Q4 2019 Earnings Call
Shortly please continue to standby. Thank you for your patience.
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This time all participants are in listen only mode. After the speaker presentation, there will be a question and answer session.
A question. During this session you will need a press star one on your telephone if your car any further assistance. Please press star zero. Please be advised the today's conference is being recorded I would now like to hand, the conference over to your speaker today Lindsay fails Vice President Investor Relations. Please go ahead.
Thank you Sydney, Good morning, everyone and welcome to Southside Bancshares' fourth quarter and you're in 2018 earnings call.
Transcript of today's call will be posted on south I don't call <unk> under Investor Relations.
During today's call and in other disclosures and presentation I'll remind you that any forward looking statements are subject to risks uncertainties factors that could materially change. Our current forward looking assumptions are described in our earnings release.
10-K.
When you need today, our Lee Gibson, President and CEO, and really Shamburger Senior Executive Vice President and CFO first Julie will give an overview of our financial results. Then we will share his comments on the quarter.
The other nonperforming assets I will now I'll turn the call a richer Julie.
Thank you and James Good morning, everyone and welcome to self funding cherished fourth quarter in year in 2019 earnings call.
We ended 2019 with net income of 74.6 million increase for 16.6% from 74.1 million for the year ended December 31st 2018.
I do it didn't earnings per share increased by nine cents per share of 4.3% to $2 in 20 cents per share as of December 31st 2019.
We reported net income of 17.3 million for the fourth quarter and decreased from two and a half million or 24% on linked quarter basis.
For the quarter ended December 31st 2019, our diluted earnings per share were 51 cents a decrease of seven cents per share on a linked quarter basis.
We experienced additional loan growth on a linked quarter basis of 68.3 million in we're pleased to in the year with 3.7 billion inland an increase of 255.4 million or 7.7 per cent compared to December 31st 2018.
We were very pleased to report a significant decrease in our nonperforming assets for the fourth quarter end the year.
Total nonperforming assets decreased 12.3 million or 41.3% for the linked quarter and 25.5 million or 59.3% for the year ended December 31st 2019.
These decreases resulted in a nonperforming assets to total assets ratio of <unk>, 0.26% as of December 31st 2019, and decreased 1.4 or 5% at September 30, yet and 0.7% at December 31st 2018.
The allowance for loan losses decreased 2.2 million or 18.2% to 24.8 million, 4.69% at total loans as of December 31st 2019, as compared to 27 million <unk>, 0.82% of total around.
As it December 31st 2018, largely driven by the 30.8 million dollar decrease in our nonaccrual lands.
[laughter], our securities portfolio increased by 112.1 million or 4.7% for the quarter ended December 31st 2019, due primarily to purchases or municipal securities.
At December 31st 2019, we had a net unrealized gain in the securities portfolio, a 52.2 million in the duration of 4.4 years, a decrease from 4.7 years at the end of September and a decrease from five and a half years at December 31st 2008.
Team.
Our mix of loans and securities shifted slightly at year end to 59% ones in 41% securities compared to a Nick said, 60% ones in 40% Securities as he ended the third quarter and 61 and 49% at December 31st 2018.
The Soc shift on a linked quarter basis in year over year was due to purchases in our securities portfolio outpacing our loan growth.
Our net interest margin for the fourth quarter of 2019 decreased five basis points to to 98, three or three in the previous quarter.
Net interest margin continued to be compressed a lower interest rates, resulting in a lower yield on average assets 16 basis points.
Lower interest rate environment in the fourth quarter led to an increase in prepayments on our securities portfolio and as a result, we recorded an increase in premium amortization of $1 million, which resulted in a decrease to our net interest margin of six basis points.
We had two basis point decrease in net interest spread linked quarter to to 66.
The decrease in the 16 basis points yield on average assets were significantly offset by the 14 basis point decrease in interest bearing liabilities.
When each quarter, our net interest income increased $803000 due to a decrease in interest expense as a result, and the decrease in average yield on interest bearing liabilities.
We recorded $336000 in loan accretion this quarter, an increase of $46000 from the prior quarter.
[laughter] during the fourth quarter, we recorded provision for loan loss extensive two and a half million linked quarter increase of one and a half million most of the additional provision relates to a partial charge off at the previously reported nonaccrual loan.
