SBSI - Earnings call transcript Q2 2020 | Southside Bancshares, Inc.

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Operator

Good day, ladies and gentlemen. And welcome to the Southside Bancshares Incorporated Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the call over to Suni Davis, Chief Risk Officer. The floor is yours.

Suni Davis

Sapi. you, Thank and Earnings everyone Southside Second Bancshares' Good welcome XXXX Call. Quarter morning, to of be A under call today's transcript will Investor posted Relations. southside.com on,

will assumptions forward-looking Form During you that risks and could call and our our disclosures XX-K. in Factors presentations, today's current our change forward-looking release other and uncertainties. that described are statements I any materially subject are to and remind earnings

and President Joining me and Shamburger, CFO. Lee today, CEO Julie Gibson, are

the his results. First, Lee. Then on turn comments COVID-XX Lee including overview financial pandemic. will quarter our the share I an give will to, Julie the now call of over will

Lee Gibson

The with Good morning. the bank pandemic this our of quarter equity I'm and annualized of income call. return with an and on of million. current expense And was earnings in $XX.X $X.X million, XX.XX%. overview for we Starting net tangible $X.XX economic to dealing welcome results, the quarterly second per how share the quarter during the to and an provide provision Bancshares' second managing average going results quarter environment. Southside credit loss are reported earnings we of

quarter, long cornerstone Southside's the the in our loan during monitoring standards asset further the to million strong Consistent earnest, percentage loan underwriting linked focus equivalent remained performing Non tax net Since X.XX% the percent total losses and allowance of increased due a and of $XX.X a loans pandemic a net unchanged by $X.X one assets the loans increasing to of has the second basis of quality quarter we've level to points significantly allowances million as of interest the the loans and X.XX%. to for quarter. increasingly model. quality total at PPP portfolio. began intensified the basis booked During frequency margin point PPP XX decreased on business assets X.XX% as asset loan been

we've dives loan procedures, Overall, within we loan are reports by the respected with we by to a modified we initial normal to addition deep basis. have reviewing portfolio ends. encouraged normally resume, the industry which and making individual to period loans recently detail dive are indicated deep what and learned industry numerous schedule asset observed payments officers loan completed discuss they We've conducting modification meeting are customers our In quality. an XX by more on will relative full day the zoom once

Texas continue more detailed million. was loans sheet anticipate by balance of decisions Julie Securities total Our we modified $XXX modified largely has certain third a quarter, their resume quarter provide funding will loans approximately as purchasing remain of many first total Municipal that trend of loan during highly as should The This during payments. rated and the with during her expected during yesterday normal the along trending as downward been performed moves to are quarter. expected modified second industry review presentation. the the

deposits resulted All during and occurred of million in PPP all $XXX booked the loan in quarter noninterest-bearing the quarter the growth increase second of categories. our deposit from loans

a we're we June, This $XXX,XXX. growth our in recording quarters. future retirement future benefit decided in liability defined benefit remaining to June pipeline of of and a all to at retirement during accruals encouraged the This quality curtailment the resulted plan uncertain, loans opportunity While in of potential loan the remeasurement expense remains In by active XXXX. employees. for required freeze XXth, grow our

increase $XXX,XXX. in million. other half anticipate re-measurement, comprehensive discount during approximately income X.XX% will the to rate in expense we decrease the equity the to Due at decrease last was June of a from to primarily XXth, shareholders the at XXst, $X XXXX, due X.XX% retirement included December addition In of there to XXXX accumulated

retirement During $X when will to we compared approximately anticipate XXXX, expense overall million XXXX. decrease

As of members Southside the customers. underpinnings Southside team impact Despite and concern safety remains we our subsides. customers this continued should the outstanding attitudes thank pandemic, focus this our COVID-XX, during by Texas caused this all for sound and the and we challenging to and their bank of the the recover Again, appear members downturn team during dedication I economic time. and the serve our once primary markets operating of Covid-XX continue want to

we well result, challenging times the to balance to strength successfully over positioned and navigate will grow believe utilizing now a position our turn and our are As liquidity sheet, call of the franchise. Julie. I capital these we Texas

