Welcome to the 2021 Southside Bancshares, Inc. Annual Meeting of Shareholders. I would like to introduce Bob Garrett, Chairman of the Board of Directors.
Thank you. It's my pleasure to welcome you to the 2021 Southside Bancshares Annual Meeting of the shareholders. Thank you for joining us today and for your continued support of Southside. I'd like to take a moment on behalf of the board to recognize our Chief Executive Officer, Lee Gibson, for his extraordinary leadership during 2020. As you know, in light of COVID, there were many uncertainties facing the financial sector and businesses all across industries. Lee soundly managed the most difficult and unexpected challenges of 2020 due to his willingness to adapt and his efforts to identify potential problem areas as well as recognize funding and investment opportunities during the disruption. Under Lee's leadership, Southside saw record year-end earnings in the most unlikely of circumstances. However, Lee would be the first to say that he didn't do it alone.
Lee is privileged to lead an amazing management team who worked tirelessly this past year to navigate the challenges presented by COVID. We experienced firsthand their grit, passion, and dedication to Southside. Their steadfast efforts and leadership allowed us to quickly adapt to the changing environment in both operating and economic environments. Because of their momentous contributions, Southside never missed a beat providing essential services to our customers and communities and delivering excellent financial results to our shareholders. To the employees of Southside, each of you deserves to be singled out for your hard work during these trying times. The year 2020 required a heroic team effort, and fortunately, Southside had its A-team ready and willing. Thank you for your commitment to Southside, our customers, and our communities. I will now like to turn it over to President and CEO of Southside, Lee Gibson.
Thank you, Bob. The board of directors have appointed me to preside over today's annual shareholders meeting. First, I would like to start by thanking all of you for joining us today. If public health conditions continue to improve, we fully expect our annual shareholders meeting will be in person next year. In a few moments, we will begin with the business portion of the meeting, followed by a brief presentation of our financial results, and ending with a Q&A session. Shareholders can submit questions for the Q&A session at any time during the meeting in the space provided in the virtual webcast. Please take note of our rules of conduct along with other materials posted in the meeting portal.
Before we begin, I would like to recognize the directors that served Southside Bancshares during this past year, all of which are participating in today's call, and thank each of the directors for their continued hard work and dedication. Chairman of the Board, Bob Garrett.
Vice Chairman of the Board, Don Thedford. S. Elaine Anderson. Lawrence Anderson. Michael Bosworth. Herbert Buie. Patricia Callan. Shannon Dacus. Trey Henderson. Melvin Lovelady. Tony Morgan. John Sammons. H. J. Shands. Bill Sheehy, and Preston Smith. During the last 12 months since our annual meeting in 2020, these directors have been a tremendous source of strength for me and the entire Southside team as together we successfully navigated uncharted waters associated first with the pandemic, and then during February of this year, a severe winter storm that caused power and water outages over a large portion of the markets we serve for several days.
In each case, the directors worked overtime to ensure a successful outcome for Southside, and I cannot thank them enough. Joining us today are Mark Bell and Marcus Milchick, partners with Ernst & Young, the company's independent accounting firm. They will be available for questions during the Q&A session. I will now call the shareholder meeting to order and consider items on the agenda. This meeting is held pursuant to bylaws of the corporation and written notice to all shareholders. The board previously appointed Julie Shamburger, Chief Financial Officer , to serve as judge of voting for today's meeting. Ms. Shamburger, do we have a quorum present?
Yes. Approximately 82.74%, or 27,157,939 of our 32,819,913 shares outstanding as of the record date are presented in person or by proxy today.
The polls are now open for shareholders to vote. However, you do not need to vote at this meeting if you've already voted by proxy. If you wish to change your previously submitted vote, you may do so while the polls are open by following the instructions on the meeting website. The first item on the agenda is the proposal for the election of directors. Each nominee's qualifications are described in this year's proxy statement. Our articles of incorporation provide the Board will be divided into three classes as equal in size as possible. Based on the recommendation of the Nominating Committee, the Board has nominated the following persons for a term expiring 2024, Elaine Anderson, Herbert Buie, Patty Callan, Bob Garrett, and Tony Morgan. The second proposal is a non-binding advisory vote on the compensation of the company's named executive officers.
The third proposal is to ratify the appointment by our audit committee of Ernst & Young to serve as the independent registered certified public accounting firm for the company for the year ended December 31st, 2021. We will now pause to allow time for voting. Thank you. Now that everyone has had a chance to vote, I will now declare the polls closed. Based on the preliminary voting results, each of the proposals has passed. The final voting results of today's meeting will be reported on an 8-K filing with the SEC within the next four business days. Having considered all of the items on the agenda, I now declare the business portion of our shareholders meeting closed. At this time, we will now begin the presentation.