Wins corner, our noninterest income decreased $646000 <unk>, 0.8%.
Due to decreases in swap fee income of 373000 in the fair value a written on commitments of 104000.
[laughter] for the three minutes ended December 31st 2019, our noninterest expense increased 1.9 million or 6.6% for the linked quarter [laughter], primarily driven by increases in salaries and employee minutes did and other noninterest expense.
The $1 million in salary and employee benefits was primarily related to minutes it with our health insurance, increasing point sixmillion in salaries in payroll taxes that 20 million.
Other noninterest expense included losses on the disposition of certain assets a point sixmillion.
[noise] when used traditional FDIC credits in the amount of 420000 in the fourth quarter and we have 766000 remaining credits that will carry over into 2020.
Hi efficiency ratio increased to 53.87 per cent compared to 50.53% on a linked quarter basis due to the increase in the noninterest expense.
[laughter] income tax expense decreased 807000 on a linked quarter basis.
Our effective tax rate decreased from 15.6% to 14.1% and for the fourth quarter, primarily due to an increase in tax exempt income as a percentage.
Pre tax income in the fourth quarter.
The effective tax rate for the 12 months ended December 31st 2019 was 15.1.
At this time, we're estimating noninterest expense of approximately 30.5 million in a day and an effective tax rate for that same period at 12.6% [laughter] during the fourth quarter. We purchased approximately 26000 shares of our stock at an average cross of $33 and.
47 cents.
There are approximately 974000 shares authorized for purchase remaining in our stock repurchase plan.
Thank you for listening today, and I will now turn the call over to Lee.
Thank you Julie and I would like to thank everyone for joining us on this call. This morning.
We ended the year with a solid fourth quarter highlighted by annualized linked quarter loan growth of 7.7%.
71% decrease in nonaccrual loans, a decrease in nonperforming assets or total assets ratio to.
2.26% compared to 0.5%.
So the previous quarter and the opening of our Sixtyth branch in King would just north of Houston.
Associated with the decrease in nonaccrual loans during the fourth quarter, our provision for loan loss increased linked quarter 1.5 million, primarily due to the partial charge off of one of our two largest ones previously classified as non accrual and paid off during the quarter as we discussed.
Last quarter, the second of our two largest nonaccrual loans reflected significant improvement during the third quarter as the real estate property damage by Hurricane Harvey reopen for business. This loan has never missed a payment and during the fourth fourth quarter, we were able to upgrade this one two girls status.
During the fourth quarter. We also wrote off approximately 400000 in fixed assets associated with Rightsizing, our branches and experienced elevated health benefit costs.
As Julie explain we experienced a linked quarter five basis point decrease our net interest margin and two basis point decrease in the net interest spread this was largely due to a change in the mix of earning assets has averaged securities represented greater percentage average earning assets.
Yes.
As we indicated in our last earnings call fourth quarter funding costs benefited from the third and fourth quarter rate cuts by the fed.
We anticipate additional savings on or funding costs. During the first quarter of 2020 as the full impact of those fourth quarter savings are reflected and additional borrowings and deposits reprice into this lowered interest rate environment.
Based on January mortgage backed security prepayment speeds, we anticipate amortization expense should stabilize during the first quarter.
We began 2020 with near pristine asset quality and a vibrant growing healthy Texas economy that is projected to continue to perform at above average levels. Our credit quality is strong we do not currently see additional areas of concern.
We're also budgeting, 7.5% loan growth for 2020 based on the anticipated continued job and population growth associated with corporate relocations and expansions and the addition of new commercial lenders and Austin and Fort worth Dallas and Houston.
During the fourth quarter, we hired a commercial lender to focus on.
On Houston, a market that we have learned into for several years, we expect to hire additional commercial lenders in Houston during 2020.
We plan to file an application to open a loan production office and the greater Houston area subject to regulatory approval.
The Austin and Dallas Fort worth economic growth levels remain among the best in the country. All this to say, we believe south side, well report solid performance levels during 2020.
We continue to explore opportunities for further growth either from an acquisition parse through organic growth.
This concludes our comments at this point in time, and we will open it up for questions.
As a reminder to ask a question.
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Your question press the pound key.
