage services income and other noninterest income, partially offset by decreases in deposit services income and gain on sale of loans.
Noninterest expense was $31.2 million for the three months ended March 31, 2021, an increase of $0.7 million, or 2.3%, compared to $30.5 million for the same period in 2020. On a linked quarter basis, noninterest expense decreased $0.1 million, or 0.3%, compared to the three months ended December 31, 2020.
Income tax expense increased $4.3 million for the three months ended March 31, 2021 compared to the same period in 2020. On a linked quarter basis, income tax expense increased $0.5 million, or 11.4%. Our effective tax rate (“ETR”) increased to 12.2% for the three months ended March 31, 2021 compared to 10.8% for the three months ended March 31, 2020 due to a decrease in tax-exempt income as a percentage of pre-tax income. Linked quarter, our ETR decreased compared to 12.6% for the three months ended December 31, 2020, primarily due to $0.1 million of a discrete tax benefit recorded in connection with equity award transactions in the first quarter of 2021.
Balance Sheet Data
At March 31, 2021, we had $7.0 billion in total assets, compared to $7.01 billion at December 31, 2020 and $7.27 billion at March 31, 2020.
Loans at March 31, 2021 were $3.72 billion, an increase of $115.6 million, or 3.2%, compared to $3.60 billion at March 31, 2020. This increase was due to our origination of PPP loans, a component of the commercial loan category, with a balance of $220.9 million at March 31, 2021, offset largely by a decrease in our 1-4 family residential loans. There were no PPP loans outstanding at March 31, 2020. Linked quarter loans increased $58.8 million, or 1.6%, from $3.66 billion at December 31, 2020. The linked quarter net increase in loans consisted primarily of increases of $52.8 million of commercial real estate loans, $23.7 million of construction loans and $7.6 million of commercial loans, partially offset by decreases of $19.5 million of 1-4 family residential loans, $3.2 million of loans to individuals and $2.7 million of municipal loans. On a linked quarter basis, our PPP loans experienced a net increase of $6.0 million, or 2.8%, from $214.8 million at December 31, 2020, due to additional funding under the renewed Economic Aid Act, which was signed into law on December 27, 2020, partially offset by forgiveness payments received from loans funded under the Coronavirus Aid, Relief, and Economic Security Act.
Securities at March 31, 2021 were $2.65 billion, a decrease of $302.4 million, or 10.3%, compared to $2.95 billion at March 31, 2020. The decrease was primarily due to principal pay downs of mortgage-related securities. Linked quarter, securities decreased $51.2 million, or 1.9%, from $2.70 billion at December 31, 2020. The decrease for the linked quarter was primarily a result of the decline in the estimated fair value of the securities portfolio at March 31, 2021, when compared to December 31, 2020.
Deposits at March 31, 2021 were $5.09 billion, an increase of $353.5 million, or 7.5%, compared to $4.74 billion at March 31, 2020. Linked quarter, deposits increased $160.3 million, or 3.3%, from $4.93 billion at December 31, 2020. Both of these increases were largely driven by PPP loan disbursements deposited into our commercial accounts and stimulus checks deposited during the second quarter of 2020 and the first quarter of 2021.
Asset Quality
Nonperforming assets at March 31, 2021 were $15.4 million, or 0.22% of total assets, a decrease of $2.0 million, or 11.7%, compared to $17.4 million, or 0.24% of total assets, at March 31, 2020, and a decrease from $17.5 million, or 0.25% of total assets, at December 31, 2020. During the three months ended March 31, 2021, nonaccrual loans decreased $2.4 million, or 31.1%.
The allowance for loan losses decreased to $41.5 million, or 1.12% of total loans, at March 31, 2021, compared to $53.6 million, or 1.49% of total loans, at March 31, 2020. The allowance for loan losses was $49.0 million, or 1.34% of total loans, at December 31, 2020. The decrease is primarily due to improvement in the economic forecast.