Julie Shamburger

everyone Lee. million net Good or $XX.X or an income linked for a increase call of the on XX.X% of And million million $XX.X reported to the this XXXX. quarter, our welcome increase basis. of XXX.X% and morning, $X.X in you, Thank quarter to morning. same an period We compared second

a ended quarter linked XXXX, quarter compared earnings $X.XX of an XXth, of the same in increase June an period share to and For basis XXXX. our were diluted per the on increase $X.XX $X.XX,

During the to Program originated small of PPP the Payroll Act. through the under or we the Protection qualified second provisions Cares quarter, loans businesses

As to approximately million of borrowers. PPP June in XXth, our X,XXX loans loan portfolio included approximately $XXX

loans. recognize We fees adjustment terms over $X loan in the expect a of to approximately related million as PPP yield these

second income. these recorded the interest of fees quarter, in approximately we During million $X

during the loans Paycheck or $XXX.X As reported increase an Protection quarter. of second Program, in of our in result a the X% million participation we

portfolios real an increase However, estate PPP family or Partially loan in basis a XXth, offset a primarily commercial experienced excluding commercial portfolio. excluding quarter to in on portfolio our and the linked June The those decrease million loans, the commercial we the loans. by our $XX.X decrease included in PPP occurred construction of X.X%. loans portfolio four at residential loan one

into decreased XXXX, June or XXth, loans excluded the six months X.X%. portfolio loan For million our PPP $XX

to COVID-XX, full As the uncertain of growth Lee mentioned impact his the uncertainty is remains for due that remarks, economic in loan around XXXX.

driven by quarter economic the surrounding primarily increased loan COVID-XX. for basis, XX.X% loss a or allowance on Our $X.X million uncertainties linked

in X.X% assets to to non-performing year lower The linked $XXX,XXX remain were total $XX.X Our unchanged non-performing points the Beginning increase at assets through borrowers deferrals. two up second and experiencing to and financial months. deferrals quarter of X.XX% were hardship March we assisted to Generally due assets payment X.XX% three with linked that million, these quarter. most challenges our an were at when of or COVID-XX related quarter, basis end. compared

with loans. and to $XXX.X were service million. of million; $X.X of gas and $XX.X approximately deferrals and our As categories or four X.XX% residential, gas, commercial $XX.X total totaling largest retail exposure oil At have million XXXX, deferrals and XXth, we $XXX.X restaurants, one centers $XXX loans XXth, July include million. oil industry The $XX.X food approximately million; of June of million hotels, million;

June XXXX. securities XXth, securities loans the June a portfolio quarter the the X% an Our securities recognized gain shifted our of XX% years was of We XXXX. securities March decreased unrealized mix we and $X.X end mix portfolio XXst, duration PPP AFS million XXth, million. years, to for to in and or At slightly from of ended XXXX, of sale of the Securities $XXX.X on June XX% of the portfolio had gains the $XXX.X approximately net And XXXX. securities XX% second X.X net during At loans increase loans at million compared the loans XX% a quarter. excluding the at XXth, X.X and securities

cost. fees interest recorded expense related this in interest bearing driven liabilities. We interest by X.XX The decreased funding $XXX,XXX quarter, interest margin March to X.XX a or one and XXXX. loan ended continued lower deposit quarter as to offset XXst, for related $XX,XXX to on lower approximately mentioned interest interest X.XX in accretion by increase decrease on negative increased PPP spread impacts rates which $X directly to we and the and six quarter decrease Also $X.X program from the basis point million XX.X% the in margin benefit had income lower from rates to funding this largely Net on a the income prior linked the net by the assets. million interest costs, earlier, Our deposit recorded of We a of quarter. earning quarter. interest lower basis point as result in from

For for deposit partially due to and by months services linked on in XXXX, offset of gain income the of decreased gain AFL net noninterest Securities June the the fees, in sale the $XXX,XXX decrease loans. the quarter sale X.X% on or trust three XXth, excluding thousand

stimulus During April and and reduced in to spending. overdraft checks consumer May, we due income experienced decreases

However, we compared increase did when an in June, see to May.

