• Record fourth quarter net income of $29.6 million, an increase of 70.6%, compared to the same period in 2019;

  • Record annual net income of $82.2 million, an increase of 10.2%, compared to the same period in 2019;

  • Annualized return on fourth quarter average assets of 1.64%;

  • Annualized return on fourth quarter average tangible equity of 18.71%(1); and

  • Nonperforming assets remained low at 0.25% of total assets.

TYLER, Texas, Jan. 27, 2021 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ: SBSI) today reported its financial results for the quarter and year ended December 31, 2020. Southside reported net income of $29.6 million for the three months ended December 31, 2020, an increase of $12.2 million, or 70.6%, compared to $17.3 million for the same period in 2019. Earnings per diluted common share increased $0.38, or 74.5%, to $0.89 for the three months ended December 31, 2020, from $0.51 for the same period in 2019. The annualized return on average shareholders’ equity for the three months ended December 31, 2020 was 13.77%, compared to 8.42% for the same period in 2019.  The annualized return on average assets was 1.64% for the three months ended December 31, 2020, compared to 1.03% for the same period in 2019.

“The ability to report record annual net income, combined with strong asset quality metrics, during a year challenged by a pandemic and the related uncertainties, while implementing ASU 2016-13(2) (“CECL”), in my opinion, makes 2020 by far the best year in the history of the bank,” stated Lee R. Gibson, President and Chief Executive Officer of Southside. “The $12.2 million increase in net income for the fourth quarter compared to the same period in 2019, was driven by an increase in net interest income and a decrease in provision for credit losses. During the fourth quarter, we expensed approximately $1.0 million related to branch closures. Asset quality metrics remained strong with nonperforming assets to total assets at year end of 0.25%. As of January 25, 2021, and since the release of our second quarter results in July, total modified loans due to the impact of COVID-19 have decreased approximately $291 million, or 89%, from $326 million as of July 20, to $35 million, or 1.0% of total loans, net of Paycheck Protection Program (“PPP”) loans. On a linked quarter basis, our net interest margin(1) increased 18 basis points to 3.20%, of which approximately 14 basis points was attributable to additional accretion income on PPP loans forgiven by the Small Business Administration (“SBA”) during the quarter. Despite the extremely low interest rate environment during much of 2020, we were able to successfully maintain and slightly increase Southside’s net interest margin(1) when compared to 2019.”

“During the fourth quarter, loans decreased $132.2 million primarily due to the $88 million decrease in PPP loans and a few large payoffs in commercial real estate loans. Our loan pipeline continues to grow as lending opportunities in our markets are steadily increasing. We anticipate further forgiveness of PPP loans and additional large payoffs will challenge overall loan growth during the first quarter of 2021. Our balance sheet, capital position and underlying earnings continue to be a source of strength, as reflected in our fourth quarter results.”

“On November 9, 2020, we announced the successful completion of Southside’s $100 million subordinated debt offering. Through the issuance of the notes bearing a coupon of 3.875%, we were able to raise low cost capital without dilution to existing shareholders.”

“The pandemic continues to impact the markets we serve and uncertainties remain, however we are encouraged by the vaccine rollout and the increased economic activity in our markets. I am extremely proud of the dedication and professionalism consistently shown by our team members as they safely and efficiently served our customers and they deserve the credit for this outstanding year.”

Operating Results for the Three Months Ended December 31, 2020

Net income was $29.6 million for the three months ended December 31, 2020, compared to $17.3 million for the same period in 2019, an increase of $12.2 million, or 70.6%. Earnings per diluted common share were $0.89 for the three months ended December 31, 2020, compared to $0.51 for the same period in 2019, an increase of 74.5%. The increase in net income was driven by an increase in net interest income and a decrease in the provision for credit losses. Annualized returns on average assets and average shareholders’ equity for the three months ended December 31, 2020 were 1.64% and 13.77%, respectively.  Our efficiency ratio and efficiency ratio (FTE)(1) was 49.86% and 47.36%, respectively, for the three months ended December 31, 2020, compared to 52.77% and 50.07%, respectively, for the three months ended September 30, 2020.

Net interest income for the three months ended December 31, 2020 was $48.7 million compared to $43.2 million for the same period in 2019, an increase of 12.8%. The increase in net interest income compared to the same period in 2019 was due to the decrease in interest expense on our interest bearing liabilities, a result of lower funding costs, 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 December 31, 2020. Linked quarter, net interest income increased $2.1 million, or 4.6%, compared to $46.6 million during the three months ended September 30, 2020. The increase was primarily due to an increase in interest income as a result of an increase in the average yield on loans and to a lesser extent, an increase in the average yield of our securities portfolio. The decrease in interest expense was driven by a decrease in the average interest rate and average balance of our interest bearing deposits, which also contributed to the overall increase in net interest income.

Our net interest margin and tax equivalent net interest margin(1) was 3.00% and 3.20%, respectively, for the three months ended December 31, 2020, compared to 2.84% and 2.98%, respectively, for the same period in 2019. Our net interest margin and tax equivalent net interest margin(1) linked quarter increased from 2.83% and 3.02%, respectively, for the three months ended September 30, 2020.

Noninterest income was $10.9 million for the three months ended December 31, 2020, an increase of $0.4 million, or 4.2%, compared to $10.5 million for the same period in 2019, largely driven by an increase in net gain on sale of loans due to an increase in volume of loans sold. On a linked quarter basis, noninterest income decreased $0.2 million, or 2.2%, compared to the three months ended September 30, 2020.

Noninterest expense was $31.3 million for the three months ended December 31, 2020, an increase of $0.4 million, or 1.2%, compared to $30.9 million for the same period in 2019. On a linked quarter basis, noninterest expense decreased $0.3 million, or 1.0%, compared to the three months ended September 30, 2020.

