SOUTHSIDE BANCSHARES INC Q4 FY2024 earnings call

• Lee Gibson noted net income growth, loan increases (especially in December), net interest margin impact from mortgage-backed securities and hedges, plans for mid-single-digit loan growth in 2025, solid loan quality, and wealth management growth with anticipated 16% revenue increase in 2025.
• Julie Shamburger discussed financial results, loan details (including oil and gas exposure, allowance for credit losses), securities portfolio changes, deposit growth, strong capital and liquidity ratios, net interest margin and spread changes, noninterest income/expense details, efficiency ratio, and tax expense estimates.

For the year ended December 31, 2024, net income was $88.5 million, an increase of $1.8 million from 2023. Linked quarter net income was $21.8 million, up $1.3 million. Loans ended at $4.66 billion, with a linked quarter increase of $83.5 million. The securities portfolio was $2.81 billion at December 31, an increase of $116.3 million from the previous quarter. Deposits increased $218.5 million on a linked-quarter basis. Loan growth was seen in commercial real estate, though construction, 1-4 family residential, and municipal loans had decreases. Asset quality metrics remained solid with nonperforming assets at low levels. The tax equivalent net interest margin decreased 12 basis points linked quarter to 2.83%, and noninterest income excluding net loss on sales of AFS securities increased $2.2 million linked quarter.

• Budgeting mid-single-digit loan growth for 2025.
• Anticipates positive net interest margin expectations in 2025 due to loan growth, mortgage-backed securities restructuring, and return to positively sloped yield curve.
• Wealth management area expected to have at least 16% revenue increase in 2025.
• Budgeting a 5.7% increase in noninterest expense in 2025 over 2024 actual, including salary/benefits, retirement-related, software, and a one-time branch demolition charge.

• Factors that could materially change forward-looking assumptions described in earnings release and Form 10-K.
• Volatility in hedge-related net interest income due to mortgage-backed securities portfolio restructuring and Fed interest rate changes.
• Swap income potential impacted by changes in yield curve slope.
• Uncertainty around sub debt reissuance and its impact on buyback activity.

Q: Could you talk about loan growth opportunities in the quarter, especially the December pickup?

A: It was a mix of pull-through and client demand, with full funding loan opportunities across CRE, including some moving from construction to CRE.

Q: How is the magnitude of NIM expansion expected over coming quarters?

A: Bulk of NIM expansion likely in second to fourth quarters, with cash flow hedges rolling off partially offsetting, but anticipating some increase in first quarter.

Q: What are expectations for the securities book yield?

A: Expect yield to recoup basis point decrease, moving back closer to third quarter end levels as higher-priced mortgages were replaced with par-ish ones.

Q: Is the swap fee income a good run rate going forward?

A: Not considered a good run rate, with 2025 budgeting a smaller amount as yield curve changes make some swap transactions less attractive.

Q: What's the appetite for buybacks from here?

A: Not anticipating active buybacks at this point, retaining cash due to sub debt coming due and keeping options open.

Q: Updates on C&I initiative, hires, and loan growth expectations?

A: Hired individuals, plan to add more to the team, anticipating C&I loan growth starting in first quarter 2025 at latest.

Q: Thoughts on provision expense and potential reserve release?

A: Not anticipating reserve release with current reserve level, expecting percentage to remain somewhat stable even with mid-single-digit loan growth.

Q: Dollar amount and rate on sub debt?

A: Sub debt is $92 million, with fourth quarter yield 4.09%, and reissuance rate uncertain in November when it comes due