Before we begin the presentation, I do need to remind you that during today's presentation, any forward-looking statements are subject to risks and uncertainties. Factors that could materially change our current forward-looking assumptions are described on this slide and our annual report on Form 10-K and other filings with the Securities and Exchange Commission. At the annual shareholders meeting last year, there were two dominant themes, COVID-19 and major uncertainty. What a difference a year makes. This year, while we're still dealing with COVID-19, there's substantially less uncertainty in the Texas markets we serve. Thanks to proven, readily available vaccines, notably reduced COVID infection levels, and the successful, virtually unrestricted early reopening of commerce in Texas.
What seemingly looked like a very challenging year for financial results at this time last year quickly reversed, as Southside experienced a remarkable year and reported record net income and earnings per share for 2020. Uncertainty related to asset quality concerns gradually faded during the second half of 2020, as evidenced by continued low non-performing asset levels and dramatically reduced COVID modified loan totals. At one point during 2020, these modified loans were in excess of $400 million. Today, they are less than $1.2 million. As 2020 closed, we increased the regular quarterly cash dividend 3.2% and declared a special cash dividend. None of this could have been accomplished without the extraordinary efforts of the exceptional team I am so very privileged to work alongside. Last year presented countless challenges.
However, our team found ways to overcome these obstacles and support our customers, as well as fellow team members during this time of immense need. I want to thank each of them for their significant accomplishments that allowed Southside to successfully navigate this exigent time. In addition to posting these record financial results since April of 2020, we helped provide critical funding to over 3,100 small businesses by originating over $420 million in forgivable Small Business Administration Paycheck Protection Program loans. We expanded into the dynamic Houston market by opening a loan production office and hiring three experienced commercial lenders. We also hired two additional experienced commercial lenders in the D.F.W. market and one in the Austin market, all of whom are already making meaningful contributions. In October 2020, we celebrated Southside Bank's 60th anniversary, highlighted by virtually ringing the Nasdaq opening bell in honor of the occasion.
In early 2021, Southside Bancshares was ranked as one of the top 10 banking powerhouses in America by Bank Director based on total shareholder return over the prior 20 years. This study also ranked Southside as the best bank to work for in Texas, along with ranking the board of directors as the best in Texas. As a result of the pandemic during 2020, we learned a great deal as we quickly adapted in order to continue to provide our customers exceptional service levels, while at the same time providing our employees a safe working environment. During this time, we utilized technology on a new level, as did our customers, allowing us to more fully appreciate the importance of our technology investments made in prior years. Many of these lessons learned have become part of our normal operating procedures.
Additional investments in technology made in the past year will allow us to provide customers more options and enhanced service levels while making us more efficient. While 2020 certainly presented significant challenges, thanks to our remarkable team members and board of directors, I consider 2020 to be the best year in Southside's 60-year history. Looking at 2021, our goals for this year include building on our success and lessons learned in 2020, focusing on organic loan and deposit growth, add additional talented commercial lenders to further enhance revenue growth, maintain asset quality. We also want to further enhance our digital technology capabilities and strategies, and we want to identify attractive acquisition opportunities that will enhance the long-term value of Southside's franchise. We would also like to identify and capitalize on efficiencies in the back office and customer-facing processes.
Last, but certainly not least, continue to successfully navigate this low interest rate environment. I will now turn the presentation over to our Chief Financial Officer, Julie Shamburger.
Thank you for joining our meeting today. We had an excellent year, and I'm pleased to report our 2020 results. We reported record net income of $82.2 million and earnings per share of $2.47, an increase of 12.3% and a return on average tangible common equity of 13.79%. Non-performing assets remained low ending the year at a very solid 0.25% of total assets. Our efficiency ratio improved, decreasing to 49.4% from 52.4% for the prior year. We paid cash dividends of $1.30 per share, an increase from 2019. For the first quarter of 2021, we reported record net income of $34.1 million, an increase of $30.1 million. Our first quarter results for 2021 included a reversal of provision for credit losses of $10.1 million compared to a large buildup in the allowance for credit losses of $25.2 million during the first quarter of 2020.
Last year, on January 1st of 2020, we implemented the new accounting standard for the measurement of credit losses, referred to as CECL. During 2020, we found CECL model results are heavily impacted by economic forecasts and the reversal of provision for credit losses recorded in the first quarter of 2021 was primarily due to improvement in the economic forecast and its impact on macroeconomic factors used in the model. Diluted earnings per share were $1.04 per share compared to $0.12 per share for the same period last year. For the first quarter, we also reported a return on assets of 1.99%, a return on average tangible common equity of 21.22%, and our efficiency ratio decreased to 50.4% compared to 51.9% for the same quarter in 2020. The following slide reflects the significant quarterly changes to the allowance for loan losses for 2020 and the first quarter of 2021.