For the three months ended March 31, 2021, we recorded a reversal of provision for credit losses for loans of $7.4 million, compared to a provision for credit losses for loans of $24.1 million for the three months ended March 31, 2020 and a reversal of provision for credit losses of $5.9 million for the three months ended December 31, 2020. The reversal was primarily due to improvement in the economic forecast in the first quarter of 2021 and its effect on macroeconomic factors used in the CECL model. The provision in the first quarter of 2020 was due to the estimated economic impact of COVID-19 on the macroeconomic factors, including the potential for credit deterioration. Net charge-offs were $0.2 million for the three months ended March 31, 2021, compared to net charge-offs of $0.5 million for the three months ended March 31, 2020 and $0.2 million of net charge-offs for the three months ended December 31, 2020.
For the three months ended March 31, 2021, we recorded a reversal of provision for credit losses for off-balance-sheet credit exposures of $2.8 million and provisions of $1.2 million and $0.4 million for the three months ended March 31, 2020 and December 31, 2020, respectively. The balance of the allowance for off-balance-sheet credit exposures at March 31, 2021 was $3.6 million and is included in other liabilities.
Dividend
Southside Bancshares, Inc. declared a first quarter cash dividend of $0.32 per share on February 4, 2021, which was paid on March 4, 2021, to all shareholders of record as of February 18, 2021.
(1) Refer to “Non-GAAP Financial Measures” below and to “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for more information and for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure. Conference Call
Southside's management team will host a conference call to discuss its first quarter ended March 31, 2021 financial results on Friday, April 23, 2021 at 11:00 a.m. CDT. The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 8276936 or by identifying “Southside Bancshares, Inc., First Quarter 2021 Earnings Call.” To listen to the call via webcast, register at https://investors.southside.com.
For those unable to listen to the conference call live, a recording will be available from approximately 2:00 p.m. CDT April 23, 2021 through 2:00 p.m. CDT May 5, 2021 by accessing the company website, https://investors.southside.com.
Non-GAAP Financial Measures
Our accounting and reporting policies conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of our performance. These include the following fully taxable-equivalent measures (“FTE”): (i) Net interest income (FTE), (ii) net interest margin (FTE), (iii) net interest spread (FTE), and (iv) efficiency ratio (FTE), which include the effects of taxable-equivalent adjustments using a federal income tax rate of 21% 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.
Efficiency ratio (FTE). The efficiency ratio (FTE) is a non-GAAP measure that provides a measure of productivity in the banking industry. This ratio is calculated to measure the cost of generating one dollar of revenue. The ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. We calculate this ratio by dividing noninterest expense, excluding amortization expense on intangibles and certain nonrecurring expense by the sum of net interest income (FTE) and noninterest income, excluding net gain (loss) on sale of securities available for sale and certain nonrecurring impairments. The most directly comparable financial measure calculated in accordance with GAAP is our efficiency ratio.
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.
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 reflected in the respective earning asset categories as listed in the “Average Balances with Average Yields and Rates” tables.
A reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures is included at the end of the financial statement tables.
About Southside Bancshares, Inc.
Southside Bancshares, Inc. is a bank holding company with approximately $7.0 billion in assets as of March 31, 2021, that owns 100% of Southside Bank. Southside Bank currently has 55 branches in Texas and operates a network of 76 ATMs/ITMs.
To learn more about Southside Bancshares, Inc., please visit our investor relations website at https://investors.southside.com. Our investor relations site provides a detailed overview of our activities, financial information and historical stock price data. To receive e-mail notification of company news, events and stock activity, please register on the E-mail Notification portion of the website. Questions or comments may be directed to Lindsey Bailes at (903) 630-7965, or lindsey.bailes@southside.com.
