Q3 2023 Southside Bancshares Inc Earnings Call
Okay.
Speaker 1: transcript
Speaker 1: Hello, and welcome to Southside Bank Shares Inc. third quarter 2023 earnings conference call. At this time, all participants.
Yeah.
Hello, and welcome to yourself that Bancshares, Inc. Third quarter 2023 earnings conference call.
At this time all participants are in a listen only mode.
Speaker 1: transcript
Speaker 1: After the speaker's presentation, there will be a question and answer session.
After the speaker's presentation, there will be a question and answer session.
Speaker 1: transcript
Speaker 1: to ask the question during this session, you will need to press star 1 1 on your telephone.
To ask a question. During this session you will need to press star one on your telephone.
Speaker 1: transcript
Speaker 1: You will then hear an automated message advising your hand is raised.
You will then hear automated message advising your hand is raised.
Speaker 1: transcript
Speaker 1: To withdraw your question, please press star 11 again.
To withdraw your question. Please press star one again.
Speaker 1: transcript
Speaker 1: I will now like to hand the conference over to Lindsay Bale, Vice President of Investor Relations. You may begin.
I would now like to hand, the conference over to Lindsey Bailes, Vice President of Investor Relations you may begin.
Speaker 2: transcript
Speaker 2: Thank you, Tawanda. Good morning, everyone, and welcome to Southside Bank shares third quarter 2023 earnings call. A transcript of today's call will be posted on Southside.com under investor relations.
Thank you tore and good morning, everyone and welcome to Southside Bancshares' third quarter 2023 earnings call. A transcript of today's call will be posted on <unk> dot com under Investor Relations.
Speaker 2: transcript
Speaker 2: During today's call and in other disclosures and presentations, I'll remind you that any forward-looking statements are subject to risk and uncertainties. Factors that could materially change our current forward-looking assumptions are described in our earnings release in our forum 10K. Joining me today are Lee Gibson, President and CEO and Julie Schamburger's ASO. First, Lee will share his comments on the quarter and then Julie will give an overview of our financial results. I will now turn the call over to Lee.
During today's call and in other disclosures and presentations I'll remind you that any forward looking statements are subject to risks and uncertainties.
Factors that could materially change our current forward looking assumptions are described in our earnings release and our Form 10-K. Joining me today are Lee Gibson, President and CEO and Julie Shamburger CFO, Firstly will share his comments on the quarter and then Julie will give an overview of our financial results.
I will now turn the call over to Lee.
Speaker 3: transcript
Speaker 3: Thank you, Lindsay. Good morning, everyone, and welcome to Southside Bank Share's third quarter earnings call. This morning, we reported net income of $18.4 million, earnings per share of $0.60, a return on average tangible common equity of 13.17%, and continued strong asset quality metrics.
Thank you Lindsay and good morning, everyone and welcome to Southside Bancshares' third quarter earnings call.
This morning, we reported net income of $18 4 million earnings per share of <unk> 60.
Our return on average tangible common equity of 13, one 7%.
And continued strong asset quality metrics during every quarter, we recorded a provision for credit losses of $7 million due primarily to increased concerns reflected in the seasonal economic forecast.
Speaker 3: transcript
Speaker 3: During the recorder, we recorded a provision for credit losses of $7 million. Doing primarily to increase concerns reflected in the Cecil economic forecast, related to the commercial real estate market and repricing risk associated with the overall higher interest rate environment.
To the commercial real estate market and re pricing risk associated with the overall higher interest rate environment.
Speaker 3: transcript
Speaker 3: late quarter, we experienced loan growth of $91.6 million and deposit growth of $231.9 million.
Quarter, we experienced loan growth of $91 6 million and deposit growth of $231 9 million.
Speaker 3: transcript
Speaker 3: Archaeoposic roads was driven by higher cost public fund deposits of 265.8 million from two of our contractual menace pallets.
Deposit growth was driven by higher cost public fund deposits of $265 8 million from two of our contractual municipalities.
Speaker 3: transcript
Speaker 3: These higher cost deposits combined with overall higher funding cost pressure were largely responsible for the 15 basis point decrease in length quarter in our net interest margin. During October , we swapped an additional $100 million to help mitigate further funding cost pressure.
These higher cost deposits combined with overall higher funding cost pressure.
Or is really responsible for the 15 basis point decrease in linked quarter and our net interest margin.
During October we swapped to an additional $100 million to help mitigate further funding cost pressures.
Speaker 3: transcript
Speaker 3: Our current loan pipeline is less robust than earlier this year. However, we still anticipate that we will end the year with high single digit loan growth.
Our current loan pipeline is less robust than earlier this year.
However, we still anticipate that we will end the year with high single digit loan growth.
Speaker 3: transcript
Speaker 3: The markets we serve remain healthy and continue to grow and perform well. I look forward to answering your questions following Julie's remarks. I will now turn the call over to Julie.
The markets, we serve remain healthy and continue to grow and perform well.
Look forward to answering your questions. Following <unk> remarks, I will now turn the call over to Julie.
Speaker 2: transcript
Speaker 2: Thank you, Lee. Good morning, everyone. Welcome to our call. We reported third-quarter net income of 18.4 million, a decrease of 6.4 million on a linked quarter basis and diluted earnings per common share of 60 cents, a decrease of 21 cents for 25.9% linked quarter.
Thank you Lee good morning, everyone welcome to our call when we reported third quarter net income of $18 4 million a decrease of six 4 million on a linked quarter basis and diluted earnings per common share of <unk>, a decrease of 21 cents or 25, 9% linked quarter.
Speaker 4: transcript
Speaker 4: We had loan growth of 91.6 million or 2.1% linked quarter driven by a $63.2 million increase in construction loans and a $17 million increase in commercial real estate loans.
We had loan growth of $91 6 million or two 1% linked quarter, driven by a $63 $2 million increase in construction loans and a $17 million increase in commercial real estate loans.
Speaker 4: transcript
Speaker 4: The interest rate of loans funded during the quarter was on average approximately 7.6%.
The interest rate of loans funded during the quarter was on average approximately seven 6%.
Speaker 4: transcript
As of September 30th our loans with oil and gas industry exposure $102 million or two 3% of total loans.
Speaker 4: transcript
Speaker 4: Our allowance for credit losses increased by 6.1 million for the length quarter to 45.6 million. The increase was driven by a loan loss provision of 6.3 million and a provision for off-balance sheet credit exposures of 0.6 million for the third quarter. And when combined increased 7.1 million from prior quarter.
Our allowance for credit losses increased by $6 1 million for the linked quarter to $45 6 million the.
The increase was driven by our loan loss provision of $6 3 million and a provision for off balance sheet credit exposures.
<unk> 6 million for the third quarter, and when combined increased $7 1 million from prior quarter.
Speaker 4: transcript
Speaker 4: The increase in provision was driven by the increased economic and reprocing concerns forecasted in our seasonal model.
The increase in provision was driven by the increased economic and repricing concerns forecast and in our system model.
Speaker 4: transcript
Speaker 4: Asset quality metric remains strong with non-performing assets of 4.4 million or 0.05 percent of total assets on September 30th.