Standby compiled acuity roster.
And our first question comes from Brady Gailey with KBW. Please proceed with your question.
Thank you good morning, guys.
Good morning.
But I wanted to start with Houston.
So you've hired one guy are already you're opening up your second location and metric you said, how how big of an of an investment longer term would you like to make your leave it maybe talk about your longer term the number of branches you'd like to have there and then you talk about hiring some.
More people in Houston is a couple more people than it does have more people, maybe just help frame how big are going to.
Dust in Houston.
Uh Huh our plan in Houston is to do kind of what we did in Austin and that is.
You know will either start with an LP O or we may start with the full service branch.
But it'll be in an office location.
Primarily commercial base and you know initially we're probably going to higher three or four lenders are ultimately you know I would guess somewhere in that range for this year certainly no more than a handful.
And.
And then well gradually build it as you know they build portfolios and.
We see rather continued revenue growth in that area.
We do not anticipate adding lots of branches that you know it and Austin, we did add a second.
Location, we may do that at some point time in Houston, but that would be in you know well into the future.
Does that kind of give you some color.
Yeah. Thank you and then.
Yeah. The tax rate came in lower this quarter and then it sounds like it's going to come in even lower in the first quarter.
I heard the.
Got it it's really a 12.6% is at 12.6% is that the way that we should think about the full year 2020 or is there something in a kind of onetime in nature impacting that tax rate and one Q.
No I think at this point I mean, I would tell you can use it for the four year.
You know, what's really driving that in what kept it from being at that level last year well for not team was and the tax free municipal Securities. You know, we budgeted and more municipal securities in our budget last year in the growth ended up coming more in the mortgage backed portfolio as.
Supposed to municipal portfolio. So that that was really why had the impact on the tax rate burying from our initial that projection in it you know it happened pretty early on in a year. So we were reporting said.
No. We are expecting in we did have a if you look in and in the earnings release in the average balances you see that we did pick up some additional appraisal and tax free income in the municipal portfolio during the fourth quarter, specifically so were expecting that again, that's what we're.
We're planning on so that's really the driver.
Alright, Great and then finally for me is just the level of a.
Discount accretion that was realized in the fourth quarter I think last quarter. It was around 300 Grand what was that number for Q.
It was doing 36 in the fourth quarter and it was to 90 in the third quarter.
Great. Thank you guys.
You're welcome to you.
Your next question comes from Brad Milsaps with Piper. Please proceed with your question.
Hey, good morning, guys.
Good morning.
Lead looks like you had a nice inflow of deposits in the quarter I think the press release notes.
Impacted by public funds, just got I wanted to get a sense of how quickly you thought those might reverse out.
As you kind of moved through the first part of this year and you can kind of.
Continue your goal of.
Reducing securities and increasing lounge.
Okay. Thank you the public funds as you know the fourth quarter typically we see a public funds grow as a tax.
Receipts come in a especially in December and then we'll see some additional tax receipts from a corporate level come in in January I would expect we'll see some reversal.
At least half of that begin to roll out.
Either [laughter] sometime mid February through the end of March it's just really depends when they distribute the money out to the various entities and it also depends on you know we think some of those other entities that they distribute the money too. So we will see a reduction then I would say at least half for that growth.
By the end of the first quarter.
In terms of securities versus loans in our plan. This year is with seven and I have percent loan growth anticipated our projected I guess at this point time.
Loan growth would outpace the securities growth over the year, we're not you know.
Scheduling 250 to 300 million in securities growth.
We may see 100 150 million in securities growth during the year, but we do expect the loan growth to be the the large much larger percentage of the earning asset growth.
That's great yeah. It looks like your loan growth got full above you know where you were last quarter, which is encouraging it could you give me a sense of kind of what the rates are on a new loans that are that are coming on the books just kind of curious.
If you if you have more pressure coming on the yield side or you know sounds like you've got some opportunities on the deposit side, maybe hopefully holding in study, but just wanted to get a sense of what you're thinking on.
On the asset yield side.
Okay.
On the on the loans.
Let's see Chile was kind of me something.
[laughter].
Fourth quarter and changes or.
Okay well.
15 basis point okay.
All right and you want.