Forward-Looking Statements
Certain statements of other than historical fact that are contained in this press release and in other written materials, documents and oral statements issued by or on behalf of the Company 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 the Company’s beliefs, plans, expectations, objectives, goals, anticipations, assumptions and estimates about the Company's future performance and are subject to significant known and unknown risks and uncertainties, which could cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. For example, discussions about trends in asset quality, capital, liquidity, the pace of loan and revenue growth, the Company's ability to sell nonperforming assets, expense reductions, planned operational efficiencies, earnings, successful integration of completed acquisitions and certain market risk disclosures, including the impact of interest rates, tax reform and other economic factors, including the impact of the COVID-19 pandemic on the economy and our operations, 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. The most recent factor that could cause future results to differ materially from those anticipated by our forward-looking statements include the negative impact of the COVID-19 pandemic 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, additional 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.
Additional information concerning the Company and its business, including additional factors that could materially affect the Company’s financial results, is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, under “Part I - Item 1. Forward Looking Information” and in the Company’s other filings with the Securities and Exchange Commission. The Company disclaims 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.
Southside Bancshares, Inc.
Consolidated Financial Summary (Unaudited)
(Dollars in thousands)As of 2021 2020 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, ASSETS Cash and due from banks $ 78,304 $ 87,357 $ 81,643 $ 81,271 $ 71,727 Interest earning deposits 29,319 21,051 14,561 19,535 40,486 Securities available for sale, at estimated fair value 2,546,924 2,587,305 2,633,519 2,679,521 2,813,024 Securities held to maturity, at net carrying value 98,159 108,998 115,089 120,384 134,491 Total securities 2,645,083 2,696,303 2,748,608 2,799,905 2,947,515 Federal Home Loan Bank stock, at cost 18,754 25,259 35,860 55,689 54,696 Loans held for sale 2,615 3,695 8,686 3,392 1,830 Loans 3,716,598 3,657,779 3,789,975 3,852,571 3,601,002 Less: Allowance for loan losses (41,454 ) (49,006 ) (55,110 ) (59,868 ) (53,638 ) Net loans 3,675,144 3,608,773 3,734,865 3,792,703 3,547,364 Premises & equipment, net 144,628 144,576 147,169 147,715 146,212 Goodwill 201,116 201,116 201,116 201,116 201,116 Other intangible assets, net 8,978 9,744 10,569 11,450 12,381 Bank owned life insurance 116,209 115,583 114,928 114,248 101,066 Other assets 78,736 94,770 92,955 102,587 149,245 Total assets $ 6,998,886 $ 7,008,227 $ 7,190,960 $ 7,329,611 $ 7,273,638 LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest bearing deposits $ 1,383,371 $ 1,354,815 $ 1,363,228 $ 1,398,179 $ 1,065,708 Interest bearing deposits 3,709,272 3,577,507 3,739,798 3,672,365 3,673,415 Total deposits 5,092,643 4,932,322 5,103,026 5,070,544 4,739,123 Other borrowings and Federal Home Loan Bank borrowings 687,845 855,699 994,512 1,165,463 1,492,270 Subordinated notes, net of unamortized debt