Asset quality metrics remained strong with nonperforming assets of four 4 million or <unk> <unk> percent of total assets on September 30th.
Speaker 4: transcript
Speaker 4: On September 30th, our allowance for loan losses as a percentage of total loans was 0.94% and increased compared to 0.84% at June 30th, due to the increased provision.
On September 30th our allowance for loan losses as a percentage of total loans was 29, 4% an increase compared to eight 4% at June 30th.
Due to the increased provision.
Speaker 4: transcript
Speaker 4: Our securities portfolio decreased 4.8 million or 0.2% on a link to order basis. There were no transfers of AFS securities during the third quarter.
Our securities portfolio decreased $4 8 million.
2% on a linked quarter basis, there were no transfers as Iff's securities during the third quarter.
Speaker 4: transcript
Speaker 4: On September 30th, we had a net and realized loss in the AFS security support portfolio of 137 million compared to 69.7 million last quarter, an increase of 67.3 million, primarily in the municipal security support portfolio due to higher interest rates.
On September 30, we had a net unrealized loss in the securities portfolio of $137 million compared to $69 7 million last quarter, an increase of $67 3 million primarily in the municipal securities portfolio due to higher interest.
Speaker 4: transcript
Speaker 4: As of September 30th, the unrealized gain on the fair value hedges in municipal securities was approximately 42.2 million compared to 27.9 million linked quarter, which partially offset the unrealized losses in the AFS security portfolio.
Right.
As of September 30th.
Unrealized gain on the fair value hedges in municipal securities with approximately $42 2 million compared to $27 9 million linked quarter, which partially offset the unrealized losses in the securities portfolio.
Speaker 4: transcript
Speaker 4: Our ALCI on September 30, 2023 was a net loss of 155 million compared to a net loss of 115.7 million on June 30, 2023.
Our LCR on September 32023, with a net loss of 155 million compared to a net loss of $115 7 million on June 32023.
Speaker 4: transcript
Speaker 4: The net loss on September 30th, 2023 was composed of a net loss on our securities and swap derivatives of 135.9 million and a 19.1 million dollar loss related to our retirement plan.
Net loss on September 32023, with composed of a net loss on our securities and swap derivatives of $135 9 million and a $19 $1 million loss related to our retirement plans.
Speaker 4: transcript
Speaker 4: As of September 30th, the duration in the total security portfolio was 9.7 years, and the duration of the AFS portfolio was 8 years.
As of September 30th the duration in the total securities portfolio with $9 seven years and the duration of the portfolio with eight years.
Speaker 4: transcript
Speaker 4: Our mix of loans and security shifted spotly to 63% and 37% respectively, compared to 62% and 38% on June 30th.
Our mix of loans and securities shifted slightly to 63% and 37%, respectively compared to 62% and 38% on June 30.
Speaker 4: transcript
Speaker 4: Deposits increase 231.9 million or 3.8% on a linked quarter basis driven by an increase in public A list 10 pt. report issued by a speakany Education Committee A list of 10 pt. report issued by a speakany Education Committee
Deposits increased $231 9 million or three 8% on a linked quarter basis, driven by an increase in public fund deposits of $265 8 million.
Speaker 4: transcript
Speaker 4: Our capital ratios remain strong with all capital ratios well above the capital adequacy and well capitalized threshold. Liquidity resources remain solid with 2.4 billion in liquidity lines available as of September 30th.
Our capital ratios remained strong with all capital ratios, well above the capital adequacy and well capitalized thresholds.
<unk> resources remains solid with $2 4 billion in liquidity lines available as of September 30th.
Speaker 4: transcript
Speaker 4: During the third quarter, we purchased $212,000, $212,388,000 shares a common stock at an average price of $29.39, pursuant to our stock repurchase plan. Since quarter end in through October 24th, we have purchased 141,480 shares at an average price of $28.56.
During the third quarter, we purchased 212212 388000 shares of common stock at an average price of $29.39.
Turning to our stock repurchase plan.
Since quarter end and through October 24, we have purchased 141480 shares.
An average price of $28.56.
Speaker 4: transcript
Speaker 4: Our tax equivalent net interest margin decreased 15 basis points on a linked quarter basis to 3.02% from 3.17%.
Our tax equivalent net interest margin decreased 15 basis points on a linked quarter basis to $3, 82% from $3 one 7%.
Speaker 4: transcript
Speaker 4: The decrease is largely driven by the 55 basis point increase in intersparing deposits. More than offsetting the increase in one yield at a 17 basis point.
The decrease was largely driven by the 55 basis point increase in interest bearing deposits more than offsetting the increase in loan yields of 17 basis points.
Speaker 4: transcript
Speaker 4: The tax equivalent net interest spread decreased for the same period by 24 basis points to 2.31% down from 2.55.
The tax equivalent net interest spread decreased for the same period by 24 basis points to 231% down from 255.
Speaker 4: transcript
Speaker 4: For the three months in the September 30th, net interest income decreased $643,000, or 1.2% compared to the linked quarter. The purchase loan accretion reported this quarter with $70,000.
For the three months ended September 30th net interest income decreased $643000 or one 2% compared to the linked quarter.
The purchase loan accretion recorded this quarter was $70000.
Speaker 4: transcript
Speaker 4: Non-interesting term excluding the net loss on the sale, the Bay of FF securities and equity securities decreased $452,000 or 4% for the linked quarter. Driven by non-recurring income recorded in the second quarter relating to the gain on the purchase of 5 million of our coordinated debt.
Noninterest income excluding the net loss on the sale of the bad debt Securities and equity securities decreased $452000 or <unk> or 4% for the linked quarter driven by a nonrecurring income recorded in the second quarter relating to the gain on the purchase of <unk>.
5 million of our subordinated debt.
Speaker 4: transcript
Speaker 4: Non-interstate expense increased 560,000 on a linked quarter basis to 35.6 million. For the fourth quarter, we have budgeted approximately 35.5 million in non-interstate expense.
Noninterest expense increased 560000 on a linked quarter basis to $35 6 million.
For the fourth quarter, we have budgeted approximately 35 5 million in noninterest expense.
Speaker 4: transcript
Speaker 4: Our fully taxable equivalent efficiency ratio increased the 52.29 as a September 30th from 5106 as a June 30th.
Our fully taxable equivalent efficiency ratio increased to $52 29 as of September 30th from 51, six as of June 30th.
Speaker 4: transcript
Speaker 4: Income tax expense decreased 1.4 million to 3.1 million and our effective tax rate decreased to 14.5% for the third quarter from 15.5% in the previous quarter.
Income tax expense decreased $1 4 million to $3 1 million and our effective tax rate decreased to 14, 5% for the third quarter from 15, 5% in the previous quarter.
Speaker 4: transcript
Speaker 4: We currently estimate an annual effective tax rate of 14.9% for 2023.
We currently estimate an annual effective tax rate of 14, 9% for 2023.
Speaker 4: transcript
Speaker 4: Thank you for joining us today. Just can put it down in the comments and we will open the line for your questions.
Thank you for joining US today. This concludes our comments and we will open the line for your questions.