in for and primarily by expense as the Our in lower linked result noninterest or quarter expense. employee second an partially occupancy $XXX,XXX The occurred offset the net due expense benefits decreased during salaries health claims decrease quarter. and decrease X.X% increase employee a of to benefits, in a salaries

of expense XXXX, are million. the For noninterest quarter of we third approximately $XX estimating

interest to XXX.X% quarter a compared pleased decreased the to our income. quarter expense to XX.XX% ratio in $X.X pretax increase increased linked by report XX.XX% due basis in Income are or million to efficiency net income. increase tax the linked We primarily driven on

Our discrete X.X%, a more to recorded had XXXX. effective impact in an At effective concludes quarter. tax comments you rate due $XX,XXX are for we benefit up for increased tax impacted year. the by we quarter quarter's open XX.X% which reported This of the the the estimating questions. it significant remainder tax joining of of pretax XX.X% our in Last lower the tax first time, was from rate to than us positively this at or rate and effective today. a income will first Thank for XX.X% normal

Operator

first Your SunTrust. Instructions] of from Michael line Young question [Operator from comes the

open. Your line is

MichaelYoung

additional the we of add of specific you you kind I little an Julie, just normal Could to expect terms return was a what little your back maybe to that are much could thoughts the how additional maybe expect about paying XX the how as detail And you agreed? maybe just to Hey, on do on forward days going up if in on of do you with forbearance? talk provide much good categories a categories, forbearance. wondering bit guys morning. follow

LeeGibson

very we to, and day for in second good I We have be an that and Probably the we're not have why excellent time. loan value flag. about our this customers ago But ask meeting really it's hit is the for so And a XX we of carry we over a request industry. long obviously hotel we the where one anticipate a seeing for at percentages second hotel are not. past to portfolios and we cash at they're to all this through. That's the and But anticipated they think we are high modification priorities not additional going where they're at down asking in were have down And located is, in a number where the extremely to -- one well to understand probably point of to who's spotty very a not loan this modification. category did modification. has We time the went by hardest them quarter. prompt -- them. flow encouraged that our kind in too in third that been point asking down a of the some percentage continue will in that it terms time, it's of point it's lot a they're their of occupancy and through to large modification trend But going think we expect third trending we

MichaelYoung

be forward in of now you I Maybe reserve expect loan from to you for that cases to reserve built to return increase guess et the and more kind this do and light going of what's Texas model with do -- loss even here in And into cetera. sustain of that? kind in normal maybe guys able levels the

LeeGibson

we've you more beginning, additions the difficult model to If dives we we if CECL it's is the the of may to feel that it reserve. as continuing -- relative do we end normalized economic is in going finish a are and the at amount be. deep the we what to once good of Well, continue have at time. to it economic -- and over I we thing about then, see think all of reserve. now yes, doesn't, point I aware we to you're sure where them to start forecast the main it at drives improves If the know am when to forecast September after these some the at returned we this reserve we're look Right we

and So model but is driven it's economic the -- it's the the thing biggest really forecast. on all

how environment. Texas seeing have bars are and than seeing occur So if things restaurants up, and in to commerce are opening and considerably COVID other the learning are this up in activity XX% are at much and operate opened people but you pretty the you're

So traffic are where a the ago. certainly month levels a up were they even and from considerably half

question difficult I'm answer. a to sorry. that's So

MichaelYoung

repurchase your it's get the forward a about then dividend I what to maybe are at trying of okay. to to in but more maybe this you and/or to medium-term dividend, any a I capital kind was lastly of terms interested continue you as or think in either guys to And it process, That's least guess basis. of a a buyback share thinking challenging question, return mean just know is forward No. future. I go the on going but pertains look as thought special special would thoughts. when dividend share maybe

there are So you're kind things of certain watching for.

LeeGibson

quarters our our sure at and things those that that to to have of point or continue capital this, We share But things balance capital. be what any do terms to reserve relative with -- that make watching earnings don't look think make larger point balance at the have for stock in to to we're dividend rather able the position. and the in our I certainly sheet we any going to of be to impact the like we'll in have to If have time. some We continue good main anticipate normal to thing about we're I'd model. at think repurchases is we'll percentages we are need feel what think I -- to terms if CECL new much and to the back requirements just capital our consider repurchase. in be but we time risk-based of position capital, you sheet with this will continue

Operator

of from Sandler. next Your Brad Piper the question line comes from Milsaps

Your line is open.

