Q4 2024 Southside Bancshares Inc Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the Southside Bankshare's fourth quarter and year-end 2024 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone.
Speaker Change: Linked quarter, our net income increased $1 3 million to $21 8 million and earnings per share increased three cents.
Speaker Change: The 71 cents.
Speaker Change: During the fourth quarter loans increased $83 5 million or seven 3% annualized most of which occurred during December linked quarter average loans decreased 9 million due to early fourth quarter payoffs and light fourth quarter loan growth.
Speaker Change: Linked quarter, our net interest margin decreased 12 basis points.
Speaker Change: Faster prepayments on the premium mortgage backed securities, resulting from the lower long term interest rate environment in the third quarter guidance related interest rate adjustments and amortization and the decrease in average loan balances.
Speaker Change: As long term interest rates near their highs during the last 30 days, we've restructured approximately $120 million of the premium mortgage backed securities portfolio, which should reduce amortization volatility for this portfolio and increase the overall average yield.
Speaker Change: Andrew related net.
Speaker Change: Interest income volatility during the fourth quarter should moderate during 2025 due to the restructuring of the mortgage backed securities portfolio and the anticipated slower pace of fed interest rate changes.
Speaker Change: Our loan pipeline is healthy and for 2025, we are budgeting mid single digit loan growth.
Speaker Change: These changes along with the late fourth quarter loan growth.
Speaker Change: A return to a positively sloped yield curve result in positive net interest margin expectations during 2025.
Speaker Change: Loan quality metrics remains solid the markets, we serve remain healthy and the Texas economy is anticipated to grow at a faster pace.
Speaker Change: The overall projected U S growth rate.
Speaker Change: Our wealth management and trust areas are experiencing nice growth, resulting from strategic hires during the last 18 months and we anticipate revenue increases in this area in 2025 of at least 16%.
Speaker Change: We look forward to answering your questions I will now turn the call over to Julie Shamburger.
Julie Shamburger: Thank you Lee good morning, everyone and welcome to our fourth quarter and year end call.
Julie Shamburger: Mr reported net income of $88 5 million, an increase of $1 8 million or two 1% compared to 2023 in diluted earnings per share and $2.91, an increase of nonsense or three 2% compared to 2023.
Julie Shamburger: We reported fourth quarter net income of $21 8 million, an increase of $1 3 million or six 9% on a linked quarter basis and diluted earnings per share of 71 cents an increase of three cents.
Julie Shamburger: A four 4%.
Julie Shamburger: We ended the year with loans of 466 billion linked quarter increase of $83 $5 million or one 8% and an increase of 137 1 million or 3% for the year.
Julie Shamburger: The linked quarter increase was driven by an increase of 157 1 million in commercial real estate loans, partially offset by decreases of 48 million in construction loans 15 million in one four family residential loans and $11 1 million in municipal loans.
Julie Shamburger: The increase in commercial real estate occurred primarily in December.
Julie Shamburger: The average rate.
Julie Shamburger: The average interest rate of loans funded during the fourth quarter was approximately seven 1% as.
Julie Shamburger: As of December 31st our loans with oil and gas industry exposure or 117 million or $2 <unk>.
Julie Shamburger: 5% of total loans.
Julie Shamburger: Our allowance for credit losses increased to $48 million for the linked quarter from $47 6 million at September 30th.
Asset quality metrics remained solid.
Julie Shamburger: Nonperforming assets remained at low levels and decreased on a linked quarter basis about $41 million or 53, 1% driven by commercial real estate loan that paid off in the fourth quarter.
Julie Shamburger: Nonperforming assets were 4% of total assets at December 31st and decrease from 9% at September 30th endpoint over 5% at December 31 2023.
Julie Shamburger: On December 31st our allowance for loan losses, as a percentage of total loans decreased slightly linked quarter to nine 6% compared to nine 7% at September 30th and nine 4% at December 31 2023.
Julie Shamburger: Our securities portfolio was 281 billion at December 31st an increase of $116 3 million or four 3% from.
Julie Shamburger: From $2 7 billion last quarter the.
Julie Shamburger: The increase was driven by purchases of mortgage backed securities during the quarter.
Julie Shamburger: There were no transfers at Iff's securities during the fourth quarter.
Julie Shamburger: And as of December 31st we had a net unrealized loss in the securities portfolio of 53, 5 million, an increase of $28 9 million compared to $24 7 million last quarter.
Julie Shamburger: At December 31st the unrealized gain on the fair value hedges on municipal and mortgage backed securities was approximately $16 6 million compared to $3 5 million linked quarter.
Julie Shamburger: Unrealized gains partially offset the unrealized losses in the securities portfolio.
Julie Shamburger: Our LCR on December 31st 2024, with a net loss of $124 9 million compared to a net loss of $118 5 million on September 30th.
Julie Shamburger: The net loss was comprised of net losses on our securities and swap derivatives of 159 million and 19 million related to our retirement plans.
Julie Shamburger: As of December 31st and the duration of the total securities portfolio was eight two years and the duration of the <unk> portfolio with five seven years.
Julie Shamburger: Slight decrease from eight three years and five nine years, respectively at September 30th.
Julie Shamburger: At quarter end, our mix of loans and securities was 62% and 38%, respectively, a slight shift from 63% and 37% last quarter.
Julie Shamburger: Deposits increased $218 5 million or three 4% on a linked quarter basis. The increase was primarily driven by an increase in public fund deposits of $156 8 million or 14, 6%.