issuance costs197,268 197,251 98,708 98,663 98,619 Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,256 60,255 60,254 60,253 60,251 Other liabilities 102,277 87,403 95,312 117,083 87,575 Total liabilities 6,140,289 6,132,930 6,351,812 6,512,006 6,477,838 Shareholders' equity 858,597 875,297 839,148 817,605 795,800 Total liabilities and shareholders' equity $ 6,998,886 $ 7,008,227 $ 7,190,960 $ 7,329,611 $ 7,273,638 Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars and shares in thousands, except per share data)Three Months Ended 2021 2020 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Income Statement: Total interest income $ 53,565 $ 56,904 $ 55,677 $ 58,495 $ 60,752 Total interest expense 7,262 8,197 9,091 11,224 16,051 Net interest income 46,303 48,707 46,586 47,271 44,701 Provision for credit losses (10,149 ) (5,545 ) (4,746 ) 5,245 25,247 Net interest income after provision for credit losses 56,452 54,252 51,332 42,026 19,454 Noninterest income Deposit services 6,125 6,419 6,129 5,532 6,279 Net gain (loss) on sale of securities available for sale 2,003 (24 ) 78 2,662 5,541 Gain on sale of loans 593 848 1,071 683 170 Trust fees 1,383 1,354 1,253 1,221 1,305 Bank owned life insurance 626 655 680 650 569 Brokerage services 780 628 564 499 580 Other 2,113 1,020 1,366 946 1,054 Total noninterest income 13,623 10,900 11,141 12,193 15,498 Noninterest expense Salaries and employee benefits 20,044 19,609 19,344 18,629 19,643 Net occupancy 3,560 3,795 3,595 3,668 3,311 Advertising, travel & entertainment 437 504 519 292 832 ATM expense 238 290 271 233 224 Professional fees 991 986 961 1,082 1,195 Software and data processing 1,312 1,220 1,215 1,295 1,227 Communications 525 490 495 506 493 FDIC insurance 454 456 469 174 25 Amortization of intangibles 766 825 881 931 980 Other 2,907 3,140 3,866 3,046 2,590 Total noninterest expense 31,234 31,315 31,616 29,856 30,520 Income before income tax expense 38,841 33,837 30,857 24,363 4,432 Income tax expense 4,750 4,265 3,783 2,809 479 Net income $ 34,091 $ 29,572 $ 27,074 $ 21,554 $ 3,953 Common Share Data: Weighted-average basic shares outstanding 32,829 33,055 33,047 33,016 33,691 Weighted-average diluted shares outstanding 32,937 33,125 33,098 33,083 33,805 Common shares outstanding end of period 32,659 32,951 33,072 33,032 33,012 Earnings per common share Basic $ 1.04 $ 0.89 $ 0.82 $ 0.65 $ 0.12 Diluted 1.04 0.89 0.82 0.65 0.12 Book value per common share 26.29 26.56 25.37 24.75 24.11 Tangible book value per common share (1) 19.86 20.16 18.97 18.32 17.64 Cash dividends paid per common share 0.32 0.37 0.31 0.31 0.31 Selected Performance Ratios: Return on average assets 1.99 % 1.64 % 1.48 % 1.17 % 0.23 % Return on average shareholders’ equity 15.82 13.77 12.89 10.82 1.93 Return on average tangible common equity (1) 21.22 18.71 17.73 15.24 3.11 Average yield on earning assets (FTE) (1) 3.67 3.70 3.57 3.69 4.06 Average rate on interest bearing liabilities 0.64 0.68 0.73 0.87 1.30 Net interest margin (FTE) (1) 3.20 3.20 3.02 3.02 3.03 Net interest spread (FTE) (1) 3.03 3.02 2.84 2.82 2.76 Average earning assets to average interest bearing liabilities 135.56 133.56 131.92 129.03 126.22 Noninterest expense to average total assets 1.82 1.74 1.73 1.63 1.78 Efficiency ratio (FTE) (1) 50.44 47.36 50.07 48.29 51.91 (1) Refer to “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure. Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars in thousands)Three Months Ended 2021 2020 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Nonperforming Assets: $ 15,367 $ 17,480 $ 16,822 $ 17,600 $ 17,403 Nonaccrual loans 5,314 7,714 5,971 5,639 5,221 Accruing loans past due more than 90 days — — — — — Troubled debt restructured loans 9,641 9,646 10,307 11,367 11,448 Other real estate owned 412 106 536 586 734 Repossessed assets — 14 8 8 — Asset Quality Ratios: Ratio of nonaccruing loans to: Total loans 0.14 % 0.21 % 0.16 % 0.15 % 0.14 % Ratio of nonperforming assets to: Total assets 0.22 0.25 0.23 0.24 0.24 Total loans 0.41 0.48 0.44 0.46 0.48 Total loans and OREO 0.41 0.48 0.44 0.46 0.48 Total loans, excluding PPP loans, and OREO 0.44 0.51 0.48 0.50 0.48 Ratio of allowance for loan losses to: Nonaccruing loans 780.09 635.29 922.96 1,061.68 1,027.35 Nonperforming assets 269.76 280.35 327.61 340.16 308.21 Total loans 1.12 1.34 1.45 1.55 1.49 Total loans, excluding PPP loans 1.19 1.42 1.58 1.68 1.49 Net charge-offs (recoveries) to average loans outstanding 0.02 0.02 0.04 0.01 0.06 Capital Ratios: Shareholders’ equity to total assets 12.27 12.49 11.67 11.15 10.94 Common equity tier 1 capital 14.71 14.68 14.24 13.68 12.81 Tier 1 risk-based capital 16.09 16.08 15.63 15.06 14.13 Total risk-based capital 21.52 21.78 19.03 18.51 17.35 Tier 1 leverage capital 10.29 9.81 9.50 9.05 9.45 Period end tangible equity to period end tangible assets (1) 9.55 9.77 8.99 8.50 8.25 Average shareholders’ equity to average total assets 12.56 11.92 11.49 10.86 11.94 (1) Refer to the “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure. Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars in thousands)Three Months Ended 2021 2020 Loan Portfolio Composition Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Real Estate Loans: Construction $ 605,677 $ 581,941 $ 610,394 $ 570,801 $ 603,952 1-4 Family Residential 700,430 719,952 738,343 761,815 787,875 Commercial 1,348,551 1,295,746 1,327,233 1,406,541 1,350,818 Commercial Loans 564,745 557,122 629,170 639,162 383,984 Municipal Loans 406,377 409,028 387,286 377,428 375,934 Loans to Individuals 90,818 93,990 97,549 96,824 98,439 Total Loans $ 3,716,598 $ 3,657,779 $ 3,789,975 $ 3,852,571 $ 3,601,002 Summary of Changes in Allowances: Allowance for Loan Losses Balance at beginning of period $ 49,006 $ 55,110 $ 59,868 $ 53,638 $ 24,797 Impact of CECL adoption (1) - cumulative effect adjustment — — — — 5,072 Impact of CECL adoption - purchased loans with credit deterioration — — — — 231 Loans charged-off (795 ) (595 ) (718 ) (546 ) (995 ) Recoveries of loans charged-off 622 402 361 436 451 Net loans (charged-off) recovered (173 ) (193 ) (357 ) (110 ) (544 ) Provision for (reversal of) loan losses (7,379 ) (5,911 ) (4,401 ) 6,340 24,082 Balance at end of period $ 41,454 $ 49,006 $ 55,110 $ 59,868 $ 53,638 Allowance for Off-Balance-Sheet Credit Exposures Balance at beginning of period $ 6,386 $ 6,020 $ 6,365 $ 7,460 $ 1,455 Impact of CECL adoption (1) — — — — 4,840 Provision for (reversal of) off-balance-sheet credit exposures (2,770 ) 366 (345 ) (1,095 ) 1,165 Balance at end of period $ 3,616 $ 6,386 $ 6,020 $ 6,365 $ 7,460 Total Allowance for Credit Losses $ 45,070 $ 55,392 $ 61,130 $ 66,233 $ 61,098 (1) We adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” on January 1, 2020. ASU 2016-13 replaced the incurred loss model with an expected loss methodology that is referred to as current expected credit losses (“CECL”). Adoption of this guidance on January 1, 2020, resulted in a cumulative-effect adjustment to reduce retained earnings by $7.8 million, net of tax. Southside Bancshares, Inc.
Average Balances and Average Yields and Rates (Annualized) (Unaudited)
(Dollars in thousands)The tables that follow show 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 for the periods presented. The interest and related yields presented are on a fully taxable-equivalent basis and are therefore non-GAAP measures. See “Non-GAAP Financial Measures” and “Non-GAAP Reconciliation” for more information.