Income tax expense increased $1.4 million for the three months ended December 31, 2020 compared to the same period in 2019. On a linked quarter basis, income tax expense increased $0.5 million, or 12.7%. Our effective tax rate (“ETR”) decreased to 12.6% for the three months ended December 31, 2020 compared to 14.1% for the three months ended December 31, 2019 and increased marginally compared to 12.3% for the three months ended September 30, 2020. The lower ETR for the three months ended December 31, 2020, as compared to the same period in 2019, was primarily due to an increase in tax-exempt income as a percentage of pre-tax income for the three months ended December 31, 2020.

Operating Results for the Year Ended December 31, 2020

Net income was $82.2 million for the year ended December 31, 2020, compared to $74.6 million for the same period in 2019, an increase of $7.6 million, or 10.2%. Earnings per diluted common share were $2.47 for the year ended December 31, 2020, compared to $2.20 for the same period in 2019, an increase of 12.3%. The increase in net income was primarily driven by increases in net interest income and noninterest income, partially offset by the increase in the provision for credit losses and an increase in noninterest expense. The increase in the provision for credit losses for the year ended December 31, 2020 was primarily due to the economic environment related to COVID-19 and the resulting impact on the economic assumptions used in the CECL model. The adoption of CECL(2) replaced the incurred loss model with an expected credit loss methodology. Annualized returns on average assets and average shareholders’ equity for the year ended December 31, 2020 were 1.14% and 9.91%, respectively.  Our efficiency ratio and efficiency ratio (FTE)(1) was 51.85% and 49.36%, respectively, for the year ended December 31, 2020, compared to 54.25% and 52.36%, respectively, for the year ended December 31, 2019.

Net interest income for the year ended December 31, 2020 was $187.3 million, compared to $169.8 million during the same period in 2019, an increase of $17.5 million, or 10.3%. The increase in net interest income compared to the same period in 2019 was due to the decrease in interest expense on our interest bearing liabilities, a result of lower funding costs on our interest bearing liabilities, partially offset by a decrease in interest income due to a lower yield on our interest earning assets during the year ended December 31, 2020.

Our net interest margin and tax equivalent net interest margin(1) was 2.89% and 3.07%, respectively, for the year ended December 31, 2020, compared to 2.93% and 3.06%, respectively, for the same period in 2019. The increase in tax equivalent net interest margin(1) was due to lower funding costs on our interest bearing liabilities, partially offset by a decrease in interest income due to a lower average yield on our interest earning assets during the year ended December 31, 2020.

Noninterest income was $49.7 million for the year ended December 31, 2020, an increase of 17.4%, compared to $42.4 million for the same period in 2019. The increase was due to the increases in net gain on sale of securities available for sale and gain on sale of loans, partially offset by decreases in deposit services income and trust fees.

Noninterest expense was $123.3 million for the year ended December 31, 2020, compared to $119.3 million for the same period in 2019, an increase of $4.0 million, or 3.4%. The increase was the result of increases in salaries and employee benefits, net occupancy expense, other noninterest expense, software and data processing expense and FDIC insurance, partially offset by decreases in advertising, travel and entertainment expense, amortization of intangibles and professional fees.

Income tax expense decreased $1.9 million, or 14.3%, for the year ended December 31, 2020, compared to the same period in 2019. Our ETR was approximately 12.1% and 15.1% for the years ended December 31, 2020 and 2019, respectively. The lower ETR for the year ended December 31, 2020, as compared to the same period in 2019, was primarily due to an increase in tax-exempt income as a percentage of pre-tax income.

Balance Sheet Data

At December 31, 2020, we had $7.01 billion in total assets, compared to $6.75 billion at December 31, 2019 and $7.19 billion at September 30, 2020.

Loans at December 31, 2020 were $3.66 billion, an increase of $89.6 million, or 2.5%, compared to $3.57 billion at December 31, 2019. Linked quarter loans decreased $132.2 million, or 3.5%, from $3.79 billion at September 30, 2020. The linked quarter net decrease in loans consisted primarily of decreases of $72.0 million of commercial loans, $31.5 million of commercial real estate loans, $28.5 million of construction loans, $18.4 million of 1-4 family residential loans and $3.6 million of loans to individuals, partially offset by an increase of $21.7 million of municipal loans. On a linked quarter basis, our PPP loans, a component of the commercial loan category net of deferred fees, decreased $87.9 million, or 29.0%, from $302.8 million to $214.8 million due to loans forgiven by the SBA.

Securities at December 31, 2020 were $2.70 billion, an increase of $202.8 million, or 8.1%, compared to $2.49 billion at December 31, 2019. The increase occurred primarily during the first quarter of 2020. Linked quarter, securities decreased $52.3 million, or 1.9%, from $2.75 billion at September 30, 2020 primarily due to principal pay downs of mortgage related securities.

Deposits at December 31, 2020 were $4.93 billion, an increase of $229.6 million, or 4.9%, compared to $4.70 billion at December 31, 2019, largely driven by PPP loan disbursements deposited into our commercial accounts and stimulus checks deposited during the second quarter. Linked quarter, deposits decreased $170.7 million, or 3.3%, from $5.10 billion at September 30, 2020, primarily due to a decrease in brokered certificates of deposit (“CDs”) and public fund CDs.

CECL Adoption and Asset Quality

During the first quarter of 2020, we adopted ASU 2016-13(2), Financial Instruments - Credit Losses, often referred to as CECL. Upon the adoption of CECL, we recorded a cumulative-effect adjustment that decreased retained earnings by $7.8 million, net of tax. This adjustment was the result of a $5.3 million increase in the allowance for loan losses, from $24.8 million at December 31, 2019 to $30.1 million upon adoption, including $0.2 million for purchased loans with credit deterioration, and a $4.8 million increase in other liabilities related to the allowance for off-balance-sheet credit exposures.