BradMilsaps

of average I quarter? guys. amount during the Just Hey. Good the morning, loans Julie if was had curious average balance. PPP the you

JulieShamburger

Yes. The $XXX quarter was average million. around balance for the

BradMilsaps

a fee. portion, Okay heard that recognize fee that's you think just correct? you Is and million I in say I the $X

JulieShamburger

loans Yes. that $X.X recorded for about net and we million All a PPP and $X about the and quarter the million fees. on the was

BradMilsaps

And $X seems million said the less you have that maybe than Okay. you to relative about estimated. recognize little left a

Some of incorrectly? as -- XX that deduct the I coming or we operating $X with to did hear through expenses million FAS

JulieShamburger

Yes get I we accreted said had yield. And we intended over to million. that last we we to loans have we from have around the was that million what are and and did only We $X say quarter it $XX and million. these expect accreting still $X

BradMilsaps

left. million $X Okay,

Okay.

JulieShamburger

Yes.

So I got that.

BradMilsaps

line? No really impact no is there the expense problems, on

JulieShamburger

mean to I some $X over we but time, No. minimal it was paid compared the certainly million fees. in

BradMilsaps

it. Got it. Got

All of a the very pay pertains to the in of that. and get you the thinking just obviously down that's I you're And book there environment. CDs kind How appreciate some it about balance that kind bond let interest this to Would low Okay. off, run Lee, margin kind quarter. of sheet, to or right. a what you the just environment how about as maybe more and rate moves forward? use sense thinking thinking you you're of rate going the made be likely are lot in then borrowings first liquidity

LeeGibson

lot funding letting we're paying they -- for and and now overall with else but bank. March. the something securities. We and Yes. there's liquidity in a is decrease continuing securities funding, CDs in find growing market this a the go another or up associated grow net-net come the to do add there's little if due Right letting just occasionally unless at to don't And we're saw do that in not of bond costs them point know crisis and will we're time in yes, we somewhere terms like bit I not in the portfolio can

payments at mortgage in difficult of reinvest point it's And very pre amount yes this at margin fair a that or getting -- a time. we're margin to acceptable. So that's

if saying So forward. will it is off shrink sheet I'm but there gradually and the to unless and higher going basically move something not balance may pay happens the shrink significantly, funding

BradMilsaps

helpful. Great. That's

quarter have coming cost be books at will guys around CD -- rates you time. average the our are that this the half? pieces basis your some in off Where bigger the And this back of point in you that kind points. for think I in renewal XXX do

LeeGibson

all-in we're I were are is than points. able points or cost five the CDs end market income point basis -- to the in is to of points end don't that anything XX issue only cost lot doing in at And paying this we points higher the XX basis basis basis well below know a but the XX and to time. the the interest the user brokered

pretty lot public for So all a things CDs that is CD we as that the especially drive expect often of down right fund to significantly nature.

BradMilsaps

that of bit of of those the kind obviously that be you but but unknown backdrop of kind that's does that up NIM kind loan all So think can given growth do talked stable you but relatively hold will an against you a things about?

LeeGibson

priced down reprice out PPP a --I people to and term. much Obviously, CD. see have because so. relatively past pretty most more of and stable we think yes, we're it's a the they'll think are think hold all liabilities have of additional I assets relatively impact loans it'll the much rarely our third But, year They're little still I on going quarter. in liabilities the go do we agree have that down short

next So we continue six to should to eight the that see for months.

BradMilsaps

be at the this one you're your that then about CRE concerned point? in area specific work most those on you be watching of did it biggest with terms kind final you you're the and order question to sector of list most that some way regarding in it Michael's to out of Got that down of question Would of just start with portfolio and area Would your follow that inside within terms categories sort or up retail there. an concern? worried or

LeeGibson

Retail represents dollar that modification. retail those largest modified on of we're their in payments normalized their after are were of what seeing. amount the initial terms planning Many from resuming

go occupancy the think and going when to be to hotel nature. because concerned an surrounding about up business probably I uncertainty of loans and simply of going be back I were that the area travel pick things I would area if is to the

Operator

Lay queue question the one from Wood more have from You from KBW.

open. is line Your

WoodLay

optimistic Hey. a pipeline. bit guys. more seems loan the little you're morning, It Good like towards

you better single be might think point. Do it's if impact year was grown you achievable think in the lowest to the in at the exclude thought PPP you be than it digit range could ones balances? this on back I have half any going