Three Months Ended March 31, 2021 December 31, 2020 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate ASSETS Loans (1) $ 3,634,053 $ 36,754 4.10 % $ 3,772,158 $ 39,936 4.21 % Loans held for sale 2,803 20 2.89 % 5,012 36 2.86 % Securities: Taxable investment securities (2) 295,968 2,323 3.18 % 223,753 1,753 3.12 % Tax-exempt investment securities (2) 1,300,991 11,176 3.48 % 1,298,584 11,413 3.50 % Mortgage-backed and related securities (2) 940,815 6,088 2.62 % 1,082,302 6,693 2.46 % Total securities 2,537,774 19,587 3.13 % 2,604,639 19,859 3.03 % Federal Home Loan Bank stock, at cost, and equity investments 35,635 136 1.55 % 46,798 199 1.69 % Interest earning deposits 31,169 15 0.20 % 22,938 18 0.31 % Total earning assets 6,241,434 56,512 3.67 % 6,451,545 60,048 3.70 % Cash and due from banks 86,634 83,228 Accrued interest and other assets 677,230 687,894 Less: Allowance for loan losses (49,240 ) (55,567 ) Total assets $ 6,956,058 $ 7,167,100 LIABILITIES AND SHAREHOLDERS’ EQUITY Savings accounts $ 517,182 209 0.16 % $ 487,452 201 0.16 % Certificates of deposits 736,099 1,229 0.68 % 1,011,482 2,320 0.91 % Interest bearing demand accounts 2,342,299 1,159 0.20 % 2,186,406 1,117 0.20 % Total interest bearing deposits 3,595,580 2,597 0.29 % 3,685,340 3,638 0.39 % Federal Home Loan Bank borrowings 727,513 1,908 1.06 % 896,484 2,125 0.94 % Subordinated notes, net of unamortized debt issuance costs 197,252 2,395 4.92 % 158,692 2,051 5.14 % Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,256 351 2.36 % 60,255 360 2.38 % Other borrowings 23,522 11 0.19 % 29,661 23 0.31 % Total interest bearing liabilities 4,604,123 7,262 0.64 % 4,830,432 8,197 0.68 % Noninterest bearing deposits 1,389,020 1,381,120 Accrued expenses and other liabilities 89,222 101,478 Total liabilities 6,082,365 6,313,030 Shareholders’ equity 873,693 854,070 Total liabilities and shareholders’ equity $ 6,956,058 $ 7,167,100 Net interest income (FTE) $ 49,250 $ 51,851 Net interest margin (FTE) 3.20 % 3.20 % Net interest spread (FTE) 3.03 % 3.02 % (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 March 31, 2021 and December 31, 2020, loans totaling $5.3 million and $7.7 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. Southside Bancshares, Inc.
Average Balances and Average Yields and Rates (Annualized) (Unaudited)
(Dollars in thousands)Three Months Ended September 30, 2020 June 30, 2020 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate ASSETS Loans (1) $ 3,815,989 $ 38,842 4.05 % $ 3,826,383 $ 39,766 4.18 % Loans held for sale 3,934 31 3.13 % 3,213 28 3.50 % Securities: Taxable investment securities (2) 145,724 1,175 3.21 % 94,247 732 3.12 % Tax-exempt investment securities (2) 1,295,179 11,418 3.51 % 1,320,772 11,560 3.52 % Mortgage-backed and related securities (2) 1,209,913 7,048 2.32 % 1,359,941 9,044 2.67 % Total securities 2,650,816 19,641 2.95 % 2,774,960 21,336 3.09 % Federal Home Loan Bank stock, at cost, and equity investments 60,528 249 1.64 % 67,582 360 2.14 % Interest earning deposits 17,668 17 0.38 % 24,097 23 0.38 % Total earning assets 6,548,935 58,780 3.57 % 6,696,235 61,513 3.69 % Cash and due from banks 80,368 78,326 Accrued interest and other assets 699,351 660,411 Less: Allowance for loan losses (61,212 ) (55,908 ) Total assets $ 7,267,442 $ 7,379,064 LIABILITIES AND SHAREHOLDERS’ EQUITY Savings accounts $ 461,895 192 0.17 % $ 426,420 187 0.18 % Certificates of deposit 1,172,179 3,568 1.21 % 1,187,665 4,817 1.63 % Interest bearing demand accounts 2,069,751 1,102 0.21 % 