Based on the credit quality of our securities portfolio, the adoption of CECL did not result in the recording of an allowance for credit losses on our held-to-maturity securities.

Nonperforming assets at December 31, 2020 were $17.5 million, or 0.25% of total assets, an increase of $31,000, or 0.2%, compared to $17.4 million, or 0.26% of total assets, at December 31, 2019, and an increase from $16.8 million, or 0.23% of total assets, at September 30, 2020. During the year ended December 31, 2020, nonaccrual loans increased $2.8 million, or 55.4%.

The allowance for loan losses increased to $49.0 million, or 1.34% of total loans, at December 31, 2020, compared to $24.8 million, or 0.69% of total loans, at December 31, 2019. The allowance for loan losses was $55.1 million, or 1.45% of total loans, at September 30, 2020. The increase year-to-date is due to the adoption of CECL and the economic uncertainty related to the COVID-19 pandemic and resulting expected losses.

For the three months ended December 31, 2020, we recorded a reversal of provision for credit losses for loans of $5.9 million, compared to a provision for loan losses of $2.5 million for the three months ended December 31, 2019 and a reversal of provision for credit losses of $4.4 million for the three months ended September 30, 2020. The provision for credit losses for the year ended December 31, 2020 was $20.1 million, compared to $5.1 million for the year ended December 31, 2019. The increase during 2020 was primarily due to the economic impact of COVID-19 on macroeconomic factors used in the CECL methodology, including the potential for credit deterioration. The partial reversal of provision for credit losses during the three months ended December 31, 2020, was largely driven by an improvement in the economic forecasts. However, if the COVID-19 pandemic and economic impact is prolonged, it is likely that credit losses and nonperforming assets may increase. Net charge-offs were $0.2 million for the three months ended December 31, 2020, compared to net charge-offs of $2.8 million for the three months ended December 31, 2019 and $0.4 million of net charge-offs for the three months ended September 30, 2020. Net charge-offs were $1.2 million for the year ended December 31, 2020, compared to $7.3 million for the year ended December 31, 2019.

For the three months ended December 31, 2020, we recorded a provision for credit losses for off-balance-sheet credit exposures of $0.4 million and a reversal of provision of $0.1 million and $0.3 million for the three months ended December 31, 2019 and September 30, 2020, respectively. The provision for credit losses for off-balance-sheet credit exposures for the year ended December 31, 2020 was $0.1 million, compared to a reversal of provision of $0.4 million for the year ended December 31, 2019. The balance of the allowance for off-balance-sheet credit exposures at December 31, 2020 was $6.4 million and is included in other liabilities.

Dividend

Southside Bancshares, Inc. declared a fourth quarter cash dividend of $0.32 and a special cash dividend of $0.05 per share on November 10, 2020, which was paid on December 10, 2020, to all shareholders of record as of November 25, 2020.

(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.

(2) 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 loss (“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. Due to the adoption of the guidance under the modified retrospective approach, prior periods have not been adjusted and thus may not be comparable.

Conference Call

Southside's management team will host a conference call to discuss its fourth quarter and year ended December 31, 2020 financial results on Wednesday, January 27, 2021 at 9:00 a.m. CST.  The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 3585087 or by identifying “Southside Bancshares, Inc., Fourth Quarter and Year End 2020 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 12:00 p.m. CST January 27, 2021 through 12:00 p.m. CST February 8, 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% for the years ended December 31, 2020 and 2019 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 $7.01 billion in assets as of December 31, 2020, that owns 100% of Southside Bank. Southside Bank currently has 57 branches in Texas and operates a network of 79 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,” “likely,” “intend,” “probability,” “risk,” “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 additional quarantines, 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, 2019, under “Part I - Item 1. Forward Looking Information” and “Part I - Item 1A. Risk Factors,” the Company's Quarterly Reports on Form 10-Q for the quarter ended March 31, 2020 and the quarter ended June 30, 2020, under “Part II - Item 1A. Risk Factors” 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
 2020 2019
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31,
ASSETS         
Cash and due from banks$87,357   $81,643   $81,271   $71,727   $66,949  
Interest earning deposits21,051   14,561   19,535   40,486   43,748  
Securities available for sale, at estimated fair value2,587,305   2,633,519   2,679,521   2,813,024   2,358,597  
Securities held to maturity, at net carrying value108,998   115,089   120,384   134,491   134,863  
Total securities2,696,303   2,748,608   2,799,905   2,947,515   2,493,460  
Federal Home Loan Bank stock, at cost25,259   35,860   55,689   54,696   50,087  
Loans held for sale3,695   8,686   3,392   1,830   383  
Loans3,657,779   3,789,975   3,852,571   3,601,002   3,568,204  
Less: Allowance for loan losses(49,006)  (55,110)  (59,868)  (53,638)  (24,797) 
Net loans3,608,773   3,734,865   3,792,703   3,547,364   3,543,407  
Premises & equipment, net144,576   147,169   147,715   146,212   143,912  
Goodwill201,116   201,116   201,116   201,116   201,116  
Other intangible assets, net9,744   10,569   11,450   12,381   13,361  
Bank owned life insurance115,583   114,928   114,248   101,066   100,498  
Other assets94,770   92,955   102,587   149,245   91,992  
Total assets$7,008,227   $7,190,960   $7,329,611   $7,273,638   $6,748,913  
          