Yeah deal is going to tell you about lines vary a little bit about the average yield on the portfolio itself I can't necessarily speak to the new loans, but.
Over the course at the fourth quarter, our overall yield on the portfolio declined about 15 basis points from non 30.
To 12, 31, and so that includes new loans could online and then of course than that.
Paid off and then just in the variable and Green, which is about 53% of our total loans those rates went down about 22 basis points on that variable portfolio and that gives you a little bit Ed and that's reflective of the the fed decrease in.
In October so I.
I don't know the exact percentage, but I'd say, it's probably somewhere or you know in for 25, you know give or take 10 basis points is probably the average or what we've been putting on here recently.
Great and maybe just one final from me a do it sounds like in the first quarter, you're going to get.
The benefits from some of those expense items, you know reversing out your expense will be down just a little bit.
Given the investments you're making in Houston do you still expect you could hold expense growth for the year kind of in that low single digit pace you guys have been accustomed to.
Yeah, I think so Brad we we do have some a pending retirements coming up that will help offset some of that.
So that that will occur in in the second quarter and so we do and do anticipate that you know that's going to help us to some extent.
And.
We were our investment in Houston, all the basically no whatever we spend on on commercial lenders and then on office space and Fortunately office space in Houston.
Little less expensive than it is in some of the other metro markets.
Great. Thank you guys.
Thank you.
Ask a question you'll need to press star.
And our next question comes from Michael.
Trust. Please proceed with your question.
Hey, good morning lead Julie just wanted to follow up on the loan growth guide again, it's pretty pretty good loan growth I think compared to the rest of the industry, which is expecting a bit of a slowdown I know theres been higher levels of payoffs and Paydowns at times in the past I was just curious if you had any foresight into that.
Here and then also if there was any.
Got a view that you had maybe from just some unfunded commitments or things that were already in pipeline that we're giving you sort of or the strengths and loan growth expectation this year.
Sure.
We do anticipate some pay downs this year, a there's projects that have completed stabilized and will likely you know go up for sale this year and.
As we've seen in the past will probably.
Complete to sale without any problems.
But we do have a lot of construction loans that there's a lot of funding going on at this point in time.
Ones, where the equity is finally gone into those and we're beginning to see some funding and then we just you know believed that we are in markets that are exceptionally good compared to some of the other parts of the country and we there's a lot of opportunities out there and as long.
Is the job growth and population inflow continues into these markets, which has substantial.
You know, we think theres plenty of opportunity and if we just get.
Our share of that we've gotten in the past reaches a small sliver and some of those those markets. So we should be able to see.
That type of loan growth.
And then should you know with that strength, particularly in construction, which I assume is little higher yielding should we expect the margin maybe to expand throughout the year with some lower funding costs and good loan growth.
Higher yielding categories is not the right way to think about it.
Yes, I was I would think so I'm because you know the feds kind of indicated in their own hold there.
Looking for 2% inflation I've been searching for that for.
Almost a decade now.
And you know I don't anticipate especially in an election year I don't anticipate they're gonna.
Right right at this point in time, so and there's really no need to so yes, I think we'll have some lower funding costs. We've seen most of the the floating rate decrease a associated with LIBOR and prime occur in if the fed doesn't change right.
You know lower than you know the asset yields should stay where they are and with the change in the mix with more loans, we should see the.
The NIM.
And the spread move up.
Okay, and then just maybe lastly on capital.
Capital levels are still fairly robust you guys were a little active on the share buyback.
Last quarter and kind of mentioned that again that you had some excess capacity on that or potentially this year or any any thoughts or sizing around.
How we should think about share buyback going forward.
We're going to a you know to reevaluate levels at which were willing to buy back stock. We do realize we have so I agree with you robust capital levels.
And if we're not able to deploy that.
Capital into acquisitions or.
Additional organic loan growth is had levels above or projecting then you know we certainly will look at the buybacks.
Bad debt more aggressive levels.
Okay. Thank you.
All right. Thank you.
Thank you and I'm not showing any further questions at this time.
Call to lead Gibson for any further remarks.
All right. Thank you.
Our strong balance sheet recent momentum combined with the excellent markets, we serve make us optimistic about 2020. Thank you for joining US today, we look forward to reporting first quarter results in April and this concludes this call.
Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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