2,013,770 1,225 0.24 % Total interest bearing deposits 3,703,825 4,862 0.52 % 3,627,855 6,229 0.69 % Federal Home Loan Bank borrowings 1,037,855 2,369 0.91 % 1,197,097 2,929 0.98 % Subordinated notes, net of unamortized debt issuance costs 98,686 1,427 5.75 % 98,641 1,412 5.76 % Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,253 378 2.50 % 60,252 491 3.28 % Other borrowings 63,526 55 0.34 % 205,724 163 0.32 % Total interest bearing liabilities 4,964,145 9,091 0.73 % 5,189,569 11,224 0.87 % Noninterest bearing deposits 1,371,748 1,310,651 Accrued expenses and other liabilities 96,219 77,431 Total liabilities 6,432,112 6,577,651 Shareholders’ equity 835,330 801,413 Total liabilities and shareholders’ equity $ 7,267,442 $ 7,379,064 Net interest income (FTE) $ 49,689 $ 50,289 Net interest margin (FTE) 3.02 % 3.02 % Net interest spread (FTE) 2.84 % 2.82 % (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 September 30, 2020 and June 30, 2020, loans totaling $6.0 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. Southside Bancshares, Inc.
Average Balances and Average Yields and Rates (Annualized) (Unaudited)
(Dollars in thousands)Three Months Ended March 31, 2020 Average Balance Interest Average Yield/Rate ASSETS Loans (1) $ 3,587,143 $ 42,554 4.77 % Loans held for sale 831 9 4.36 % Securities: Taxable investment securities (2) 70,293 512 2.93 % Tax-exempt investment securities (2) 888,906 7,837 3.55 % Mortgage-backed and related securities (2) 1,598,374 11,534 2.90 % Total securities 2,557,573 19,883 3.13 % Federal Home Loan Bank stock, at cost, and equity investments 62,976 425 2.71 % Interest earning deposits 40,236 180 1.80 % Total earning assets 6,248,759 63,051 4.06 % Cash and due from banks 76,739 Accrued interest and other assets 611,017 Less: Allowance for loan losses (30,373 ) Total assets $ 6,906,142 LIABILITIES AND SHAREHOLDERS’ EQUITY Savings accounts $ 384,863 237 0.25 % Certificates of deposit 1,362,427 6,346 1.87 % Interest bearing demand accounts 1,975,837 3,336 0.68 % Total interest bearing deposits 3,723,127 9,919 1.07 % Federal Home Loan Bank borrowings 999,070 3,974 1.60 % Subordinated notes, net of unamortized debt issuance costs 98,597 1,411 5.76 % Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,234 600 4.01 % Other borrowings 69,846 147 0.85 % Total interest bearing liabilities 4,950,874 16,051 1.30 % Noninterest bearing deposits 1,042,341 Accrued expenses and other liabilities 88,168 Total liabilities 6,081,383 Shareholders’ equity 824,759 Total liabilities and shareholders’ equity $ 6,906,142 Net interest income (FTE) $ 47,000 Net interest margin (FTE) 3.03 % Net interest spread (FTE) 2.76 % (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 March 31, 2020, loans totaling $5.2 million 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. Southside Bancshares, Inc.
Non-GAAP Reconciliation (Unaudited)
(Dollars and shares in thousands, except per share data)The following tables set forth the reconciliation of return on average common equity to return on average tangible common equity, book value per share to tangible book value per share, net interest income to net interest income adjusted to a fully taxable-equivalent basis assuming a 21% marginal tax rate for interest earned on tax-exempt assets such as municipal loans and investment securities, along with the calculation of total revenue, adjusted noninterest expense, efficiency ratio (FTE), net interest margin (FTE) and net interest spread (FTE) for the applicable periods presented.
