SOUTHSIDE BANCSHARES INC Q3 FY2024 earnings call

• CEO Lee Gibson mentioned third quarter net income of $20.5 million, earnings per share of $0.68, and strong asset quality metrics. Sold approximately $28 million of lower-yielding AFS municipal securities, incurring a $1.9 million loss, and reinvested proceeds in higher-yielding agency mortgage-backed securities. Other noninterest income decreased due to a $868,000 impairment charge on AFS municipal securities sale. Wealth management and trust department investments are showing growth in new clients and fee income. Linked quarter loans decreased slightly due to large payoffs, and target loan growth for 2024 was reduced from 5% to 3% because of anticipated loan payoffs. C&I lending expansion in metropolitan markets is progressing with additional relationship managers hired, expecting results in 2025. - CFO Julie Shamburger reported third quarter net income decrease on a linked-quarter basis, loans decrease, allowance for credit losses increase due to economic concerns in certain markets, securities portfolio details, deposit decrease driven by a commercial account exit but offset by broker deposits, capital ratios strong, tax equivalent net interest margin and spread increase, noninterest income and expense details.

Third quarter net income was $20.5 million. Linked quarter net interest income increased $1.86 million, and net interest margin rose 8 basis points to 2.95%. Loans decreased slightly to $4.58 billion, with annualized year-to-date loan growth of 1.6%. The securities portfolio was $2.70 billion at September 30. Deposits decreased $60.2 million on a linked-quarter basis. Capital ratios remained strong, and liquidity resources were solid with $2.23 billion in liquidity lines available. The tax equivalent net interest margin increased 8 basis points on a linked-quarter basis to 2.95%, and the tax equivalent net interest spread increased 10 basis points to 2.23%.

• Target loan growth for 2024 was reduced from 5% to 3% due to anticipated loan payoffs. - Anticipate the wealth management and trust department trend of steady growth in new clients and fee income to continue. - C&I lending expansion in metropolitan markets is expected to begin seeing results in 2025. - Expect deposit costs to continue moving down, with rates likely to decrease around 40 basis points per month.

• Economic concerns in office and multifamily markets in metro areas could impact loan loss provisions. - Uncertainty regarding loan payoffs affecting loan growth projections. - Fluctuations in interest rates and Fed actions impacting net interest margin and deposit costs.

Q: Please talk about the securities portfolio actions, loan payoff activity, and loan growth going forward.

A: Lee Gibson said they sold lower-yielding AFS municipal securities, reinvested in higher-yielding agency mortgage-backed securities, with the net effect on margin positive but small. Loan payoffs were seen as a sign of a good economy but caused a slight loan decrease, the loan pipeline is solid but the target loan growth has been lowered.

Q: Update on C&I initiative and deposit pricing trends.

A: Lee Gibson said there were two hires in the quarter with more to come, expecting results in 2025. Lee Gibson discussed deposit cost cuts post-Fed cut, with approximately $1 billion close to rate cut, CD maturing and rates cut, expecting deposit costs to continue moving down.

Q: M&A chatter, target profile bank, and expense outlook.

A: Lee Gibson said M&A chatter picked up, expecting more activity in 2025 in Texas, with the target bank around $1.2 billion to north of $3 billion geographically along I-35. Julie Shamburger said expense growth is likely to be higher in 2025 due to the C&I initiative and salary increases.