TYLER, Texas, Jan. 27, 2021 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (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.
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.
