Earnings call transcript Q4 2022

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Operator

Good day and thank you for standing by and welcome to Southside Bancshares, Inc. Fourth Quarter and Year End 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

to Lindsey conference Relations. Bailes, like speaker to now today, for Vice would hand over the your I President, Investor go ahead. Please

Lindsey Bailes

Bancshares' Relations. of today's Thank welcome will be end morning Good southside.com call earnings fourth under on Southside Investor XXXX transcript you, year quarter A everyone call. posted and Justin. to and

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

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

First, Lee share comments results. an give and on the will Julie will then financial his of our overview quarter

call to turn now the will I over Lee.

Lee Gibson

return and excellent call we $X.XX, average for share morning This morning, common a a basis quarter XXXX. average fourth tangible the year-end per X.X%, our on quality earnings and increase for linked -- welcome everyone continued quarter fourth Good quarter, me, efficiency of excuse XX.XX%, growth and XXXX. loan strong reported for of XX net equity of in return ratio annual to and results on metrics. annualized Southside point margin, earnings four quarter XX.XX%, Highlights of an a X.XX%, included quarter assets Bancshares' linked interest asset of

continued to XXXX. these during margin of our pleased During for efforts, which want XXXX I team interest points We're contributions $XXX.X results solid XX and increased quarter the of entire loan ratio fourth XX.XX%. possible. extremely net loans, the net The basis decreased of the PPP continued or loans, increased made growth to with million. XX.X% their Southside and thank efficiency

prospects was last as XXXX. and Our for strong remains currently growth by encouraged as not solid loan the this loan pipeline, time it we are year, while

are several our fund. ago as addition, closed In seeing that beginning quarters construction now advances in increasing loans portfolio are to we

during are loan XXXX. serve, for for the budgeting we growth outlook the markets X% we Given

previously hedged designed our these of day, municipal available-for-sale are fair value approximately As reduce securities. swaps value of mentioned, to overall call securities the fair to the $XXX million with volatility

the increased we swaps began During received for our securities. average as fair quarter, producing fixed above we the average of XX net This income the suffer the the on million overnight was rate largely municipal yield basis rate $XXX fourth increase interest quarter pay. linked point tax-exempt responsible in value this

these In the December, month recorded swaps. interest approximately of of to income $XXX,XXX we net related

an income these Fed the During these the will January of XXXX, interest federal we resulting reserve income federal full from increase funds the in increase net increase effect in value swaps. net fair mid-December further the overnight increase swaps associated would we increase with anticipate interest Should a reflect further sulfur, the from expect to rate the rate. funds the

should Conversely, the all swaps decline, at the net time funds rate, or with these swaps. Reserve some at interest federal decrease some income fair associated we value would point likely Federal value unwind would fair of which these

combination state forward margins, business and consider growth population and solid, has to moving conditions to our market from building in company high result other which pre-pandemic closer in bolstered operate. a the to economic and continued combined this We costs states. by levels. we company executing decreased be in resulted continued with mortgage starts what The expansions of to reduced rates relocations in housing look model our best remain country of markets increased existing on and The migration successfully the

following answering your to remarks, turn Julie's call now and forward I the questions will look over Julie. I to

Julie Shamburger

today. call Lee. welcome Thank and everyone, morning, you, Good our to

strong fourth earnings solid million net per common of pleased and quarter We year to XXXX a share a diluted $XXX $X.XX. end with income are to report of

of $XXX,XXX $X.XX linked-quarter increase increase reported we quarter, per basis share million, $X.XX, diluted earnings and net of on fourth quarter. common a the a For linked income an of $XX.X

of real PPP in million loan CRE, we increases organic -- portfolio $XXX.X million, construction, record of driven million excluding by X-X our estate For million loans, in organic XXXX. with and XX.X a reported $XXX.X in family XXXX, growth $XX.X This XX.X%increase was residential. from

PPP. we had in a loans, commercial million Additionally, increase $XX excluding

within $XX.X Our real loan increase strong was portfolio million a loan primarily $X.XX estate quarter. an on to driven increased billion linked by basis. of $XX.X with million The linked-quarter increase growth commercial portfolio our

was loans X.X%. new quarter The funded during weighted average approximately rate of the

continue strong of linked XXst, non-performing decrease $XX.X $XXX,XXX asset December total quarter. million at X.XX% of with experience to assets quality a assets We or metrics of

allowance As was XXst, X.XX% September a compared XXth. at toX.XX% loans losses percentage as loan for our December of of total

Our allowance linked-quarter basis increased of due on in million to exposures the for quarter. a off-balance compared provision a to $X.X million last to $XXX,XXX sheet $X.X credit

or December As our loans gas and industry million of X.X% total of assets loans, were XXst, with total oil excuse exposure me. of $XXX.X --

a in portfolio driven basis. decrease increase purchases linked-quarter a Our extent, was losses securities. to million lesser $XX on X.X% in unrealized securities The by a portfolio of increased the and or