Speaker 1: transcript
Speaker 1: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your cell phone, and then wait to hear your name or now.
Thank you.
Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and then wait to hear your name announce.
Speaker 1: transcript
Speaker 1: to withdraw your question, please press star one one again. Please stand by while we compare.
To withdraw your question. Please press star one again.
Standby, while we compile the Q&A roster.
Speaker 1: transcript
Speaker 1: Our first question comes from the line of Brady Galey with KBW. Heal line is open. Thank you.
Our first question comes from the line of Brady Gailey with <unk>. Your line is open.
Hey, Thank you good morning, guys.
Good morning.
Speaker 5: transcript
Speaker 5: The margin is still above 3%. But you know, keeps moving down every quarter. When do you think we're gonna hit the bottom on the net interest margin? Do you think it dips below 3%, 3%.
Okay.
Margin Bill.
<unk>, 3%.
Keith.
Moving down every quarter when do you think we're going to hit the.
On the bottom on the net interest margin do you think it dips below.
3%.
Okay.
Speaker 3: transcript
Speaker 3: Yeah, we are, I mean, we did swap another hundred million. So, you know, we think that will take a little bit of the pressure off. At this point, any loans we make over two and a half million are going to be floating or they have to be swapped.
Yeah.
Sure.
We did swap another $100 million.
So we think that will take a little bit of the pressure off.
At this point any loans, we make over $2 5 million are going to be floating or they have to be swapped.
Speaker 3: transcript
Speaker 3: And, you know, we're looking at different funding costs and really our public fund costs to see if we just need to potentially run some of those those deposits off to pick up some cheaper funding elsewhere.
And we're looking at different funding costs and really our public fund costs too.
To say, if we just need to potentially.
Some of those those deposits off.
To pick up some cheaper funding elsewhere.
Speaker 3: transcript
Speaker 3: So I would have answered it's a long answer, but then answer your question. I think there's still some more margin compression coming. A lot of it probably has to do with how much we can have in long growth moving forward, especially in 24 or this quarter, I think we'll have decent long growth, but it's really going to be dependent on how much long growth we have next year.
So and answered here, it's a long answer but in answer to your question I think there is there still some more.
Margin compression coming.
A lot of it probably has to do with how much we can having loan growth moving forward.
Especially in 'twenty for this quarter I think we.
We will have we'll have Jason decent loan growth, but it's really going to be dependent on how much loan growth. We have have next year.
Speaker 3: transcript
Speaker 3: But I would anticipate that we're probably looking at some additional them pressure. And I wouldn't say just slightly below three, I'd say that it potentially could get 25.
But I would anticipate that were probably looking at some additional NIM pressure.
And I wouldn't say just slightly below three I would say.
<unk>.
Potentially could be at 25.
Speaker 3: transcript
Speaker 3: or some basis points below 3% at some point.
Or so basis points.
Below 3% at some point.
Speaker 5: transcript
Speaker 5: All right, and then, so what, once the name hits that bottom and funding calls have plateaued, there's some banks talking about asset repricing that could, you know, assuming rates are flat from here. You know, some banks are talking about asset repricing where the name could hit that bottom and then assets repriced and the name starts to inflict higher. At some point next year, do you think that is a likely scenario for sell side?
Alright.
Once then.
It's that bottom end.
Funding costs have plateaued and their sub banks talking about asset repricing that could.
Assuming rates are flat from here.
Some banks are talking about asset repricing, where the NIM could hit that bottom and then assets reprice in the NIM starts to inflect higher at <unk>.
Some point next year do you think that is a likely scenario for sell side.
Speaker 3: transcript
Speaker 3: We will have some loans that reprise next year. It really just depends what the Fed does. If the Fed has another interest rate increase out there, then you know what?
We will have some loans that re price next year.
It really just depends what the fed does.
If the fed has another interest rate increase out there then.
Speaker 3: transcript
Speaker 3: not sure there's enough. There's a fair amount of assets that will reprise. It's possible by late next year, I wouldn't anticipate that's going to happen in the first six months. It's possible with all that asset repricing that we could see that later in the year that the NEM would actually...
Not sure Theres enough there is a fair amount of assets at a right price. It's possible by late next year I wouldn't I wouldn't anticipate thats going to happen in the first six months.
Yes.
It's possible with all of that asset re pricing that we could see that later in the year.
That the NIM would actually go the other direction.
Speaker 5: transcript
Speaker 5: Okay. All right. And then you know, I heard Julie talk about expenses basically being flat next quarter at this 35 and a half million dollar level. You know, as we look to 2024, how are we thinking about
Okay, Alright, and then yes.
I heard Julie talk about expenses.
Flat next quarter at this 35%.
Million dollar level.
As we look to 2024.
How are we thinking about.
Expense growth next year.
Okay.
Speaker 3: transcript
Speaker 3: We have not put a final budget together. I'll tell you that I would anticipate expense growth.
Hmm.
So we have not set a final budget together I'll tell you that.
I would anticipate expense growth.
Speaker 3: transcript
Speaker 3: You know, we'll have some expense growth, but we'll probably try to keep it in the 3% realm, somewhere in that range.
We'll have some expense growth, but we'll probably try to keep it in.
And the 3% realm.
So somewhere in that range.
Speaker 4: transcript
Speaker 4: you know we're going to have some some higher higher wages and things of that nature. Earlier in the year in the first couple of quarters I've projected out that our budgeted expense was 35.5. I pretty much said that all year and it just this last quarter has finally hit that amount and one other thing I would add you know we've done
We're going to have some some higher higher wages and things of that nature.
In the year in the first couple of quarters on projected out that our <unk> expense was $35 five up pretty much said that all year and it just this last quarter has finally hit that amount.
Operator: Hello, and welcome to Southside Bancshares Inc. 3rd quarter 2023 earnings conference call. At this time, all participants on a listen only mode.
Operator: After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.
And one other thing I would add we've done.
Speaker 4: transcript
Speaker 4: A lot of the heavy lifting on a lot of the technology that's already embedded in here in these numbers.
A lot of the heavy lifting on a lot of the technology.
It's already embedded in here in these numbers so.
Speaker 4: transcript
Speaker 4: You know, I'm expecting to see that, you know, maybe not the steep escalation in that as much as we've seen this year.
I'm expecting to see that.
Lindsey Bail: I will now like to hand the conference over to Lindsey Bail, Vice President of Investor Relations. You may begin. Thank you, Tuwanda.
Not that steep escalation in that as much as we've seen this year.
Speaker 3: transcript
Speaker 3: I'll say this, we haven't, you know, two things. We haven't put the budget together. We're having a meeting this afternoon with all the executive management team. And the message, Jill and I are gonna deliver is, if you want to spend more money next year, explain to us how that's gonna make this money, you know, where the revenue's coming from.
I'll say this we havent two things we haven't put the budget together, we are having a meeting this afternoon with all of the executive management team.
Lindsey Bail: Good morning, everyone, and welcome to Southside Bancshares 3rd quarter 2023 earnings call. A transcript of today's call will be posted on Southside.com under Investor Relations. During today's call and in other disclosures and presentations, I'll remind you that any forward-looking statements are subject to risk and uncertainties. Factors that could materially change our current forward-looking assumptions are described in our earnings release in our forum 10K.
