SBSI - Earnings call transcript Q2 2021 | Southside Bancshares, Inc.

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Operator

Good day, and thank you for standing by. Welcome to the Southside Bancshares, Inc.

Second Quarter 2021 Earnings Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Ms. of President Vice Bailes, Investor Relations. Lindsey ahead. go Please

Lindsey Bailes

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

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

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

First, share Julie comments results. the will the on give now financial Lee. call will Lee our his will quarter, over to an then overview I turn of

Lee Gibson

had and This annualized with return common net another Call to welcome earnings on Second Bancshares' income for of morning, $XX.X tangible XX.XX%. morning, Quarter share an pleased XXXX. am an and million, of $X.XX Earnings and annualized average we of solid Good I per ROA quarter Southside report X.X% of equity to

results included continued strong Our and and metrics. net quality loans, continued growth, deposit quarterly PPP asset of linked quarter loan

used its for on second due of losses included and results economic a credit quarter the in component a model. provision downside forecast decline of to $X.X factors in The macroeconomic CECL the the million effects

strong nonperforming loans included assets Our asset X.XX%. nonaccruing and metrics total of to of X.XX% quality loans to total assets

June sold loans was Annualized to very million was construction A growth $XX.X at X%. typically post earlier-than-anticipated due rates. ago, of partially of to payoffs XXXX, construction of recently loan completed were Our year PPP linked projects net stabilization. seeing cap as loan quarter by loan selling projects XX, low growth we stabilization offset prior

continue in as to due the securities, points income decrease points, was of remains on in basis yield quarter. on The for half loan in basis believe net higher XX is average PPP the throughout loan basis a XX and basis and basis basis decrease our securities interest in XX X% position due high-growth to earning result a the of combined XX quarter, decrease our the of a securities the in an was margin XX securities loan quarter net for of serve. largely prepays, position purchase the primarily interest decreased average in due given The primarily point an will Linked treasury trend balance in portfolio. which the the loan securities $XXX,XXX PPP overall markets the very a a to accretion decreased pipeline primarily decrease quarter. We decrease due second of and The point percentage mortgage-backed the the yield our yield the net linked decrease assets. loans outlook The on to XX continues mortgage-backed we linked yield loans XXXX, on quarter, anticipate we to decrease to average yield entirely during on as points a continue due taxable year, increase accretion. the point to growth PPP during healthy, decreased achievable spread

interest debt interest July, during positive coupon we a net impact mortgage-backed income addition, have we which redemption of and the XX, will approximately our both fourth of $XX the beginning quarter. the million margin On our securities. In lower-yielding September have in $XXX sold anticipate sub on approval, pending net million X.X% regulatory issue

compared XX June months net prior X the points has margin year. when the ended to basis For interest XXXX, our XX, increased

to quarter, cost second we the During lowest a nice represents liabilities. in increase see non-maturity continued our which deposits, interest-bearing

bolstered in has growth funding in conditions borrowings. relocations, remain sources, our higher allowed have our FHLB CDs non-maturity deposits, population combined strategically growth. we strong, months, to XX cost with lower and past company expansions the us significant which by market Economic Over areas experienced our

the and the presentation, serve markets markets other your the DFW questions states. Texas and and over following The look forward the individuals I migrating from Julie's now highest country. from we I answering to growth continues continue turn that in benefit to to to Austin companies Julie. economy As be among will call

Julie Shamburger

of same XXXX. Thank security decrease everyone, due income our decreased Good period of expense in provision or $XX.X $XXX,XXX million, $X morning, gains Lee. million to the linked million. today. and X.X% We quarter XX.X% net $XX.X increase a an in income to and primarily in a you, net welcome reported call of to million Net compared or of decrease $XX.X

XX, June million share ended a per to same the loans in and billion. million, increased on $X.XX quarter XX.X% XXXX linked quarter $X.XX of or in loan unchanged portfolio the when quarter, Linked diluted our of $X.XX, decrease a the PPP $XX.X were earnings XXXX, net basis. For our $XX.X of period compared to decrease

$XX.X Our $XX commercial large loans, to several in payoffs in offset unexpected forgiveness, second the during and real decreased estate quarter million loans loans million, construction of million. quarter. decrease commercial Construction the PPP approximately increased increased the loans $XX.X second by partially due excluding early a