$XXX.X securities available we of quarter, net unrealized decrease of last a portfolio the December the for transferred had $XX.X During we quarter, $XXX.X $XX.X with maturity. million a AFS XXst, values fourth securities At to fair of million million. compared shelf million additional held loss to to in

the partially gain $XX.X offsetting million, of was losses additional on portfolio. December securities the the in unrealized unrealized hedged approximately AFS As XXst, the securities

As in was the million the and of entire portfolio of portfolio December AFS XX.X years the years. duration duration XX, X.X the was securities

and loans basis at on Our of linked-quarter mix XX% a respectively. remained consistent XX%, and securities

deposits quarter our linked-quarter partially offset an fund increase deposits, Our deposits. basis. in increased linked increase X.X% in by to broker a decrease on deposits public $XX.X million primarily a in was due or The

an stock at repurchase average shares year-end XXXX authorization fourth share January in the of average plan $XX.XX. purchased an increased price million X shares the through price and at Since purchased our quarter, We quarter During fourth we shares. XXth by have and during $XX.XX. of [Indiscernible] per we XXX,XXX and

portfolio, X.XX% interest increase the the driven by yield increase basis average partially equivalent basis in XX interest-bearing by a an securities the margin X.XX%, yield XX from tax basis offset points liabilities points. the XX loans net of basis on Our average points increased on of to linked-quarter on in on and

net decreased spread equivalent period for $X.XX interest same X.XX%. the tax to from The

XXst, interest months the $X.X or the income ended increased For X.X% net December quarter. million three compared to linked

also accretion in quarter. this We $XX,XXX purchased recorded loan

For the included fee or in was increases The net income, primarily three excluding XXXX, in quarter. months other ended non-interest $XXX,XXX driven securities linked increased non-interest income. services sale income, of for increase by income and on December AFS the XXst, swap deposit the X.X% income, trust loss

$XX.X from increase For prior the the slight same million, three-month period, non-interest quarter. was a expense

have and expense $XX.X expense The retirement salary quarter. frozen in non-service non-interest of approximately our in we plan to software budgeted expense, is increase due million XXXX, and in restoration component expense, the For primarily increases each budgeted the expense.

XX.X% of fully compared income. Our net September September the by XXth, XX.XX% $X.X three months tax to XXth. to for ratio Income interest as the $X.X taxable decreased driven increase expense equivalent XXst from at million million ended December efficiency in to increased

of the tax effective time, quarter an to estimate fourth Our quarter. tax in increased effective rate annual we XX.X% for previous XXXX. XX.X% rate the from this At for XX.X%

open joining for This and the today. concludes Thank questions. will us line we comments, for your you our

Operator

you. And [Operator Instructions] thank

question KBW. Jones comes from first from Will our And

Your now open. is line

Will Jones

thanks. Good Hey, great. afternoon.

Lee Gibson

How you doing? Afternoon. are

Will Jones

doing we're Hey, well.

to walk on you and Lee, guys contract have benefiting that's So, start I coming unpack to going guys. this just you wanted

contract? is what fixed. swap that variable that Or from rate So, favorable the paying? is, received this pickup better but the guys paying I yield you're fixed like the are receiving What you net the guess you question is in

Lee Gibson

of When question, the many? these swaps, that we the have have not you say favorable probably but I'm understand increase, we -- basically, Sorry, XX. would it and have XX somewhere XX between part -- yield okay, they and sure I how of

was -- have these putting in of one back different started we and last we think, put they So, and early XXXX October. I the on, in we April -- on

them So, that we're paying rates have each that of different. are one fixed

Obviously, net November jumped that's put And was a I December. time point the where time, that highest ones all And at we in rate. then it of had interest first we income saw position had in almost it on. last were turn actually to the on them reason, and positive the think this positive, in basically, during $XXX,XXX we the fixed

XX was the increase in in increase that basis point with Fed mid-December. funds a but SOFR was corresponded There

in the we anticipate increase rest occur So, of January. that will interest net in income that

should to the Fed is amount points increase then XX increases. see or And continue whatever the we'll basis February, then in

rate in tax-free like security at So, securities at point that time. this floating a amount of point, this almost roughly are our municipal acting

And for the yield excuse it basis aXX -- XX point our are municipal increase increase reflected basis taxable securities. me, had municipal our a in tax-free on point quarter,

that -- does So,

Will Jones

majority that. swaps? that have being of sizable you thank No, positive you that gain imagine No, Yes. a helpful. to just relatively the for And you through I'd very the sell with in were position walking a would if Yes. those