And the message Julian and I are going to deliver is if you want to spend more money next year explain to us how that's going to make this money where the revenues coming from.
Speaker 5: transcript
Speaker 5: And then finally, for me, you guys have been a pretty consistent repurchaser of your shares over the last three or so years. Is there any reason to think that that would slow down here? Or do you think, hey, the stock's on sale, we're going to continue to be active in the buyback as far as the eye can see?
Alright, and then finally for me you guys have been a pretty consistent re purchaser of your shares over the last three or so years is there any reason to think that that was slowed out here or do you think.
Lee Gibson: Joining me today are Lee Gibson, President and CEO and Julie Schamburger, CSO.
Lee Gibson: First, Lee will share his comments on the quarter and then Julie will give an overview of our financial results.
Stocks on sale, we're going to continue to be active in the buyback as far as the eye can see.
Lindsey Bail: I will now turn the call over to Lee. Thank you, Lindsey.
Speaker 3: transcript
Speaker 3: You know, I what I would say is we have a little over 600,000 shares left to repurchase. I don't you know, I don't see us slowing down on repurchasing until that's used up. And then it'll you know, we'll go to the board and there'll be a discussion and we'll make a decision at that point if there's going to be additional purchases.
Lee Gibson: Good morning, everyone, and welcome to Southside Bancshares 3rd quarter. This morning we reported net income of 18.4 million earnings per share of 60 cents. A return on average tangible common equity of 13.17% and continued strong asset quality metrics. During the recorder, we recorded a provision for credit losses of $7 million, due primarily to increased concerns reflected in the CSO economic forecast related to the commercial real estate market and repricing risks associated with the overall higher interest rate environment.
Yeah.
What I would say is we have a little over 600000 shares left to repurchase.
I don't see us slowing down on repurchasing.
Until Thats used up and then we'll go to the board.
There'll be a discussion then we'll make a decision at that point, if theres going to be additional purchases.
Alright, great. Thank you Lee.
Okay. Thank you.
Thank you.
Speaker 1: transcript
Speaker 1: as a reminder, ladies and gentlemen, that start one one to ask the question.
As a reminder, ladies and gentlemen that star one to ask the question.
Please standby for our next question.
Lee Gibson: Last quarter, we experienced one growth of 91.6 million and deposit growth of 231.9 million. Our deposit growth was driven by higher cost public fund deposits of 265.8 million from two of our contractual municipalities. These higher cost deposits combined with overall higher funding cost pressure were largely responsible for the 15 basis point decrease in length quarter in our net interest margin. During October, we swapped an additional $100 million to help mitigate further funding cost pressures.
Speaker 1: transcript
Speaker 1: Our next question comes from the line of Graham <expletive> with Piper Sandler, your line is open.
Our next question comes from the line of Graham <expletive> with Piper Sandler Your line is open.
Hey, good morning, everyone.
Good morning Graham.
Speaker 6: transcript
Speaker 6: I know it was Cecil driven this quarter, but I just wanted to hear your all's perspective on the drivers behind that.
So I just wanted to circle to the reserve.
T cell driven this quarter, but just wanted to hear your all's perspective on on the drivers behind that it sounded like repricing risk in some CRE related stuff do you see repricing risk in CRE risk in your loan book that.
Speaker 6: transcript
Speaker 6: repricing risk and CRE risk in your loan book that you know this
Speaker 6: transcript
Speaker 6: bill that's effectively capturing or is this sort of external to the to your all's bank and more of a
This seasonal reserve build is effectively capturing or is this sort of external to your alls back in more of a.
A factor outside of your control I guess.
Lee Gibson: Our current loan pipeline is less robust than earlier this year. However, we still anticipate that we will end the year with high single-digit loan growth. The markets we serve remain healthy and continue to grow and perform well.
Okay.
Speaker 3: transcript
Speaker 3: You know, we Well, I'll tell you this, we every six months, we go through and look at all the CRE loans that are going to reprice, whether they're going to reprice next year, or, you know, three or four years from now. And we determine whether or not we feel like, you know, they're, they're close, or whether or not, you know, they're, they're fine, if they reprice at current rates. And we stress
Okay.
Well I'll tell you. This we every six months, we go through and look at all the.
Sorry loans that.
We're going to re price whether they are going to re price next year, three or four years from now.
Lee Gibson: I look forward to answering your questions following Julie's remarks.
We determine whether or not we feel like they're close.
Julie Shamburger: I will now turn the call over to Julie. Thank you, Lee.
Julie Shamburger: Good morning, everyone. Welcome to our call. We reported third-quarter net income of 18.4 million, a decrease of 6.4 million on a length quarter basis and diluted earnings per common share of 60 cents, a decrease of 21 cents for 25.9% length quarter. We had loan growth of 91.6 million or 2.1% linked quarter driven by a $63.2 million increase in construction loans and a $17 million increase in commercial real estate loans. The interest rate of loans funded during the quarter was on average approximately 7.6%.
Whether or not there.
They are fine if they reprice at current rates.
Speaker 3: transcript
Speaker 3: There's a few loans that we've put on the watch list, mainly because they're close.
Stress.
There is there is a few loans that we put on the watch list, mainly because they are close.
Speaker 3: transcript
Speaker 3: But I will tell you that, you know, I'd like to see all the CRE loans repriced immediately.
But I will tell you that.
I would like to see all of the CRE loans reprice immediately.
Speaker 3: transcript
Speaker 3: And because the few ones that are close, it just means they're close. It doesn't mean they can't they can't chin the bar, but they're close in terms of meeting their debt service coverage ratio.
And because the few ones that are close.
They're close it doesn't mean, they can't they can't churn the bar, but theyre close in terms of meeting their debt service coverage ratios.
Speaker 3: transcript
Speaker 3: a lot of these that um you know are two and three years out and you know I wish my Ouija board was good enough to know if if rates are going to be higher or lower at that point in time but you know what I can tell you is every six months we're going to be looking at this um based on current rates and and uh
A lot of these that.
Our two and three years out and I wish My Ouija Board was good enough to know.
Julie Shamburger: As a September 30th, our loans with oil and gas industry exposure were $102 million per 2.3% of total loans. Our allowance for credit losses increased by $6.1 million for the linked quarter to $45.6 million. The increase was driven by a loan loss provision of $6.3 million and a provision for off-balance sheet credit exposures of $0.6 million for the third quarter and when combined increased $7.1 million from prior quarter. The increase in provision was driven by the increased economic and reprossing concerns forecasted in our seasonal model.
If rates are going to be higher or lower at that point in time.
But what I can tell you is every six months, we're going to be looking at this.
Based on current rates.
Speaker 3: transcript
Speaker 3: stressing them to determine, you know, if there is, you know, some risk in the portfolio. So long story short, we're not saying it. And but the economic forecast is, you know, reflects concern in that arena and reflects concern around the commercial real estate market, you know, especially around office. And, you know, we're just not seeing it in our portfolio, but
<unk>.
Stressing them.