LIABILITIES AND SHAREHOLDERS' EQUITY         
Noninterest bearing deposits$1,354,815   $1,363,228   $1,398,179   $1,065,708   $1,040,112  
Interest bearing deposits3,577,507   3,739,798   3,672,365   3,673,415   3,662,657  
Total deposits4,932,322   5,103,026   5,070,544   4,739,123   4,702,769  
Other borrowings and Federal Home Loan Bank borrowings855,699   994,512   1,165,463   1,492,270   1,001,102  
Subordinated notes, net of unamortized debt
issuance costs
197,251   98,708   98,663   98,619   98,576  
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,255   60,254   60,253   60,251   60,250  
Other liabilities87,403   95,312   117,083   87,575   81,636  
Total liabilities6,132,930   6,351,812   6,512,006   6,477,838   5,944,333  
Shareholders' equity875,297   839,148   817,605   795,800   804,580  
Total liabilities and shareholders' equity$7,008,227   $7,190,960   $7,329,611   $7,273,638   $6,748,913  


Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars in thousands)

 Three Months Ended
 2020 2019
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31,
Income Statement:         
Total interest income$56,904   $55,677   $58,495  $60,752  $60,533 
Total interest expense8,197   9,091   11,224  16,051  17,357 
Net interest income48,707   46,586   47,271  44,701  43,176 
Provision for credit losses (1)(5,545)  (4,746)  5,245  25,247  2,508 
Net interest income after provision for credit losses54,252   51,332   42,026  19,454  40,668 
Noninterest income         
Deposit services6,419   6,129   5,532  6,279  6,647 
Net (loss) gain on sale of securities available for sale(24)  78   2,662  5,541  42 
Gain on sale of loans848   1,071   683  170  104 
Trust fees1,354   1,253   1,221  1,305  1,685 
Bank owned life insurance655   680   650  569  582 
Brokerage services628   564   499  580  531 
Other1,020   1,366   946  1,054  874 
Total noninterest income10,900   11,141   12,193  15,498  10,465 
Noninterest expense         
Salaries and employee benefits19,609   19,344   18,629  19,643  19,406 
Net occupancy3,795   3,595   3,668  3,311  3,234 
Advertising, travel & entertainment504   519   292  832  791 
ATM expense290   271   233  224  236 
Professional fees986   961   1,082  1,195  1,142 
Software and data processing1,220   1,215   1,295  1,227  1,259 
Communications490   495   506  493  485 
FDIC insurance456   469   174  25   
Amortization of intangibles825   881   931  980  1,030 
Other (1)3,140   3,866   3,046  2,590  3,361 
Total noninterest expense31,315   31,616   29,856  30,520  30,944 
Income before income tax expense33,837   30,857   24,363  4,432  20,189 
Income tax expense4,265   3,783   2,809  479  2,854 
Net income$29,572   $27,074   $21,554  $3,953  $17,335 
          
Common Share Data:   
Weighted-average basic shares outstanding33,055   33,047   33,016  33,691  33,790 
Weighted-average diluted shares outstanding33,125   33,098   33,083  33,805  33,934 
Common shares outstanding end of period32,951   33,072   33,032  33,012  33,823 
Earnings per common share         
Basic$0.89   $0.82   $0.65  $0.12  $0.51 
Diluted0.89   0.82   0.65  0.12  0.51 
Book value per common share26.56   25.37   24.75  24.11  23.79 
Tangible book value per common share (2)20.16   18.97   18.32  17.64  17.45 
Cash dividends paid per common share0.37   0.31   0.31  0.31  0.34 
          
Selected Performance Ratios:         
Return on average assets1.64 % 1.48 % 1.17% 0.23% 1.03%
Return on average shareholders’ equity13.77   12.89   10.82  1.93  8.42 
Return on average tangible common equity (2)18.71   17.73   15.24  3.11  11.97 
Average yield on earning assets (FTE) (2)3.70   3.57   3.69  4.06  4.12 
Average rate on interest bearing liabilities0.68   0.73   0.87  1.30  1.46 
Net interest margin (FTE) (2)3.20   3.02   3.02  3.03  2.98 
Net interest spread (FTE) (2)3.02   2.84   2.82  2.76  2.66 
Average earning assets to average interest bearing liabilities133.56   131.92   129.03  126.22  128.00 
Noninterest expense to average total assets1.74   1.73   1.63  1.78  1.85 
Efficiency ratio (FTE) (2)47.36   50.07   48.29  51.91  53.87 

(1)  Upon adoption of CECL on January 1, 2020, the provision for credit losses is the sum of the provision for loan losses and the provision for off-balance-sheet credit exposures. Prior to the adoption of CECL, the provision for off-balance-sheet credit exposures was included in other noninterest expense.
(2)  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 and shares in thousands, except per share data)

 Three Months Ended
 2020 2019
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31,
Nonperforming Assets:$17,480  $16,822  $17,600  $17,403  $17,449 
Nonaccrual loans (1)7,714  5,971  5,639  5,221  4,963 
Accruing loans past due more than 90 days (1)         
Troubled debt restructured loans (2)9,646  10,307  11,367  11,448  12,014 
Other real estate owned106  536  586  734  472 
Repossessed assets14  8  8     
          
Asset Quality Ratios:         
Nonaccruing loans to total loans0.21% 0.16% 0.15% 0.14% 0.14%
Allowance for loan losses to nonaccruing loans635.29  922.96  1,061.68  1,027.35  499.64 
Allowance for loan losses to nonperforming assets280.35  327.61  340.16  308.21  142.11 
Allowance for loan losses to total loans1.34  1.45  1.55  1.49  0.69 
Nonperforming assets to total assets0.25  0.23  0.24  0.24  0.26 
Net charge-offs (recoveries) to average loans0.02  0.04  0.01  0.06  0.32 
          