As you can see, during the first two quarters of 2020, we recorded a total of $30.4 million of provision for loan loss, a result of the anticipated economic forecast due to COVID-19 used in the CECL model. At this time last year, we believed the significantly higher allowance further enhanced our ability to successfully navigate through the uncertainties of the current economic landscape. As the economic forecast began to improve during the second half of the year and through the first quarter of 2021, we recorded reversals of provision consistent with the forecast and the loan portfolio credit quality in the respective quarters shown. The upper left corner on this slide shows a bar chart of our increasing net income trend since 2016. The upper right corner shows net interest income.
Net interest income is our primary revenue source. During 2020, it increased $17.5 million when compared to 2019 and reflected a $1.6 million increase during the first quarter of 2021 compared to 2020. These increases were due to lower funding costs and the continued growth in our earning assets. The graphs on the bottom half of the page show our positive trend since 2016 for return on assets, return on average tangible common equity, and the efficiency ratio. The efficiency ratio measures the cost to generate a dollar of revenue by dividing non-interest expense by income, adjusted on a fully taxable equivalent basis. We have seen significant improvement in our inefficiencies over the years and strive to maintain an efficiency ratio of 50% or less. We were pleased to report 49.4% for 2020 and 50.4% for the first quarter of 2021.
This slide shows the percentage mix of our two primary earning asset categories, loans and securities, and the percentage mix of our two primary funding categories, deposits and Federal Home Loan Bank advances since 2019. Loans represent our highest yielding earning assets, and deposits our lowest cost funding source. The big takeaway from this slide is the large shift in our funding during 2020 and 2021 out of the higher cost Federal Home Loan Bank advances and into lower cost, more stable deposits, which was a big reason for the increase in our net interest income. For 2021, we are projecting 7% organic growth in the loan portfolio, net of any PPP loans forgiven or originated, which should increase loans as a percentage of earning assets and further increase net interest income.
This slide shows our tax equivalent net interest margin, net interest spread, and cost of funds trends over the last five quarters. You can see on the graph how the net interest margin and spread have increased over the last five quarters as the cost of funds have declined, primarily due to the shift in the lower cost funding mix mentioned previously and the decrease in interest rates. As I mentioned earlier, as deposits increased, our funding mix shifted to lower cost, more stable deposits from Federal Home Loan Bank funding. As of the first quarter of 2021, overall deposits increased $390 million, or 8.3%, compared to the year ended 2019, and $160 million, or 3.3%, when compared to the year ended 2020. These increases resulted primarily from PPP disbursement and stimulus check deposits. The composition of our deposits consists of these 5 major categories.
The first three deposit categories in the table represent our lowest cost deposits and make up approximately 87% of our total deposits at March 31st, 2021, compared to 72% at December 31st, 2019. Non-interest-bearing deposits, designated in the light green portion of the graph, increased 33% to $1.38 billion, or 27% of total deposits for the first quarter of 2021, when compared to $1 billion, or 22%, of total deposits as of 12/31/2019. The higher cost retail and jumbo time deposits have steadily decreased since 2019 as a percentage of total deposits, further reducing our funding cost. As you heard Lee mention in his remarks, we had a unique opportunity to help businesses in need through the SBA's Paycheck Protection Program.
Through this program, we were able to play a valuable role in helping our business customers keep their workforce employed during unprecedented times by originating and funding these SBA forgivable loans. There were two rounds of the program, with the first beginning during the second quarter of 2020 and the second beginning during the first quarter of 2021. During this process, we originated over 3,100 PPP loans totaling approximately $420 million that allowed these small businesses to retain over 34,000 jobs. We are extremely proud of our efforts through this program. This table shows the outstanding balances of the loans, which we include in our commercial loan category. During 2020, the most significant change in the loan portfolio was an increase in our commercial loan category, a result of PPP loans.
You can see this increase in the green area of the bar graph, which occurred beginning in the second quarter of 2020. The increase in total loans for 2020 when compared to 2019 was due entirely to our participation in the Paycheck Protection Program. The average yield earned on our loans is represented by the yellow line across the bar graph. Approximately 53% of our loans are adjustable or variable rate loans. Consequently, you can see the change in loan yields consistent with the changes in the yield curve. Our largest category of loans remain those secured by real estate. As of March 31st, 2021, represented 71% of the total loan portfolio.