Chairman if there is some risk in the portfolio. So long story short, we're not seeing it.
And but the economic forecasts is reflects concern in that arena and reflects concern around the commercial real estate market.
Especially around the office.
We're just not seeing it in our portfolio but.
Speaker 3: transcript
Speaker 3: uh there's so much uncertainty out there in the in the overall market nationwide we just didn't feel comfortable adjusting the economic forecast to our specific portfolio.
There is so much uncertainty out there.
The overall market nationwide, we just didn't feel comfortable.
Julie Shamburger: Asset quality metrics remain strong with non-performing assets of $4.4 million or 0.05% of total assets on September 30th. On September 30th, our allowance for loan losses as a percentage of total loans was 0.94% an increase compared to 0.84% at June 30th due to the increased provision. Our securities portfolio decreased 4.8 million or 0.2% on a linked quarter basis. There were no transfers of AFS securities during the third quarter. On September 30th, we had a net and realized loss in the AFS securities portfolio of $137 million compared to $69.7 million last quarter and increased of $67.3 million primarily in the municipal securities portfolio due to higher interest rates.
Adjusting the economic forecast.
Our specific portfolio.
Okay.
That helps to answer your question.
Speaker 6: transcript
Speaker 6: Yeah, absolutely. And so I guess as you think about the reserve from here, it sounds like.
Yes, absolutely.
And so I guess as you think about the reserve from here it sounds like.
Speaker 6: transcript
Speaker 6: were sort of driven by the higher for longer outlook so if we don't if we don't get any more rate hikes and really the rate outlook doesn't change materially
The adjustments in the cease of forecast, we're sort of driven by the higher for longer outlook. So if we don't if we don't get any more rate hikes and really the rate outlook doesn't change materially do you think that provisioning maybe returns to a level more normal level I guess going forward or is there any potential for more <unk>.
Speaker 6: transcript
Speaker 6: level of more normal level I guess going forward or is there any potential for more?
Hated reserve build to take the ACL over over 1% of loans.
Speaker 3: transcript
Speaker 3: Um, you know, well, one thing I think that it's important to note is we have about 11% of our loans roughly are in municipal loans.
Well one thing I think that it's important to note is we have about.
11% of our loans roughly are in municipal loans.
Speaker 3: transcript
Speaker 3: and that mostly have ad valorem tax pledges and we virtually have no reserve against those under the CECL model simply because they have ad valorem.
And that mostly have AD valorem tax pledges and we virtually have no reserve against those under the seasonal model simply because.
Julie Shamburger: As of September 30th, the unrealized gain on the fair value hedges in municipal securities was approximately 42.2 million compared to 27.9 million linked quarter which partially offset the unrealized losses in the AFS securities portfolio. Our AOCI on September 30th, 2023 was a net loss of 155 million compared to a net loss of 115.7 million on June 30th, 2023. The net loss on September 30th, 2023 was composed of a net loss on our securities and swap derivatives of 135.9 million and a 19.1 million dollar loss related to our retirement plans.
<unk> AD valorem tax pledges. So if we normalize and took those out of the equation, we would be over 1% currently.
Speaker 3: transcript
Speaker 3: So if we normalize and took those out of the equation, we would be over 1% currently, as opposed to 0.94.
As opposed to <unk> 94.
Speaker 3: transcript
Speaker 3: and answer your question as long as the economic forecast remains, you know, consistent where it is today.
And answer to your question as long as the economic forecasts remains.
Consistent where it is today.
Speaker 3: transcript
Speaker 3: I don't, I don't see, you know, I'm, I don't see a huge build up in any one quarter like this now if the economic forecast changes, then, you know, all bets are off.
I don't I don't see.
Don't see a huge buildup in any one quarter like this snap the economic forecast changes then all bets are off.
Speaker 3: transcript
Speaker 3: Because that's the big driver in the CECL model is what the economic forecast is.
Because thats the thats the big driver in the seasonal model is what the economic forecast is.
Speaker 3: transcript
Speaker 3: And if I didn't puddle and answer your question, feel free to dig in some more.
Yes.
Julie Shamburger: As of September 30th, the duration in the total securities portfolio was 9.7 years and the duration of the AFS portfolio was 8 years. Mix of loans and securities shifted strongly to 63% and 37% respectively compared to 62% and 38% on June 30th. Deposites increase 231.9 million or 3.8% on a linked quarter basis, driven by an increase in public fund deposits of 265.8 million. Our capital ratios remain strong with all capital ratios well above the capital adequacy and well capitalized threshold.
Totally answering your question feel free to dig into more.
No.
Speaker 6: transcript
Speaker 6: All right, and I guess on loan growth, sounds like you're gonna hit that target you guys set out at the beginning of the year, high single digit, but the pipelines are getting a bit smaller. What are your thoughts on growth in?
Perfect.
Alright, and I guess on loan growth it sounds like Youre going to hit that target you guys set out at the beginning of the year high single digit.
But the pipelines are getting a bit smaller what's what are your thoughts on growth. In 2024, we are we talking about more of a mid single digit growth level.
Or do you think you might be able to maintain the high single digit pace Youll see you saw this quarter and then also you saw for the full year.
Speaker 3: transcript
Speaker 3: Right now, based on where rates are, and the ability of loans to meet
Right now based on where rates are and the.
The ability.
Loans to meet our credit guidelines and that's primarily the.
Speaker 3: transcript
Speaker 3: are our credit guidelines and it's primarily the the debt service coverage ratios with the current rates and how much equity needs to go into it to deals. I think the mid mid single digits is probably more likely for next year than than what we've experienced this year. Now if if things change and rates change, then you know our markets are strong. It's just.
Julie Shamburger: Liquidity resources remain solid with 2.4 billion in liquidity lines available as of September 30th. During the third quarter, we purchased 212,288,000 shares of common stock at an average price of $29.39. Percent to our stock repurchase plan. Since quarter end in through October 24th, we have purchased 141,480 shares at an average price of $28.56. Our tax equivalent net interest margin decreased 15 basis points on a linked quarter basis to 3.02% from 3.17%.
Service coverage ratios with the current rates and how much equity needs to go into deals I think the mid.
Mid single digits is probably more likely for next year, then than what we've experienced this year.
If things change in rates change then.
Our markets are strong as just.
Speaker 3: transcript
Speaker 3: People aren't, you know, when you go to them and tell them it's gonna take 50% equity in their deal, or in some cases more than that, you know, their numbers don't work on their end, and you know, for their equity folks. So that's really what we're seeing. It's not a credit concern. It's more of a ability for them to cash flow with the amount of equity they want to put in the deal.
People are.
When you go to them and tell them, it's going to take 50% equity in their deal or in some cases more than that.
There are numbers don't work on their end and for their equity folks so.
That's really what we're seeing it's not a credit concern it's more ability for them to take.
Cash flow at the amount of equity they want to put in the deal.
Julie Shamburger: The decrease was largely driven by the 55 basis point increase in interest bearing deposits more than offsetting the increase in loan yields of the 17 basis points. The tax equivalent net interest spread decreased for the same period by 24 basis points to 2.31% down from 2.55. For the three months in the September 30th, net interest income decreased $643,000 or 1.2% compared to the linked quarter. The purchase loan accretion reported this quarter with $70,000.