Capital Ratios:         
Shareholders’ equity to total assets12.49  11.67  11.15  10.94  11.92 
Common equity tier 1 capital14.68  14.24  13.68  12.81  14.07 
Tier 1 risk-based capital16.08  15.63  15.06  14.13  15.46 
Total risk-based capital21.78  19.03  18.51  17.35  18.43 
Tier 1 leverage capital9.81  9.50  9.05  9.45  10.18 
Period end tangible equity to period end tangible assets (3)9.77  8.99  8.50  8.25  9.03 
Average shareholders’ equity to average total assets11.92  11.49  10.86  11.94  12.28 

(1) Prior to the adoption of CECL, excluded purchased credit impaired loans measured at fair value at acquisition if the timing and amount of cash flows expected to be collected from those sales could be reasonably estimated.
(2)  Prior to the adoption of CECL, included $0.8 million in PCI loans restructured as of December 31, 2019.
(3) 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
 2020 2019
Loan Portfolio CompositionDec 31, Sep 30, Jun 30, Mar 31, Dec 31,
Real Estate Loans:         
Construction$581,941   $610,394   $570,801   $603,952   $644,948  
1-4 Family Residential719,952   738,343   761,815   787,875   787,562  
Commercial1,295,746   1,327,233   1,406,541   1,350,818   1,250,208  
Commercial Loans557,122   629,170   639,162   383,984   401,521  
Municipal Loans409,028   387,286   377,428   375,934   383,960  
Loans to Individuals93,990   97,549   96,824   98,439   100,005  
Total Loans$3,657,779   $3,789,975   $3,852,571   $3,601,002   $3,568,204  
          
Summary of Changes in Allowances:         
Allowance for Loan Losses         
Balance at beginning of period$55,110   $59,868   $53,638   $24,797   $25,129  
Impact of CECL adoption (1) - cumulative effect adjustment         5,072     
Impact of CECL adoption - purchased loans with credit deterioration         231     
Loans charged-off(595)  (718)  (546)  (995)  (3,251) 
Recoveries of loans charged-off402   361   436   451   411  
Net loans (charged-off) recovered(193)  (357)  (110)  (544)  (2,840) 
Provision for (reversal of) loan losses(5,911)  (4,401)  6,340   24,082   2,508  
Balance at end of period$49,006   $55,110   $59,868   $53,638   $24,797  
          
Allowance for Off-Balance-Sheet Credit Exposures         
Balance at beginning of period$6,020   $6,365   $7,460   $1,455   $1,540  
Impact of CECL adoption (1)         4,840     
Provision for (reversal of) off-balance-sheet credit exposures (2)366   (345)  (1,095)  1,165   (85) 
Balance at end of period$6,386   $6,020   $6,365   $7,460   $1,455  
Total Allowance for Credit Losses$55,392   $61,130   $66,233   $61,098   $26,252  

(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.
(2) Prior to the adoption of CECL on January 1, 2020, the provision for off-balance-sheet credit exposures was included in other noninterest expense.

Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars and shares in thousands, except per share data)

 Year Ended
 December 31,
 2020 2019
Income Statement:   
Total interest income$231,828  $240,787 
Total interest expense44,563  70,982 
Net interest income187,265  169,805 
Provision for credit losses (1)20,201  5,101 
Net interest income after provision for credit losses167,064  164,704 
Noninterest income   
Deposit services24,359  26,038 
Net gain on sale of securities available for sale8,257  756 
Gain on sale of loans2,772  509 
Trust fees5,133  6,269 
Bank owned life insurance2,554  2,307 
Brokerage services2,271  2,080 
Other4,386  4,409 
Total noninterest income49,732  42,368 
Noninterest expense   
Salaries and employee benefits77,225  73,731 
Net occupancy14,369  13,128 
Advertising, travel & entertainment2,147  2,964 
ATM expense1,018  894 
Professional fees4,224  4,717 
Software and data processing4,957  4,537 
Communications1,984  1,941 
FDIC insurance1,124  859 
Amortization of intangibles3,617  4,418 
Other (1)12,642  12,108 
Total noninterest expense123,307  119,297 
Income before income tax expense93,489  87,775 
Income tax expense11,336  13,221 
Net income$82,153  $74,554 
    
Common Share Data:   
Weighted-average basic shares outstanding33,201  33,747 
Weighted-average diluted shares outstanding33,281  33,895 
Common shares outstanding end of period32,951  33,823 
Earnings per common share   
Basic$2.47  $2.21 
Diluted2.47  2.20 
Book value per common share26.56  23.79 
Tangible book value per common share (2)20.16  17.45 
Cash dividends paid per common share1.30  1.26 
    
Selected Performance Ratios:   
Return on average assets1.14% 1.17%
Return on average shareholders’ equity9.91  9.53 
Return on average tangible common equity (2)13.79  13.80 
Average yield on earning assets (FTE) (2)3.75  4.28 
Average rate on interest bearing liabilities0.89  1.57 
Net interest margin (FTE) (2)3.07  3.06 
Net interest spread (FTE) (2)2.86  2.71 
Average earning assets to average interest bearing liabilities130.16  128.25 
Noninterest expense to average total assets1.72  1.86 
Efficiency ratio (FTE) (2)49.36  52.36 

(1)  Upon adoption of CECL on January 1, 2020, the provision for credit losses is the sum of the provision for loan losses and the provision for off-balance-sheet credit exposures. Prior to the adoption of CECL, the provision for off-balance-sheet credit exposures was included in other noninterest expense.
(2)  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)