Three Months Ended 2021 2020 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Reconciliation of return on average common equity to return on average tangible common equity: Net income $ 34,091 $ 29,572 $ 27,074 $ 21,554 $ 3,953 After-tax amortization expense 605 652 696 735 774 Adjusted net income available to common shareholders $ 34,696 $ 30,224 $ 27,770 $ 22,289 $ 4,727 Average shareholders' equity $ 873,693 $ 854,070 $ 835,330 $ 801,413 $ 824,759 Less: Average intangibles for the period (210,563 ) (211,354 ) (212,221 ) (213,135 ) (214,104 ) Average tangible shareholders' equity $ 663,130 $ 642,716 $ 623,109 $ 588,278 $ 610,655 Return on average tangible common equity 21.22 % 18.71 % 17.73 % 15.24 % 3.11 % Reconciliation of book value per share to tangible book value per share: Common equity at end of period $ 858,597 $ 875,297 $ 839,148 $ 817,605 $ 795,800 Less: Intangible assets at end of period (210,094 ) (210,860 ) (211,685 ) (212,566 ) (213,497 ) Tangible common shareholders' equity at end of period $ 648,503 $ 664,437 $ 627,463 $ 605,039 $ 582,303 Total assets at end of period $ 6,998,886 $ 7,008,227 $ 7,190,960 $ 7,329,611 $ 7,273,638 Less: Intangible assets at end of period (210,094 ) (210,860 ) (211,685 ) (212,566 ) (213,497 ) Tangible assets at end of period $ 6,788,792 $ 6,797,367 $ 6,979,275 $ 7,117,045 $ 7,060,141 Period end tangible equity to period end tangible assets 9.55 % 9.77 % 8.99 % 8.50 % 8.25 % Common shares outstanding end of period 32,659 32,951 33,072 33,032 33,012 Tangible book value per common share $ 19.86 $ 20.16 $ 18.97 $ 18.32 $ 17.64 Reconciliation of efficiency ratio to efficiency ratio (FTE), net interest margin to net interest margin (FTE) and net interest spread to net interest spread (FTE): Net interest income (GAAP) $ 46,303 $ 48,707 $ 46,586 $ 47,271 $ 44,701 Tax equivalent adjustments: Loans 736 717 688 679 668 Tax-exempt investment securities 2,211 2,427 2,415 2,339 1,631 Net interest income (FTE) (1) 49,250 51,851 49,689 50,289 47,000 Noninterest income 13,623 10,900 11,141 12,193 15,498 Nonrecurring income (2) (2,003 ) 24 (78 ) (2,662 ) (5,541 ) Total revenue $ 60,870 $ 62,775 $ 60,752 $ 59,820 $ 56,957 Noninterest expense $ 31,234 $ 31,315 $ 31,616 $ 29,856 $ 30,520 Pre-tax amortization expense (766 ) (825 ) (881 ) (931 ) (980 ) Nonrecurring expense (3) 236 (758 ) (315 ) (39 ) 29 Adjusted noninterest expense $ 30,704 $ 29,732 $ 30,420 $ 28,886 $ 29,569 Efficiency ratio 53.01 % 49.86 % 52.77 % 50.85 % 54.10 % Efficiency ratio (FTE) (1) 50.44 % 47.36 % 50.07 % 48.29 % 51.91 % Average earning assets $ 6,241,434 $ 6,451,545 $ 6,548,935 $ 6,696,235 $ 6,248,759 Net interest margin 3.01 % 3.00 % 2.83 % 2.84 % 2.88 % Net interest margin (FTE) (1) 3.20 % 3.20 % 3.02 % 3.02 % 3.03 % Net interest spread 2.84 % 2.83 % 2.65 % 2.64 % 2.61 % Net interest spread (FTE) (1) 3.03 % 3.02 % 2.84 % 2.82 % 2.76 % (1) These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures. (2) These adjustments may include net gain or loss on sale of securities available for sale in the periods where applicable. (3) These adjustments may include foreclosure expenses and branch closure expenses, in the periods where applicable. 
- Record first quarter net income of $34.1 million, an increase of 762.4%, compared to the same period in 2020;