Okay, Great that makes sense and then I guess, just lastly on the funding side. Thank you guys picked up some some <unk>. This quarter. Just wondering what you guys are thinking about that right now and maybe the potential to do more of it.
Speaker 6: transcript
Speaker 6: And I guess just lastly on the funding side, thank you guys picked up some BTFP this quarter. I just wondering what you guys...
Speaker 6: transcript
Speaker 6: orbit going forward and replace some of the higher cost barrings on balance sheet.
Going forward and replace some of the higher costs.
Borrowings on balance sheet, and maybe even some some broker deposits that might cost a bit more do you guys have any appetite for that.
Speaker 3: transcript
Speaker 3: Okay, you mentioned what, what did we pick up? You used to act on a funding program.
Okay, you mentioned.
Why did we pick up.
He is back on funding program.
Speaker 3: transcript
Speaker 3: Oh, we have taken out all the bank term funding program dollars that we can. You know, we obviously when it gets closer to maturity, if we want to reprise that for another year, we can at that point in time. But at this point, you know, our ours is locked in at a rate around 446.
Oh Oh.
We have taken out all the bank term funding program.
Julie Shamburger: Non-interesting income excluding the net loss on the sale of the BFS securities and equity securities decreased $452,000 or 4% for the linked quarter. Driven by non-recurring income recorded in the second quarter, relating to the gain on the purchase of 5 million of our coordinated debt. Non-interesting expense increased 560,000 on a linked quarter basis to 35.6 million. For the fourth quarter, we have budgeted approximately 35.5 million in non-interesting expense. Our fully taxable equivalent efficiency ratio increased to 52.29 as a September 30th from 51.06 as a June 30th.
That we can.
Obviously, when it gets closer to maturity if we want to.
To re price that for another year, we can at that point in time.
But at this point.
Ours is locked in at a rate around 446.
Speaker 6: transcript
Speaker 6: And so, you know, we don't have any additional collateral that meets the threshold to take out additional funding on that. But, you know, those will mature sometime in March, April . And I think there may be a little bit of the matures in May. But, you know, we'll make that decision at that point in time based on what those rates are. Okay. All right. That's helpful. And I guess just the last.
And so we don't have any additional collateral that meets the threshold to.
To take out additional funding on that but.
Cattle.
Those will mature sometime in March April and I think there may be a little bit that matures in may.
But we'll make that decision at that point in time based on what what those rates are.
Okay, Alright, that's helpful. And then I guess just the last question I would have would be on the on the funding side the deposit side.
Julie Shamburger: Income tax expense decreased 1.4 million to 3.1 million and our effective tax rate decreased to 14.5% for the third quarter from 15.5% in the previous quarter. We currently estimate an annual effective tax rate of 14.9% for 2023.
Speaker 6: transcript
Speaker 6: The positives drove their growth this quarter, but just wondering if you think that
It seemed like the municipal deposits drove the growth this quarter, but.
Just wondering if you think that you might be able to at least keep pace with loan growth on the deposit side, whether that would be core deposit generation, maybe back to the brokerage side.
Speaker 6: transcript
Speaker 6: with low and growth on the deposit side, whether that be a core deposit generation.
Speaker 3: transcript
Speaker 3: That is our major focus for the next quarter and for all of 2024 and maybe beyond is, you know, mainly non-matured deposit growth. And, you know, so that's gonna be the focus. That's where incentives are gonna be heavily skewed because that's what we need. And it's out there, we just have to go get it. You know, right now.
That is our major focus for the next quarter and for all of 2024 and may be beyond us.
Julie Shamburger: Thank you for joining us today.
Operator: This concludes our comments and we will open the line for your questions. Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your phone and then wait to hear your name announce. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Is mainly non maturity deposit growth.
And so that's going to be the focus that's where incentives are going to be.
Heavily skewed.
Because that's what we need and it's out there. We just have we just have to go get it.
Brady Gailey: Our first question comes from the line of Brady Gailey with KBW, he line is open. Thank you. Good morning. The margin is still above 3%, but you know, keeps moving down every quarter. When you think we're going to hit the bottom on the net interest margin, do you think it dips below 3%? Yeah, we are. I mean, we did swap another 100 million. So, you know, we think that will take a little bit of the pressure off.
Okay understood Alright, I appreciate it guys. Thank you.
Thank you.
Speaker 1: transcript
Speaker 1: Thank you. Please stand by for our next question.
Thank you please standby for our next question.
Speaker 1: transcript
Speaker 1: Our next question comes from the line of Matt Olney with Steven, Yolanda.
Our next question comes from the line of Matt Olney with Stephens. Your line is open.
Speaker 7: transcript
Speaker 7: Thanks, good morning. Going back to a margin discussion, good morning. Deposit cost, just any updated targets or thoughts on deposit betas to the cycle where given the pressure you mentioned earlier, where do you think these betas could move towards the next few quarters?
Thanks, Good morning.
Going back to margin discussion good morning.
Deposit costs, just any updated targets or thoughts on deposit beta through the cycle.
We're given the pressure you mentioned earlier, where do you think these betas could could move towards the next few quarters.
Sure.
Speaker 3: transcript
Speaker 3: You know, I think if we look historically, the betas continue to move up more, we're betas right now or nowhere near the historical norms where they get to in terms of the amount of fed increases. But it's different in different in each market. But so I'm not sure exactly how much that betas is going to move up, but you know.
Brady Gailey: At this point, any loans we make over two and a half million are going to be floating or they have to be swapped. And, you know, we're looking at different funding costs and really our public fund costs to see if we just need to potentially run some of those deposits off to pick up some cheaper funding elsewhere. So, I would have answered it's a long answer, but then answer your question. I think there's still some more margin compression coming.
I think if we look historically.
The betas continue to move up.
More.
Betas right now are nowhere near the historical norms of where they get to in terms of the amount of.
The fed increases.
But.
Different and different in each market, but.
So I'm not sure exactly how much that beta is going to move up.
<unk>.
Speaker 3: transcript
Speaker 3: We're going to be looking at a lot of different things. We may look at some more swaps.
We're going to be looking at a lot of different things, we may look at some more swaps.
Speaker 3: transcript
Speaker 3: And we're just going to look at our highest cost deposit to make a decision whether or not it makes sense to retain those or if there's a better way to go out and tie that money up some other way.
Brady Gailey: A lot of it probably has to do with, you know, how much we can have in loan growth moving forward, especially in 24 or, you know, this quarter, I think, you know, we'll have decent loan growth, but it's really going to be dependent on how much loan growth we have next year. But, you know, I would anticipate that we're probably looking at some additional them pressure, you know, and I wouldn't say just slightly below three.
And we're just we're going to look at our highest cost deposits and make a decision whether or not it makes sense to to retain those or if there's a better way to go out in time.
That money up some other way.
Speaker 3: transcript
Speaker 3: So, but the beta is definitely gonna go up. It's just a matter of how much, and how much we can offset it and mitigate it on the other side in terms of lines, and a little bit on the security side.