 Year Ended
 December 31,
 2020 2019
Nonperforming Assets:$17,480  $17,449 
Nonaccrual loans (1)7,714  4,963 
Accruing loans past due more than 90 days (1)   
Troubled debt restructured loans (2)9,646  12,014 
Other real estate owned106  472 
Repossessed assets14   
    
Asset Quality Ratios:   
Nonaccruing loans to total loans0.21% 0.14%
Allowance for loan losses to nonaccruing loans635.29  499.64 
Allowance for loan losses to nonperforming assets280.35  142.11 
Allowance for loan losses to total loans1.34  0.69 
Nonperforming assets to total assets0.25  0.26 
Net charge-offs (recoveries) to average loans0.03  0.21 
    
Capital Ratios:   
Shareholders’ equity to total assets12.49  11.92 
Common equity tier 1 capital14.68  14.07 
Tier 1 risk-based capital16.08  15.46 
Total risk-based capital21.78  18.43 
Tier 1 leverage capital9.81  10.18 
Period end tangible equity to period end tangible assets (3)9.77  9.03 
Average shareholders’ equity to average total assets11.55  12.23 

(1)  Prior to the adoption of CECL, excluded purchased credit impaired loans measured at fair value at acquisition if the timing and amount of cash flows expected to be collected from those sales could be reasonably estimated.
(2)   Prior to the adoption of CECL, included $0.8 million in PCI loans restructured as of December 31, 2019.
(3)  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 and shares in thousands, except per share data)

 Year Ended
 December 31,
Loan Portfolio Composition2020 2019
Real Estate Loans:   
Construction$581,941   $644,948  
1-4 Family Residential719,952   787,562  
Commercial1,295,746   1,250,208  
Commercial Loans557,122   401,521  
Municipal Loans409,028   383,960  
Loans to Individuals93,990   100,005  
Total Loans$3,657,779   $3,568,204  
    
Summary of Changes in Allowances:   
Allowance for Loan Losses   
Balance at beginning of period$24,797   $27,019  
Impact of CECL adoption (1) - cumulative effect adjustment5,072     
Impact of CECL adoption - purchased loans with credit deterioration231     
Loans charged-off(2,854)  (8,933) 
Recoveries of loans charged-off1,650   1,610  
Net loans (charged-off) recovered(1,204)  (7,323) 
Provision for (reversal of) loan losses20,110   5,101  
Balance at end of period$49,006   $24,797  
    
Allowance for Off-Balance-Sheet Credit Exposures   
Balance at beginning of period$1,455   $1,890  
Impact of CECL adoption (1)4,840     
Provision for (reversal of) off-balance-sheet credit exposures (2)91   (435) 
Balance at end of period$6,386   $1,455  
Total Allowance for Credit Losses$55,392   $26,252  

(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.
(2)  Prior to the adoption of CECL on January 1, 2020, the provision for off-balance-sheet credit exposures was included in other noninterest expense.

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
 December 31, 2020 September 30, 2020
 Average
Balance
 Interest Average
Yield/Rate
 Average
Balance
 Interest Average
Yield/Rate
ASSETS           
Loans (1)$3,772,158   $39,936  4.21% $3,815,989   $38,842  4.05%
Loans held for sale5,012   36  2.86% 3,934   31  3.13%
Securities:           
Taxable investment securities (2)223,753   1,753  3.12% 145,724   1,175  3.21%
Tax-exempt investment securities (2)1,298,584   11,413  3.50% 1,295,179   11,418  3.51%
Mortgage-backed and related securities (2)1,082,302   6,693  2.46% 1,209,913   7,048  2.32%
Total securities2,604,639   19,859  3.03% 2,650,816   19,641  2.95%
Federal Home Loan Bank stock, at cost, and equity investments46,798   199  1.69% 60,528   249  1.64%
Interest earning deposits22,938   18  0.31% 17,668   17  0.38%
Total earning assets6,451,545   60,048  3.70% 6,548,935   58,780  3.57%
Cash and due from banks83,228       80,368      
Accrued interest and other assets687,894       699,351      
Less:  Allowance for loan losses(55,567)      (61,212)     
Total assets$7,167,100       $7,267,442      
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings accounts$487,452   201  0.16% $461,895   192  0.17%
Certificates of deposits1,011,482   2,320  0.91% 1,172,179   3,568  1.21%
Interest bearing demand accounts2,186,406   1,117  0.20% 2,069,751   1,102  0.21%
Total interest bearing deposits3,685,340   3,638  0.39% 3,703,825   4,862  0.52%
Federal Home Loan Bank borrowings896,484   2,125  0.94% 1,037,855   2,369  0.91%
Subordinated notes, net of unamortized debt issuance costs158,692   2,051  5.14% 98,686   1,427  5.75%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,255   360  2.38% 60,253   378  2.50%
Other borrowings29,661   23  0.31% 63,526   55  0.34%
Total interest bearing liabilities4,830,432   8,197  0.68% 4,964,145   9,091  0.73%
Noninterest bearing deposits1,381,120       1,371,748      
Accrued expenses and other liabilities101,478       96,219      
Total liabilities6,313,030       6,432,112      
Shareholders’ equity854,070       835,330      
Total liabilities and shareholders’ equity$7,167,100       $7,267,442      
Net interest income (FTE)  $51,851      $49,689   
Net interest margin (FTE)    3.20%     3.02%
Net interest spread (FTE)    3.02%     2.84%