As million. for in of The ended the June from balance PPP our XX, $XXX.X June approximately X down March XX, of XXXX, million $XXX.X our category, the average totaled million $XXX.X XXXX. XX, loans was commercial PPP loan at loans, included months

was by of XXXX, compared $XX,XXX recording to X.X% quality The on in to quarter compared loans, of And the and Scenario assets of an decreased the million loss million model. allowance On at a in increased loans of X.XX%. the forecast was in for a total due slightly loans first CECL for excluding XX, loan economic nonperforming million as June at its provision X.XX% increase X.XX% macroeconomic quarter $X.X million losses credit down XX, provision total $X.X June $XX.X PPP on or XXXX. to asset reversal factors XX, XXXX, primarily to second losses decline to of approximately used to $X.X Downside effect in remains the our Moody's when our loan Our quarter, increase Linked provision assets for percentage X.XX%. the allowance March due the a strong in for as at XX, of SX second in June quarter. the the

off-balance ended totaled at expense provision $X.X the Our $XXX,XXX, due of Combined X sheet when $X.X to the XX, allowance provision reversal million in with XX, on losses expense credit million the slightly previous entirely compared to exposures increased credit compared XXXX, to quarter. to June for again March million of for loans, XX for credit $X.X provision months of for XXXX. the June provision losses a

X with decreased loan Our to an of $XXX,XXX. have COVID-XX-related remaining mortgage deferrals approximate balance

oil XX, total June gas million $XX.X of loans industry or of were X.X% exposure and with As loans. our

sale increased linked or reported last AFS security We recognized the quarter securities $XX,XXX quarter. quarter, of X.X% $X Our portfolio million $XXX.X net decrease on on the in net gains securities during of a million a from gains basis. the

we years in of years of of to duration XX, gain As the at portfolio the securities had net increased million, unrealized XXXX, first $XXX.X from slightly the and a the June quarter. X.X end X.X portfolio in the

the Our at mix and shifted of XX%, XX portfolio. XX% loans from due and XX and securities securities at respectively, securities, in the purchases to loans to March June XX% XX%

XX respectively, of margin the to net both of basis fees related decrease loans. PPP result were with quarter, last yield decrease interest points approximately the basis on interest Consistent on interest-earning with interest XX X.XX% points, quarter X.XX%, Our net of in a and a and the margin assets. and spread in linked earned

in loans months XX, related included net in For to interest X quarter We to decreased PPP fees X.X%. income ended the approximately the or quarter. this $X.X compared recorded interest linked June net $XXX,XXX $X.X million million income

we XXXX, adjustment the approximately as the net XX, June had remaining to of loans. fees of be over $X.X million of As a deferred recognized yield terms

increase $XXX,XXX accretion from the in we quarter, this purchased Additionally, prior of recorded an $XXX,XXX loan period.

months decreased the the XXXX, of net June driven For an income, deposit noninterest income. ended quarter, X income, other increase primarily offset for was gains excluding by $XXX,XXX noninterest the a which services securities, in or sale in by AFS linked decrease XX, partially on X%

decreased servicing other increase in was card deposit rights. to primarily value driver income due debit An income fair decrease in in fee the of a in Our increase the decrease the services mortgage and a of noninterest primary swap income income.

experienced and compared to income when in quarter XXXX, noninterest Trust in X.X% X brokerage in XX% linked fees XX, services since resulting XX% income same to have each the XXXX, services in consistent June our fees X months of in trust for quarters increases XX, June ended of the $XX.X period Linked we increases over brokerage $XXX,XXX decreased XXXX. or and million. Additionally, the expense

of For approximately million. XXXX, expect we $XX be to quarter the expense noninterest third

expense decreased March efficiency pretax in to in for due compared a to fully million decreased The taxable the XX.X% to expense income. or Our equivalent quarter. ratio XXXX, of months in decrease fully ended equivalent Income decrease linked the XX, quarter. decrease tax XX.XX% the to result X noninterest taxable efficiency was ratio the the compared $X.X XX.XX%

rate Our in the decreased an income due to to tax-exempt last percentage increase for quarter effective tax of quarter a second income. from as XX.X% slightly pretax XX.X%

connection At joining Additionally, of time, award transactions second discrete the you This the our questions. line rate in us Thank tax will we XX.X%. concludes this effective an today. benefit estimating open with and equity of recorded for are $XXX,XXX quarter. during we annualized comments, we tax for

Operator

Instructions]. [Operator

coming question first Brad Sandler. Piper from Your Milsaps of

Bradley Milsaps

billion like bond writing going quickly. portfolio -- kind start average to maybe around of with $X.X the finished portfolio. the during quarter. I was bond was Lee, I looks was It the

were end. You closer $X.X at period billion to

Did I you margin buy exempt? like taxable run you then think does to that off. into. But that mentioned And you of what curious kind the go let Or mean book? It what tax of of is you did categories kind for the you're continuing stuff. buy forward? some in going -- kind just your sounds MBS more do sold you