LeeGibson

on our right It's good -- possible. looking some kind begun time all year; extremely this It's them impacted year. just sectors not pipeline of of the at early by We, because good close three sidelines really what the uncertain to been just may have see loans happening, industries this to that ones of now they've point happen now which of most kind months for haven't. borrowers sat to really determine, impacted okay, it our COVID-XX. going that solid we're at been some in some first of or at what's -- four dependent that next And it's in may close them what's haven't

been Some in to make are impacted. those areas of some starting that have moves them not

some sectors you're COVID benefited And actually I some of them -- sure have from as aware. am have actually

So using right loan possible. growth We're just uncertain the possible. we're I is It's it's now. term think about

WoodLay

in I along on being? then Houston Do were hiring And it sort helpful still lenders this forward last you been for pre-COVID or time with intend the point hold is know, color. additional open go XXXX put with some that an me, market. of for That's to for you in to LPO planning

LeeGibson

time lenders this impact active Houston subside And this different -- three market actively intend and at to have lot point did different PPP there. economy, that some for area. to with working. definitely there put in in once the begins PPP actively They We're process thing going They have them be of a that the we we But loans us again us the of do lenders especially were additional in in down saw down loans. for this are how was we we are to market hold on brought once different at area. and hired stay good hiring until We in looking and areas. additional Texas lenders portions looking in will Houston down we

Operator

from We SunTrust. Mr. a have question from Michael Young

is line open. Your

MichaelYoung

loan I Dallas, areas in for the ask, other Thanks portfolio you wanted in up. know how like much Fort Maybe or rural the is Worth Tyler, you more Texas the Austin? but follow how versus if just number could help understand breakup geographic Hey. to have I'm the us or much is today? don't of

JulieShamburger

hold second. Yes, one

MichaelYoung

And just -- maybe while you are dropping ahead. that go

Sorry, Julie.

JulieShamburger

East we million the market. $XXX for And all have Those $XXX categories. billion Texas million, in And $X.X market. three loan those fine. And close in portfolio then are $XXX That's Austin the market. to No. about in the DFW million then around the largest

MichaelYoung

guess the yes Perfect maybe Okay. true? market maybe not areas picture just and markets than big or and performance noticed metro I impacted the that relatively different necessarily differentiation from factors less risk is being East or have you Texas

LeeGibson

No. I We're problems our hotel of don't seen -- market. we've -- concentration specific just really industry been it by portfolio. in one more a it's in think

others hotels located one hotel markets facility all think them, occupancy to be heavily, are and rate. the to different have we but bunch gradual happens they're a pretty they that have increases this saw I of the continue rates much occupy next the and that pretty we downturn same in same all a occupancy much pretty government almost XX in in the they and of to seeing

that another. a know been specific market than that's we've seen really harder don't hit I So

MichaelYoung

about for factors mitigant about cetera? loan-loss one already of sort properties and think the loan we one portfolio that just Any any be there's reserve of highlighting last maybe to we mitigating high kind portfolio. hotel given the values should thinking of pre-COVID themselves, just other the that as that or maybe kind rates Okay you're risk of loss other et whether

LeeGibson

We're big hotel not lenders.

amount go don't to hotel. with go -- good to And we operating because extremely and when extremely we cautious very always equity those good we're require a with we look be we we at fair so operators flags, in want of try that. deals And a

to begin some categories. but we than other So have when with, conservatively hotels conservative underwriting look at it even we look we do we at more standards

Operator

queue, no are presenters. questions more There from the

may You continue.

Lee Gibson

right. All you. Thank

an in asset of PPP growth, share. stable look X.XX% solid loan interest we increase to quarter quality, Southside basis excellent deposit in and sound total net today. Thank joining core second and an loans increase per a net in quarter for by us our for to in loans, margin; you results comments. continued losses allowance highlighted XX point XX.X% October. And earnings forward concludes to reporting third This the

Operator

concludes conference joining. today's Thank for This call. you everyone

may a bye. great day. Have Good You now disconnect.

Southside Bancshares (SBSI) 22 Jul 202020 Q2 Earnings call transcript