(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 December 31, 2020 and September 30, 2020, loans totaling $7.7 million and $6.0 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
 June 30, 2020 March 31, 2020
 Average
Balance
 Interest Average
Yield/Rate
 Average
Balance
 Interest Average
Yield/Rate
ASSETS           
Loans (1)$3,826,383   $39,766  4.18% $3,587,143   $42,554  4.77%
Loans held for sale3,213   28  3.50% 831   9  4.36%
Securities:           
Taxable investment securities (2)94,247   732  3.12% 70,293   512  2.93%
Tax-exempt investment securities (2)1,320,772   11,560  3.52% 888,906   7,837  3.55%
Mortgage-backed and related securities (2)1,359,941   9,044  2.67% 1,598,374   11,534  2.90%
Total securities2,774,960   21,336  3.09% 2,557,573   19,883  3.13%
Federal Home Loan Bank stock, at cost, and equity investments67,582   360  2.14% 62,976   425  2.71%
Interest earning deposits24,097   23  0.38% 40,236   180  1.80%
Total earning assets6,696,235   61,513  3.69% 6,248,759   63,051  4.06%
Cash and due from banks78,326       76,739      
Accrued interest and other assets660,411       611,017      
Less:  Allowance for loan losses(55,908)      (30,373)     
Total assets$7,379,064       $6,906,142      
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings accounts$426,420   187  0.18% $384,863   237  0.25%
Certificates of deposit1,187,665   4,817  1.63% 1,362,427   6,346  1.87%
Interest bearing demand accounts2,013,770   1,225  0.24% 1,975,837   3,336  0.68%
Total interest bearing deposits3,627,855   6,229  0.69% 3,723,127   9,919  1.07%
Federal Home Loan Bank borrowings1,197,097   2,929  0.98% 999,070   3,974  1.60%
Subordinated notes, net of unamortized debt issuance costs98,641   1,412  5.76% 98,597   1,411  5.76%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,252   491  3.28% 60,234   600  4.01%
Other borrowings205,724   163  0.32% 69,846   147  0.85%
Total interest bearing liabilities5,189,569   11,224  0.87% 4,950,874   16,051  1.30%
Noninterest bearing deposits1,310,651       1,042,341      
Accrued expenses and other liabilities77,431       88,168      
Total liabilities6,577,651       6,081,383      
Shareholders’ equity801,413       824,759      
Total liabilities and shareholders’ equity$7,379,064       $6,906,142      
Net interest income (FTE)  $50,289      $47,000   
Net interest margin (FTE)    3.02%     3.03%
Net interest spread (FTE)    2.82%     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 June 30, 2020 and March 31, 2020, loans totaling $5.6 million and $5.2 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
 December 31, 2019
 Average
Balance
 Interest Average
Yield/Rate
ASSETS     
Loans (1) $3,540,274   $43,166  4.84%
Loans held for sale1,114   9  3.21%
Securities:     
Taxable investment securities (2)10,083   86  3.38%
Tax-exempt investment securities (2)699,868   6,431  3.65%
Mortgage-backed and related securities (2)1,674,503   12,197  2.89%
Total securities2,384,454   18,714  3.11%
Federal Home Loan Bank stock, at cost, and equity investments59,743   437  2.90%
Interest earning deposits44,039   247  2.23%
Total earning assets6,029,624   62,573  4.12%
Cash and due from banks72,018      
Accrued interest and other assets574,124      
Less:  Allowance for loan losses(25,618)     
Total assets$6,650,148      
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Savings accounts$372,798   262  0.28%
Certificates of deposit1,204,392   6,172  2.03%
Interest bearing demand accounts1,936,969   4,067  0.83%
Total interest bearing deposits3,514,159   10,501  1.19%
Federal Home Loan Bank borrowings1,019,844   4,716  1.83%
Subordinated notes, net of unamortized debt issuance costs98,554   1,426  5.74%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,250   643  4.23%
Other borrowings17,874   71  1.58%
Total interest bearing liabilities4,710,681   17,357  1.46%
Noninterest bearing deposits1,049,211      
Accrued expenses and other liabilities73,408      
Total liabilities5,833,300      
Shareholders’ equity816,848      
Total liabilities and shareholders’ equity$6,650,148      
Net interest income (FTE)  $45,216   
Net interest margin (FTE)    2.98%
Net interest spread (FTE)    2.66%

(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 December 31, 2019, loans totaling $5.0 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.
Average Balances and Average Yields and Rates (Annualized) (Unaudited)
(Dollars in thousands)

 Year Ended
 December 31, 2020 December 31, 2019
 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
ASSETS           
Loans (1) $3,750,657   $161,098  4.30% $3,426,171   $172,715  5.04%
Loans held for sale3,254   104  3.20% 1,551   63  4.06%
Securities:           
Taxable investment securities (2)133,785   4,172  3.12% 4,785   167  3.49%
Tax-exempt investment securities (2)1,201,385   42,228  3.51% 593,729   22,004  3.71%
Mortgage-backed and related securities (2)1,311,722   34,319  2.62% 1,665,686   50,486  3.03%
Total securities2,646,892   80,719  3.05% 2,264,200   72,657  3.21%
Federal Home Loan Bank stock, at cost, and equity investments59,439   1,233  2.07% 55,752   1,654  2.97%
Interest earning deposits26,202   238  0.91% 50,252   1,250  2.49%
Federal funds sold       2,722   86  3.16%
Total earning assets6,486,444   243,392  3.75% 5,800,648   248,425  4.28%
Cash and due from banks79,677       76,895      
Accrued interest and other assets664,511       547,241      
Less:  Allowance for loan losses(50,807)      (25,608)     
Total assets$7,179,825       $6,399,176      
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings accounts$440,346   817  0.19% $366,606   1,052  0.29%
Certificates of deposit1,182,938   17,051  1.44% 1,149,171   23,741  2.07%
Interest bearing demand accounts2,061,805   6,780  0.33% 1,963,936   19,772  1.01%
Total interest bearing deposits3,685,089   24,648  0.67% 3,479,713   44,565  1.28%
Federal Home Loan Bank borrowings1,032,269   11,397  1.10% 868,859   17,719  2.04%
Subordinated notes, net of unamortized debt issuance costs113,736   6,301  5.54% 98,491   5,661  5.75%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,252   1,829  3.04% 60,248   2,775  4.61%
Other borrowings91,940   388  0.42% 15,645   262  1.67%
Total interest bearing liabilities4,983,286   44,563  0.89% 4,522,956   70,982  1.57%
Noninterest bearing deposits1,277,011       1,017,836      
Accrued expenses and other liabilities90,548       76,017      
Total liabilities6,350,845       5,616,809      
Shareholders’ equity828,980       782,367      
Total liabilities and shareholders’ equity$7,179,825       $6,399,176      
Net interest income (FTE)  $198,829      $177,443   
Net interest margin (FTE)    3.07%     3.06%
Net interest spread (FTE)    2.86%     2.71%