Lee Gibson

Right. any bought it Primarily in lot primarily, the deals, But a not mortgage the few in tax-free point what arena We time. sub-debt this a taxable, We're just were municipals, value of bank municipals. municipal sub-debt some at was in finding arena. deals. we bought

terms that going we're side, in on time. In I margin point that the taxable treasury treasury at increasing position but weighed -- on yield, the think this position forward, the the of not

So an I being that issue. don't see

the range. taxable to in typically other X.XX% purchases. As for X.XX% They've been the

be rate it maturity high-quality stuff, But the obviously, and we the really on to there. slight the is. for going is reduction side, tax-free what in really On the just call you're what depends put a whatever buying

Bradley Milsaps

more maybe up you sort Okay. were coming? did above NIM Great. X%? like can back believe compression you that think Is And in sounds optimistic do more growth the that half. you on here the significant maybe loan there's back stabilize it of -- picking Or

Lee Gibson

especially some XX compression. of NIM the slight factors quarter. We third PPP don't see it know forward, I round we'll months caused lower. be of to basis that the had to in X see began anticipating We're to But just forgiven the see point sure. of NIM next number some that do for decrease the months in a going in that to be X I begin we'll loans, X a

So pressure a lot and we bringing the the income be the of And we'll -- it to sub-debt pending going deal, take will other that If regulatory that's call when we approval. in. go course, then, NIM, direction. of off

Bradley Milsaps

do the have in loans And question. Great. Julie, PPP average one now you just the quarter? housekeeping number of

Julie Shamburger

You or want average the average balance? number the

Bradley Milsaps

I'm I apologize. The balance. the sorry, balance.

Julie Shamburger

Okay. you meant. it's -- Well, that's yes, I thought what $XXX.X It's million.

Operator

question next Group. line with Rabatin Hovde with Brett Your of

Brett Rabatin

quarters? few next the relative that pronunciation, the what Hovde much rate? I'm would coming to in to have guess guys way you do ask you replace have a the forward. I -- get in to to question have maybe wanted trying what different cash how current going maybe. to interesting in Lee, to portfolio I flow It's you was Group. Securities average And just be reinvest, the

Lee Gibson

with of cash flow lower to at an the around comes a securities averaging exclusively in yield at to Yes. some what's has those time that average And the it's prepaying bit. stuff. little point $XX the quarter And -- securities anticipate typically and mortgage-backed in for looking million sale is that this there. decrease a X.X% is mortgage-backed of The of in probably I that related might million $XX portfolio. almost somewhere month third rate we're But would that redemptions close this the

it most part, a to yield be the of in the we of bit the securities for securities So but put should able cause portfolio. close, overall additional are on little may that pressure

Brett Rabatin

in even then And the on sounds construction essentially payouts unexpected. letter were had of was the they maybe where refinanced or before portfolio, it you filed, was color. good projects those expecting That's got It but like -- the in weren't drove you away construction? you, the from that Okay. decline just what occupation

Lee Gibson

what means typically, the XX% seen multifamily, starting to may these sell Yes. it they be sell. to were which occupied. second What say, see it's stabilization. is to we've projects were it expecting that to these But was We we XX%, reach project, were a will the quarter able stabilization, in prior

leased they stabilization. weren't So to up

they from off. pay than they anywhere so And faster originally X X prepaying months would were to that anticipated we

Brett Rabatin

then you've last get were tell contacts M&A days. And was just been some in leaf me. doing conversations a know had your tea the question I with picking opportunities the having curious me talks these and hearing or if I've for on M&A for I that up. and about to And are you're thinking you read some you, folks seeing state

Lee Gibson

in. be opportunities out there are seeing hearing of uptick are M&A. additional are yes, have that we in conversations and may interested opportunities definitely are and ones an not some the surrounding out opportunities that there having to We more and But conversations we

Operator

[Operator Instructions].

are with KBW. Jones question Your line next on Will

William Jones

What year. you've that presence, you markets guys you of building out from? in I the in I your of you of most Houston is lenders for the like back and market. guys the are momentum that to are pivot you the today? anticipating are in growth coming it off downs XQ. in in you guys Dallas quarter, your does optimistic of come just some this sound still loans pay where had and growth loan know half the I strong know seeing are back process this especially wanted But to and been So the growth And kind just unfortunate -- burden

just commentary on around some So growth. loan curious

Lee Gibson

And not at encouragement we're X% this of opportunities there that which some on see pipeline, a we've up. that construction put in We're we our starting, gives in looking are last to that fund about our of number point a starting growth. been some -- full to seeing number us current time, loan those are funders year, at, starting projects then of

that anticipating in we And the anticipating we ones payoffs, so half few we're this if a may early more just year. year, not next these really were early payoffs, see but those back early were of

a thunders what of large, that that So confidence to able and anticipate the or our seeing we're get fact the number in seeing full to being it. unexpected loans at them us large a with pipeline, to real that X% types gives payoffs we of we're barring are volume, close