Lee Gibson

overall we municipal are that I -- can swaps And term have swapped our happens -- average an are rates We these gain date -- the the they you don't XXX. -- the if It's the coupon -- call on what of that to the it longer $XX because is with changes handed And the securities. we rate of at million fixed do give based paying year-end. was I a right in the now. me

Will Jones

helpful. really. Yes, great. was looking perfect. Okay, forward That's that's very I what Great. That's

Okay.

into XXXX, Do just the margin costs to little you the expansion ticking like accelerated saw some bit a story a pressure? So, up move continuing then the of on leverage side, as are about still mean still you asset we feel quarter. maybe of you we or this of deposit have pricing this as think the deposit I little bit.

hold Do the like be flat see peak, an feel great? So, out was year. around margin for maybe margin the would remainder a expansion quarter just the the line any of There's commentary left. the just this and you we

Lee Gibson

fixed million side, most for in that -- in amount -- closer we loans, are fair side. of the think, but a loans float, float have floating that's rate that part, then our the say do $X.XX that, going all is like of On are I'd investment I XX%, deposit seeing or million. with funding somewhere $X the almost new billion offset exempt Sure. And probably some securities tax to the to $X.X we pressure that we help this on loans, putting we the something the rate on loans of

And six XX% we we so is where somewhere five the in like to between are, there I Margin, beta and probably to range. be minus plus forward. going points, XX% or we going basis feel stay think somewhere that

And funds XX was significantly as rates not pressure as if basis I there the point in moving it when as simply isn't up it be increases when going in increments, those basis think are much to then future to because Fed points. forward XX was

continue to pressure, pricing sure a competitive. to that going But I'm I we're see lot come do is extremely think as that don't for deposits of surprise. any

And here -- of there's south exception no at so we're side that.

Will Jones

alone not definitely there. You

XX% total Just beta, to interest-bearing deposit that clarify, deposits? is deposits that or to XX%

Lee Gibson

would it's what That -- be I'm interest-bearing at we're looking this is at, point in time. thinking deposits,

Will Jones

in I one then And could great. sneak here. last Awesome, last one just one, if

the Just what's it's this the past you What's here? appetite on for notable been forward? further guys messaging I buyback going your mean quarter.

Lee Gibson

we'll allocation. point, price current the see -- for us point it's think time. this just At we'll how such will the And at the expand through work to is buyback, that a we we at if appropriate that we

Will Jones

much. Thank Okay, so you helpful. very

Lee Gibson

right. All

Operator

question thank from Milsaps And our you. from next Piper Brad Sandler. comes And

is line open. Your

Brad Milsaps

afternoon. good Hey,

Lee Gibson

Hey, you are Brad. how

Brad Milsaps

are how doing? Lee, you Hey

Lee Gibson

Good.

Brad Milsaps

like some like Good, the average. curious, so Bank Federal thanks question. advances double for my other up looked or period maybe banks, end just were balance taking the over Loan of it Home We're

funding likely Just come into might you be are doesn't and And the those that through? advances. deposit mostly lean extent to overnight would something overnight

it hopefully, trying to keep there any do fund deposits target. loan book of think you grow both, color where your be helpful? -- bond you you plan stay Or to kind the levered the can Just want Does would to X% do to how just about growth but and is?

Lee Gibson

a home environment, broker in our Sure. replaced loan lot swaps, Last replaced of money year, and flow and market for in the XXXX, favorable pricing some to the deposits, we cash we get were able bank. we

we fact, In had at all it of one the think point, loan bank. with home I replaced

Now, that has slipped.

this point favorable the at in at so And bank. funding time, more loan home is the

is advances. there loan a the from swaps flow deposits to cover seeing those broker you're home what into So, flip bank mostly cash

make time, in $XX have of the at million and XX swaps, rolled -- looking in million. funding sure, first quarter $XX me, we this our flow At I'm to cash person Okay. off that point did excuse

So, we're about in those to flow down $XXXmillion cash swaps.

-- flow take you million when excuse So, those $XXX me, in swaps. cash

look you at home loan bank and when So, when you look broker at deposits our advances. our

of million $XXX that note is that. to important that on basically it's think I fixed pricing

get it's some places in number-- time funding. Loan because to But at one the we funding point wholesale Home this go simply overnight to do have of at that cheaper Bank Is additional

Brad Milsaps

queue. points like yes. Yes, the million. I the on in on Is have you're $XXX paying on Well, correct? those those that Like numbers those-- XXX basis

Lee Gibson

That at correct was year-end.

Brad Milsaps

X/XX okay. Or Got XXth, it. -- at yes, September

Lee Gibson

Yes.

the XXX at one know. somewhere find that so something, rolled And I wouldn't let in that We'll you or and it was it off, think, range.

Brad Milsaps

Okay.

Okay. Great.