For the first quarter of 2021, we were pleased to report increases in our commercial real estate portfolio of $52.8 million and $23.7 million in our construction portfolio, partially offset by a decrease of $19.5 million in 1:4 family residential loans. During the first quarter of 2021, we reported 6.2% annualized loan growth net of PPP loans. We are currently projecting total loan growth of 7% for 2021. Our asset quality continues to be strong, and we are very pleased with our asset quality ratios. For March 31st, 2021, our non-performing assets were $15.4 million, a decrease of $2.1 million since the end of 2020, and the non-performing assets to total assets ratio also decreased to 0.22% from 0.25% at year-end. All of the asset quality ratios presented here improved further in the first quarter of 2021 from already strong levels for the fourth quarter of 2020.
Consistent with our longstanding practices, we continue to apply our high underwriting standards as we evaluate potential loan opportunities. Next, I will move over to our securities portfolio. During our annual meeting last year, we reported on the significant purchases of largely AAA-rated municipal bonds during the first quarter of 2020. The purchases were opportunistic as U.S. agency mortgage-backed securities and highly rated municipal bonds decreased in price during March of 2020, primarily due to illiquidity in these markets as significant decreases throughout the equity markets persisted. The overall size of these municipal purchases during the first quarter of last year was due in part to our expectations for lower loan growth due to the uncertainties surrounding the pandemic and contributed significantly to maintaining the net interest spread during 2020 and through the first quarter of 2021.
Total mortgage-backed securities declined due to faster prepayment speeds associated with lower mortgage interest rates during 2020 and the first quarter of 2021. We expect the prepayments of our mortgage-backed securities to slow in future quarters compared to 2020 levels, mainly due to the reduced amount of mortgage-backed securities remaining. During the first quarter of 2021, we sold certain municipal securities of electric power subsidiaries as the industry faced potential credit uncertainty resulting from the severe winter storm in Texas during February. These sales resulted in a net gain on sale of securities of $2 million. At March 31st, 2021, the securities portfolio totaled $2.65 billion, a decrease of $51.2 million from December 31st, 2020.
While the securities portfolio has decreased since the first quarter of 2020, at the end of March 2021, it reflects an increase of $152.6 million when compared to December 31st, 2019, and remains a strong source of earnings and liquidity for the bank. Our quarterly capital levels are presented here for the fourth quarters of 2019 and 2020 and the first quarter of 2021. We are very well capitalized in all of the regulatory capital categories indicated by the red line on the graph. You can see a noticeable increase in our total capital ratio for the fourth quarter of 2020 and the first quarter of 2021. In November of 2020, we issued $100 million of 3.875% fixed to floating rate subordinated notes due in 2030. These subordinated notes qualify as Tier 2 capital and included in our total capital for the purpose of these ratios.
Based on the yield curve at this time, the issuance of these notes will enable us to call our existing 5.5% subordinated notes in September of this year, creating an additional reduction in our overall funding cost. Our strong capital position provides flexibility for organic loan and deposit growth and other strategic opportunities, including potential acquisitions. Our shareholder returns are presented on this slide and represent the performance on a per share basis of our stock in both tables. Since 2016, we have experienced annual increases in the returns to our shareholders. For the first quarter of 2021, we report a tangible book value of $19.86, a 37.6% increase from 2016. As you can see, since 2017, earnings per share have continued to increase through 2020, and our earnings per share results for first quarter of 2021 provide an excellent start for a potential continuation of this trend.
This slide presents our cash dividend history since 2001 and also reflects our record of cash dividend increases over this time period. Southside has paid a cash dividend for over 50 consecutive years. We are also pleased to mention that last Thursday, May 6th, we announced an increase of 3.1% or $0.01 per common share in our regular quarterly cash dividend, and in the same announcement, declared the second quarter 2021 cash dividend of $0.33 per common share. This performance graph reflects the total return performance of our common stock, SBSI, for the 10-year period beginning 12/31/2010 and ending with 12/31/2020, compared to the performance of the Russell 2000 Index and a peer group of Texas publicly traded banks. As the chart shows, with the exception of 2013, Southside has outperformed both indices over this 10-year period.
We are pleased with our strong start in 2021 and believe we are positioned well for future opportunities. Thank you again for your attendance today. This ends the presentation, and we will now answer any questions submitted.
It appears there are no questions. Let me close by saying all of us at Southside are energized and excited about Southside's future. I want to thank all of our shareholders for your continued support and encouragement, and we look forward to meeting in person at next year's annual meeting. This concludes today's call.