So, but the beta is definitely going to go up.
Just a matter of how much and.
And how much we can offset it and mitigated on the other other side in terms of loans and a little bit on the security side.
Brady Gailey: I'd say, you know, that it, you know, potentially could get, you know, 25 or some basis points, you know, below three percent at some point. All right, then. So, once the name hits that bottom and funding costs have plateaued, there's some banks talking about asset repressing that could, you know, assuming rates are flat from here, you know, some banks are talking about asset repressing where the name could hit that bottom and then assets reprice and the name starts to inflect higher.
Okay.
Speaker 7: transcript
Speaker 7: and then specifically on the time deposit.
Okay.
And then specifically on the time deposits.
Speaker 7: transcript
Speaker 7: Any color you can find as far as the maturity that are coming up in the near term, I don't know if Julie has that. For the fourth quarter volumes and repricing details behind that.
Any any color you can provide as far as the maturities that are coming up in the near term.
Julie has that.
For the fourth quarter volumes and repricing.
Details behind that.
Sure.
Speaker 3: transcript
Speaker 3: I know this quarter we have 80 million in CDs that come to and
Yes.
I know this quarter, we have $80 million in Cds that.
That come due in <unk>.
Brady Gailey: At some point next year, do you think that is a likely scenario for Southside? We will have some ones that reprice next year. It really just depends what Fed does, you know, if the Fed has another interest rate increase out there, then, you know, I'm not sure there's enough, there's a fair amount of assets that will reprice. It's possible by late next year. I wouldn't anticipate that's going to happen in the first six months.
Speaker 3: transcript
Speaker 3: I have the exact right, the second pair of pantomotomy.
I don't have the exact rates.
And in SME.
Okay.
Sure.
Speaker 3: transcript
Speaker 3: Yeah, it looks like the rates are on average. I'm going to say, you know, 480.
Yes, it looks like the rates are.
On average I'm going to say.
For AED.
Speaker 3: transcript
Speaker 3: I was at the bottom. Okay, well, I got real close. 479. I was looking at the three months. They haven't grouped together in quarter. So they're 80.7 million that comes to in this quarter and the average rate on those is a 479. So that'll move up some. And then we have another 65 million in the first quarter that's at a 491.
At the bottom, okay, well I've got real close $4 79.
I was looking at the three months I haven't grouped together in quarter.
So there was $80 7 million that comes due in this quarter and the average rate on those is a 479, so that will move up some.
Brady Gailey: It's possible with all that asset repricing that we see that later in the year that the NEM would actually go the other direction. All right, and then you know, I heard Julie talk about expenses basically in flat next quarter at this 35 and a half million dollar level. You know as we look to 2024, how are we thinking about expense growth next year? We have not put a final budget together, I'll tell you that I would anticipate expense growth, you know, we'll have some expense growth, but we'll probably try to keep it in the in the 3% realm somewhere in that in that range.
And then we have another $65 million in the first quarter, that's at a $4 91.
Speaker 8: transcript
Speaker 8: Another 96 million that's almost in the second quarter that's almost at 5%. So there'll be some reprising risk associated with those, but you know, it's not going to be like it's going up a percent or two percent or anything like that. We're probably looking at, you know, a quarter of a percent on average for those, those CDs that are going to renew. Yeah.
Another $96 million Thats almost in the second quarter, that's almost at 5% so there'll be some re pricing risk associated with those but.
It's not going to be like it's going up a percent or 2% or anything like that we're probably looking at.
A quarter of a percent.
On average for those those Cds that are going to renew.
Uh-huh Uh-huh.
Does that is that correct.
Healthier.
Yes, that's I'm looking for okay.
Okay. Thanks for color guys appreciate it.
Speaker 9: transcript
Speaker 9: All right.
Alright.
Thank you.
Speaker 1: transcript
Speaker 1: I'm showing no further questions in the queue. I will now like to turn the call back over to Leigh Gibson for closing remarks.
I'm showing no further questions in the queue I would now like to turn the call back over to Lee Gibson for closing remarks.
Speaker 3: transcript
Speaker 3: Thank you, everyone, for joining us today. We appreciate the opportunity to answer your questions along with your interest in Southside bank shares. In closing, we are looking forward to our prospects for the remainder of 2023, and look forward to reporting forth. The quarter results to you during our next earnings call in January . Thank you again.
Brady Gailey: You know, we're going to have some higher wages and things of that nature. Earlier in the year in the first couple of quarters, I've projected out that our budgeted expense was 35.5, I pretty much said that all year and it just this last quarter has finally hit that amount. And one other thing I would add, you know, we've done a lot of the heavy lifting on a lot of the technology that's already embedded in here in these numbers.
Thank you everyone for joining us today, we appreciate the opportunity to answer your questions along with your interest in Southside Bancshares in closing we are looking forward to our prospects for the remainder of 2023 and look forward to reporting fourth quarter results to you during our next earnings call.
Paul in January Thank you again.
Speaker 1: transcript
Speaker 1: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Brady Gailey: So, you know, I'm expecting to see that, you know, maybe not the steep escalation in that as much as we've seen this year. I'll say this, we haven't, you know, two things, we haven't put the budget together, we're having a meeting this afternoon with all the executive management team. And the message, Jill and I are going to deliver is if you want to spend more money next year, explain to us how that's going to make this money, you know, where the revenue is coming from.
Okay.
[music].
Okay.
Yes.
[music].
Okay.
Okay.
Brady Gailey: Yep, and then finally for me, you guys have been a pretty consistent repurchaser of your shares over the last three or so years. Is there any reason to think that that was slowed down here, or do you think the stocks on sale, we're going to continue to be active in the buyback as far as the I can see. You know, what I would say is we have a little over 600,000 shares left to repurchase, I don't, you know, I don't see us slowing down on repurchasing until that's used up and then it'll, you know, we'll go to the board and there'll be a discussion and we'll make a decision at that point if there's going to be additional purchases. All right, great, thank you, Lee. Okay, thank you. Thank you. As a reminder, ladies and gentlemen, that start one one to ask the question. Please stand by for our next question.
[music].
Okay.
Okay.
Graham Dick: Our next question comes from the line of Graham dick with pipe of sendler. The line is open. Hey, good morning, everyone. Morning, Graham. So I just wanted to circle to the reserve. I know it was Cecil driven this quarter, but just wanted to hear your all perspective, on the drivers behind that. It's kind of like repricing risk and some CRE related stuff. Do you see repricing risk and CRE risk in your loan book that, you know, this Cecil Reserve Build is effectively capturing or is this sort of external to the two year olds bank and more of a, you know, a factor outside of your control, I guess.
Graham Dick: You know, we, well, I'll tell you this, we every six months, we go through and look at all the CRE loans that are going to reprice, whether they're going to reprice next year or, you know, three or four years from now. And we determine whether or not we feel like, you know, they're close, or whether or not, you know, they're fine if they reprice the current rate and we stress them. There's, there's a few loans that we put on the watch list mainly because they're close.