Okay, lenders. of construction that a in that you is that X%, a But than kind loan in maybe I great. of growth, mean, higher the going funding projects And sounds any then there driver planned like just expected you've up. your of plan got what's Anything kind you touch a number maybe in big on market. on new I on given it was else

what's kind driving your target? Just of of growth get of trying to loan sense better a kind

Lee Gibson

lenders in know, some their In was lenders Houston. of the and they really hitting year new of into XXXX. the growth LPO pandemic, our are XXXX some came come down loan -- in weren't much own an early million have XXX-- approximately XXXX And that their own. do XXXX. there and they even this in do but XXXX We And as to $XXX on with we able opened in really you Houston,

other And Houston we or other of lenders hired of that had the in lenders relationships then as one the well. two

And in going in XX.X% that not X% this this we're changes, like to on future We're continue time. update time, that that growth. is we that we achievable. So, anticipating if will But at at calls. quarterly feel that's point loan expecting point

Brad Milsaps

on then Do deposits loan on you And swap follow-up X% fund with of and of just the but it? think the the with fund a swapping aside you kind Got sheet down? about my do question, that we growth or it. book think just bogged back going to there just brokered [Indiscernible] down But on bringing first you flu and between in FHLB, can what's got the how target. of size anticipate forth to plan balance you and of kind way kind Or some the talk.

Lee Gibson

the we'd But what the There's depending fund on quarter that bring bond probably, of portfolio. loan could some. down portfolio probably what be rates, to fairly by limit there. bond to could a long-term happens We easily we willing on do reducing growth

we looking growth. if deposit but to deposits, -- going that is that to able We opportunities And broker be have -- if -- the would at bank to market to cheap maturity, interest-bearing other the the some for balance the are whatever and us I'm anticipating was then to take market, additional fund. course be whichever look better some the or not It's to it's January we are for sorry, But okay. advances loan we don't home funding.

Brad Milsaps

Okay, I perfect. Lee, it. appreciate All right. Thanks really

Lee Gibson

All right.

Operator

from Hovde Instructions] [Operator question Brett And Rabatin thank you. And our Group. from comes next

Your line is now open.

Brian Conner

going? is guys, Brett. Hey this How Conner it is Brian from

Lee Gibson

Good. How are Brian? doing

Brian Conner

color the little of securities What do the short-term? the you in book there? provide have you remaining Could just a maturing Good. on profile Thanks. maturity

Lee Gibson

the come mortgage not know portfolio. have in maturing that huge. They're off we term. I the amounts Yes, monthly short

that or we've MBS think March, million rate. it's a got in $XX I about fairly matures million at $XX and pool low

X% we're come or than that, mature, in And will higher and going they're have don't we then see to in not they on while call that if $XX about a Other that. nice that their and dates they on have probably million up to municipals yield pickup coupons. mature, going to

about $X of $X on that month, In MBS in somewhere what's coming to it's the million probably off terms portfolio, range. a million

Brian Conner

I helpful. really one more, then Great, if could. that's And

credit on well? get doing any Are review on wanted thoughts also that then to you on as your planning And space your on Just get to of office book? thoughts CRE. sort wanted

Lee Gibson

Okay.

we In do, in terms of every CRE, probably did we credit six reviews on and months what really so, the one or fall. just

all a the we'll amounts here look spring. that coming and the million. we believe We take dollar at through a probably I spring, one $X So, up certain have dollar in above and early credits amount, go

-- the any what that we have officer average if there the about update things been and see So, vacancy get borrower. rates, a rents and nature, of at the condition in the changes the an take from just changes everything then their financial look of just on any are,

least a but we something CRE, to that's limited and just So, it's not do of twice year, at our credits. it's all

of long terms how tied are We that of the I'm In solid coverage And for look ratio. due. office, really loans, and don't we not look the debt are at a there. but require fair amount they in going typically make when at those look we're for careful office. equity on we those quality saying up extremely we of in, tenants come office service leases

office some probably make. the So, at of -- out to not but there there is are right now, office it's loans good list top our

You and is for tenant somebody of in pretty such in experience loan, like familiarity is a shape. borrower the that that area the that just and the have make role you to the selective and in that be very that good lot you're of has sure that life feel

look those So, at we hard. extra

Brian Conner

Great. questions. Thanks. color. That’s good Appreciate the

Lee Gibson

All right. you. Thank

Operator

over turn And now questions. President would am showing and And further no thank for you. closing call CEO, like Lee I remarks. to to the Gibson, back I

Lee Gibson

answer Thank We your All joining everyone much appreciate the to for us along Bancshares. you in questions your interest very opportunity right. today. with to Southside

XXXX we're call. April. In during excited and reporting again. prospects our forward about the concludes earnings quarter next This you call look to first in for to closing, our you results Thank

Operator

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

now may disconnect. You

Southside Bancshares (SBSI) 27 Jan 232022 Q4 Earnings call transcript