William Jones

active on Got active you. portfolio That's Are great you are certain some or seeking you the guys markets to lending do maybe hear. different And in hiring new lenders? in segments. within front, then still guys hoping count just still building out in

Just commentary out are you curious efforts there. on what the seeing around guys hiring and your

Lee Gibson

revenue for market are first just to some. markets, we producers, extremely areas. our producers We X yes, we're what definitely are on in bring growth We revenue continuing did worked higher we has additional additional for that and the do. very hiring look in in selective in especially actively quarter looking we're And But on interested well. out being those

William Jones

Great.

markets? Just you reference, would consider growth what highest my your are for

Lee Gibson

area, and while And X, may Houston the growing -- market us, it the there. the surface we're market. other as Austin as be scratching not high The just Dallas-Fort for growth still it's is Worth a

the So there in growth us of than a maybe opportunity lot be some we're of there to a seeing markets. seems slower little other even for with

William Jones

to at looking like But it, active the quarter-over-quarter. back were of lastly you a And go last you guys for Did just Is is the how And your pulled shares, know as upcoming pretty know engage little Awesome. buyback in roughly quarter? I were you flat bit. see period on into back you it same heavily? it That's me, that know guys this the this kind buyback quarter. just for quarter? shares possible guys appetite I great. looks stocks any buy I

Lee Gibson

to answer repurchase of at shares the future, forward, And I'm these terms during yes, what quarter, terms In let we're in we going of in to Julie looking definitely especially the moving that. prices. purchased

Julie Shamburger

to XX,XXX $XX.XX. said early was an back It Lee pay in April the Yes. average be very right And of do We on at in at plan there. shares purchased like we quarter. first price in

Operator

Next question with with Michael Securities. Truist Young

Michael Young

wanted I ask just sensitivity. rate about interest to

a You think or maybe sensitive. taking thoughts if just rate more little be historically get wanted shrinking a have you be. to or bit duration or of we're been moving any may little as we extending liability your case But proactive measures guys kind neutral may be that towards higher a to environment the duration

Lee Gibson

question. Great Yes.

going the appears while able do tend were is liabilities we the see one some Those nonmaturity the deposits. the than run XX majority been liabilities of we've over months much off, be it think let of utilize in that FHLB longer-duration it I is to remain may And sticky. the this things the growth and CDs it, to vast we borrowings. runoff large last fairly in to that which

like our overall -- result growth the a in nicely deposits. in pretty of duration So we the feel on liabilities nonmaturity as lengthened the have

with loans. lot So rate we -- floating that, a have of combined

the getting as At a the that I neutral of growth loan -- side. because like cash lot point, mortgage in nonmaturity side this mentioned, feel on pretty we're On close we're deposits. we we're the flow of to

Michael Young

on And of just bank. a Okay. for expense sort That's bigger-picture infrastructure the the helpful. question maybe

there have period. it, the continuing time, network to the on the closed a be But would and sales kind maybe confident metros? pivoting the branch keep Are activity the branches run in to of ratio just that -- kind thoughts to any period rationalize or higher-growth pruning network branch of of kind for a through being a good more level. done small of Just helpful. expenses you and having looking at efficiency pandemic job of curious, You impacts an guys now and attractive back test

Lee Gibson

Yes.

X any. branch in quarter months, think know XX in branches. I And opened year, last we've what in branch. well, We last was then an in trying closed one a have I'm the LPO, closed we and the And -- the now it's -- X we've remember a branch we opened third have in full-service branches. we last area. we've and if Houston, closed a I One months, did in branches. DFW of the X to two

sufficient we lot branches the more at other in our providing but markets produce in low-cost yes, still So are they a because markets, higher-growth number deposits. of branches looking of

covered sure make are we that sufficiently branches. important it's so that those areas And with

Operator

I back Mr. to turn over call will Gibson. now the

Lee Gibson

you opportunity to earnings. We interest All joining asset answer today. and Bancshares. our appreciate for questions given quality core strong In and closing, your Southside conditions us our positive the right. capital in markets, your position, balance sheet, in Thank economic the

very forward results next to call are and October. reporting encouraged concludes We the to during look in This our you earnings call.

Operator

This conference you for participating. call. today's Thank concludes

now Goodbye. may You disconnect.

Southside Bancshares (SBSI) 23 Jul 212021 Q2 Earnings call transcript