Graham Dick: But I will tell you that, you know, I'd like to see all the CRE loans reprice immediately. And because the few loans that are close, it just means they're close, it doesn't mean they can't, they can't chin the bar, but they're close in terms of meeting their debt service coverage ratios. A lot of these that, you know, are two and three years out and, you know, I wish my Ouija board was good enough to know if, if rights are going to be higher or lower at that point in time.
Graham Dick: But, you know, what I can tell you is every six months, we're going to be looking at this based on current rights and stressing them to determine, you know, if there is, you know, some risk in the portfolio. So long story short, we're not seeing it. And, but the economic forecast is, you know, reflects concern in that arena and reflects concern around the commercial real estate market, you know, especially around office.
Graham Dick: And, you know, we're just not seeing it in our portfolio, but there's so much uncertainty out there in the, in the overall market nationwide, we just didn't feel comfortable adjusting the economic forecast to our specific portfolio. Okay. Does that help answer your question? Yeah, absolutely. And so, I guess as you think about the reserve from here, it sounds like the adjustments in the CISO forecast were sort of driven by the higher, longer outlook.
Graham Dick: So, if we don't, if we don't get any more rate hikes and really the rate outlook doesn't change materially, do you think that provisioning maybe returns to a level of, you know, more normal level I guess going forward or is there a potential for more CISO related reserve bill to take the, you know, the ACL over over 1% of loans. You know, well, one thing I think that it's important to note is we have about 11% of our loans, roughly, you're in municipal loans.
Graham Dick: And that mostly have advolarm tax pledges and we virtually have no reserve against those under the CISO model simply because they have advolarm tax pledges. So, if we normalize and took those out of the equation, we would be over 1% currently as opposed to 0.94. And answer your question as long as the economic forecast remains, you know, consistent where it is today. I don't I don't see, you know, I don't see a huge build up in any one quarter like this.
Graham Dick: Now, if the economic forecast changes, then, you know, all bets are off because that's the that's the big driver in the in the seasonal model is what the economic forecast is. Yep. And if I didn't totally answer your question, feel free to dig in some more. Oh, no, it's perfect. All right. And I guess on loan growth, sounds like you're going to hit that. You guys set out at the beginning of year, high single digit, but the pipelines are getting a bit smaller.
Graham Dick: What what are your thoughts on growth in 2024? Are we talking about more of a mid single digit growth level? Or do you think you might be able to maintain the high single digit, pay if you'll see you saw this quarter and then also you saw for a full year. Right now, based on where rates are and the ability of loans to meet our our credit guidelines and it's primarily the service coverage ratios with the current rates and how much equity needs to go into to deals.
Graham Dick: I think the mid mid single digit is probably more likely for next year than than what we've experienced this year. Now, if things change and rates change, then, you know, our markets are strong. It's just people aren't, you know, when when you go to them and tell them it's going to take 50% equity in their deal or in some cases more than that. You know, their numbers don't work on their end and, you know, for their equity folks.
Graham Dick: So that's really what we're seeing. It's not a credit concern. It's more of ability for them to cash flow with the amount of equity they want to put in the deal. Okay, great. That makes sense. And then I guess just lastly on the funding side, I think you guys picked up some some BTFP this quarter. I'm just wondering what you guys thinking about that right now. Maybe the potential to do more of it going forward and replace some of the higher costs.
Graham Dick: Barnes on ballot sheet, maybe even some some broker deposits that might cost a bit more. Do you guys have any appetite for that? Okay, you you mentioned what what did we pick up? You used the action and funding program. Oh, oh, we have taken out all the bank term funding program dollars that we can. You know, we obviously when it gets closer to maturity, if if we want to reprise that for another year, we can at that point in time.
Graham Dick: But at this point, you know, we are, ours is locked in at a rate round for 46. And so, you know, we don't have any additional collateral that meets the threshold to take out additional funding on that. But, you know, that'll, those will mature sometime in March, April. And I think there may be a little bit that matures in May. But, you know, we'll we'll make that decision at that point in time based on what what those rates are.
Graham Dick: Okay. All right. That's helpful. And I guess just the last question I would have to be on the on the funding side, the deposit side seem like the municipal deposits drove their growth this quarter, but just wondering if you think that you might be able to at least keep pace with loan growth on the deposit side, whether that be, you know, court deposit generation, maybe back to the broker side. And for all of 2024 and maybe beyond is, is, you know, mainly non maturity deposit growth.
Graham Dick: And, you know, so that's going to be the focus. That's where incentives are going to be heavily skewed, because that's what we need. And it's out there. We just have to, we just have to go get it. Understood. All right. I appreciate it guys. Thank you. Please stand by for our next question.
Matt Olney: Our next question comes from the line of Matt Olney with Steven. The line is open. Thanks.
Lee Gibson: Good morning. Going back to the margin discussion. Good morning. The deposit cost just any updated targets or thoughts on deposit beta to the cycle where given the pressure you mentioned earlier, where do you think these betas could could move towards the next few quarters? You know, I think if we look historically, the betas, you know, continue to move up, you know, more, we're, you know, betas right now or nowhere near the historical norms of where they get to in terms of the amount of.
Lee Gibson: Of a Fed increases and, but, you know, it's different in different in each market, but so I'm not sure exactly how much that beta is going to move up, but, you know, we're, we're going to be looking at a lot of different things. We may look at some more swaps. And we're just going to, you know, we're going to look at our highest cost deposits and make a decision whether or not it makes sense to retain those or if there's a better way to go out and, you know, tie that money up some other way.
Lee Gibson: So, but, you know, the betas definitely going to go up, it's just a matter of how much and, you know, how much we can offset it and mitigate it on the other other side in terms of loans and a little bit on the security side.
Julie Shamburger: Okay. And then specifically on the time deposits, any color you can provide as far as the maturity that are coming up in the near term, I don't know if Julie has that for the fourth quarter volumes and repricing details behind that. I know this quarter we have 80 million in CDs that that come to and. I don't have the exact rights, the second term handed in this evening. Yeah, it looks like the rights are on average.
Julie Shamburger: I'm going to say, you know, 480. I was at the bottom. Okay. Well, I got real close. 479. I was looking at the three months. They haven't grouped together in quarter. So they're 80.7 million that comes to in this quarter and the average rate on those is a 479. So that'll move up some. And then we have another 65 million in the first quarter that's at a 491 another 96 million that's almost in the second quarter that's almost at 5%.
Julie Shamburger: So there'll be some repricing risk associated with those, but, you know, it's not going to be like it's going up a percent or two percent or anything like that. We're probably looking at, you know, a quarter of a percent on average for those, those CDs that are going to renew.
Matt Olney: Okay. Help you. Yep. That's I'm looking for. Okay. Thanks for color, guys. Appreciate it.
Operator: All right. Thank you. I'm showing no further questions in the queue.
Lee Gibson: I will now like to turn the call back over to me, Gibson for closing remarks.
Lee Gibson: Thank you, everyone, for joining us today. We appreciate the opportunity to answer your questions, along with your interest in Southside bank shares.
Lee Gibson: In closing, we are looking forward to our prospects for the remainder of 2023 and look forward to reporting fourth quarter results to you during our next earnings call in January. Thank you again.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you.