Southside Bancshares, Inc. Announces Financial Results for the First Quarter Ended March 31, 2021

  • 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 [email protected]

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 costs
197,268       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.

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