(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 December 31, 2020 and 2019, loans totaling $7.7 million and $5.0 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.
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 Year Ended
  2020 2019 2020 2019
  Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Dec 31, Dec 31,
Reconciliation of return on average common equity to return on average tangible common equity:              
Net income $29,572   $27,074   $21,554   $3,953   $17,335   $82,153   $74,554  
After-tax amortization expense 652   696   735   774   814   2,857   3,490  
Adjusted net income available to common shareholders $30,224   $27,770   $22,289   $4,727   $18,149   $85,010   $78,044  
               
Average shareholders' equity $854,070   $835,330   $801,413   $824,759   $816,848   $828,980   $782,367  
Less: Average intangibles for the period (211,354)  (212,221)  (213,135)  (214,104)  (215,101)  (212,699)  (216,733) 
Average tangible shareholders' equity $642,716   $623,109   $588,278   $610,655   $601,747   $616,281   $565,634  
               
Return on average tangible common equity 18.71 % 17.73 % 15.24 % 3.11 % 11.97 % 13.79 % 13.80 %
               
Reconciliation of book value per share to tangible book value per share:              
Common equity at end of period $875,297   $839,148   $817,605   $795,800   $804,580   $875,297   $804,580  
Less: Intangible assets at end of period (210,860)  (211,685)  (212,566)  (213,497)  (214,477)  (210,860)  (214,477) 
Tangible common shareholders' equity at end of period $664,437   $627,463   $605,039   $582,303   $590,103   $664,437   $590,103  
               
Total assets at end of period $7,008,227   $7,190,960   $7,329,611   $7,273,638   $6,748,913   $7,008,227   $6,748,913  
Less: Intangible assets at end of period (210,860)  (211,685)  (212,566)  (213,497)  (214,477)  (210,860)  (214,477) 
Tangible assets at end of period $6,797,367   $6,979,275   $7,117,045   $7,060,141   $6,534,436   $6,797,367   $6,534,436  
               
Period end tangible equity to period end tangible assets 9.77 % 8.99 % 8.50 % 8.25 % 9.03 % 9.77 % 9.03 %
               
Common shares outstanding end of period 32,951   33,072   33,032   33,012   33,823   32,951   33,823  
Tangible book value per common share $20.16   $18.97   $18.32   $17.64   $17.45   $20.16   $17.45  
               
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) $48,707   $46,586   $47,271   $44,701   $43,176   $187,265   $169,805  
Tax equivalent adjustments:              
Loans 717   688   679   668   653   2,752   2,490  
Tax-exempt investment securities 2,427   2,415   2,339   1,631   1,387   8,812   5,148  
Net interest income (FTE) (1) 51,851   49,689   50,289   47,000   45,216   198,829   177,443  
Noninterest income 10,900   11,141   12,193   15,498   10,465   49,732   42,368  
Nonrecurring income (2) 24   (78)  (2,662)  (5,541)  (42)  (8,257)  (470) 
Total revenue $62,775   $60,752   $59,820   $56,957   $55,639   $240,304   $219,341  
               
Noninterest expense $31,315   $31,616   $29,856   $30,520   $30,944   $123,307   $119,297  
Pre-tax amortization expense (825)  (881)  (931)  (980)  (1,030)  (3,617)  (4,418) 
Nonrecurring expense (3) (758)  (315)  (39)  29   56   (1,083)  (26) 
Adjusted noninterest expense $29,732   $30,420   $28,886   $29,569   $29,970   $118,607   $114,853  
               
Efficiency ratio 49.86 % 52.77 % 50.85 % 54.10 % 55.92 % 51.85 % 54.25 %
Efficiency ratio (FTE) (1) 47.36 % 50.07 % 48.29 % 51.91 % 53.87 % 49.36 % 52.36 %
               
Average earning assets $6,451,545   $6,548,935   $6,696,235   $6,248,759   $6,029,624   $6,486,444   $5,800,648  
               
Net interest margin 3.00 % 2.83 % 2.84 % 2.88 % 2.84 % 2.89 % 2.93 %
Net interest margin (FTE) (1) 3.20 % 3.02 % 3.02 % 3.03 % 2.98 % 3.07 % 3.06 %
               
Net interest spread 2.83 % 2.65 % 2.64 % 2.61 % 2.52 % 2.68 % 2.58 %
Net interest spread (FTE) (1) 3.02 % 2.84 % 2.82 % 2.76 % 2.66 % 2.86 % 2.71 %

Southside Bancshares, Inc.
Non-GAAP Reconciliation (Unaudited)
(Dollars and shares in thousands, except per share data)

(1)  These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.
(2)  These adjustments may include net gain and loss on sale of securities available for sale and loss on fair value hedges, in the periods where applicable.
(3)  These adjustments may include foreclosure expenses and branch closure expenses, in the periods where applicable.