Julie Shamburger: In December due in large part to seasonality and a couple of new relationships custom.
Julie Shamburger: Customer deposits increased $72 5 million, partially offset by a decrease in broker deposits of $10 7 million.
Julie Shamburger: Our capital ratios remained strong with our capital ratios well above the capital adequacy and well capitalized thresholds.
Julie Shamburger: Quality resources remains solid with 223 billion in liquidity lines available as of December 31st we did not purchase any shares of our common stock during the fourth quarter or since December 31st. However, we have approximately 583000 shares remaining in the curve.
Julie Shamburger: Current repurchase authorization.
Julie Shamburger: Our tax equivalent net interest margin decreased 12 basis points on a linked quarter basis to $2, 83% from 295%.
Julie Shamburger: The tax equivalent net interest spread decreased for the same period by 11 basis points to 212 down from $2 23.
Julie Shamburger: For the three months ended December 31st we experienced a decrease in net interest income of $1 8 million or three 2% compared to the linked quarter.
Julie Shamburger: Noninterest income.
Julie Shamburger: Excluding the net loss on the sale today at the Securities increased $2 2 million or 21 six.
Julie Shamburger: 6% for the linked quarter.
Julie Shamburger: Due to increases in swap fee income and mortgage servicing fee income.
Julie Shamburger: Noninterest expense increased $1 8 million or 5% on a linked quarter basis to $38 2 million driven primarily by an increase in salaries and employee benefits and other noninterest expense and professional fees.
Julie Shamburger: The increase in other noninterest expense included $540000 of losses related to branch closures.
Julie Shamburger: We have budgeted a five 7% increase in noninterest expense in 2025 over 2024, actual primarily related to salary and employee benefits retirement related expense to operating expense and a one time charge of $1 million related to the answer.
Julie Shamburger: Dissipated demolition and are currently occupied branch upon completion and many branch facility.
Julie Shamburger: Our fully taxable equivalent efficiency ratio increased to 54% as of December 31st from 51, 9% as of September 30th.
Julie Shamburger: We recorded income tax expense of $4 7 million, an increase of 269000 compared to the third quarter.
Julie Shamburger: Our effective tax rate remained consistent at 17, 6% on linked quarter basis.
Julie Shamburger: Currently estimating an annual effective tax rate of $17 seven for 2025.
Julie Shamburger: Thank you for joining US today. This concludes our comments and we will open the line for your questions.
Julie Shamburger: Thank you.
Speaker Change: To ask a question you will need to press star one on your telephone.
Speaker Change: And wait for your name to be announced to withdraw your question. Please press star one on one again, please standby we compile the Q&A roster.
Speaker Change: One moment for our first question.
Speaker Change: Yeah.
Speaker Change: Our first question comes from the line of Woody Lee from <unk>. Your line is open.
Woody Lee: Hey, Thanks for taking my questions.
Speaker Change: Wanted to thank you all right.
Speaker Change: I wanted to start on the loan growth front, it was encouraging to see the growth, especially.
Speaker Change: With a weighted more towards December okay could you talk about the opportunities.
Speaker Change: You saw in the quarter.
Speaker Change: Pickup in December is that a reflection of.
Speaker Change: Sort of a pickup in client demand or or was it just a little bit of pull through.
Speaker Change: It was it was.
Speaker Change: Some pull through some additional demand from clients.
Speaker Change: It was just a lot of.
Speaker Change: Full thunders, we really focus this last six months and most of it occurred.
December.
Speaker Change: We would we would work on some full funding loan opportunities.
Speaker Change: There were there were several that closed and they all just happened to close right right near the end of the year and in fact, I think we had one that closed in the last.
Speaker Change: Few days.
Speaker Change: The year, so it was pretty much across the board different different types of <unk>.
Speaker Change: Sorry opportunities.
Speaker Change: And part of the CRE growth is.
Speaker Change: Moving from construction over to CRE. So.
Speaker Change: That was about $47 million of debt.
Speaker Change: The increase.
Speaker Change: Okay got it that's helpful and then with the with the growth weighted towards back end of the quarter it should be.
Speaker Change: Positive to the NIM going forward how are you.
Speaker Change: Are you thinking about sort of the magnitude of NIM expansion, we could see.
Speaker Change: Over the coming couple of quarters.
Speaker Change: I think.
Speaker Change: The bulk of the NIM expansion that we're going to see is probably going to be.
Speaker Change: And the second third and fourth quarters, we've got we've got some hedges.
Speaker Change: Cash flow hedges that roll off large part of them roll off in February and March.
Speaker Change: That will have.
Speaker Change: Some negative impact that will partially offset the overall positive impact.
Speaker Change: The.
Speaker Change: The loan growth and the restructuring of the mortgage backed securities portfolio.
Speaker Change: But we do anticipate some.
Speaker Change: Some increase in the first quarter, but.
Speaker Change: The real opportunities for margin expansion would be in those.
Speaker Change: This latter three quarters of this year.
Speaker Change: Yes, and then on the deposit side as you think about that NIM expansion, how are you thinking about that.
Speaker Change: The trend of deposit deposit betas through 2025.
Speaker Change: Assuming the fed lowers another.
Speaker Change: Two times well, even if they don't we've got we've got a lot of Cds that are going to mature during the year. We've got some additional funding.
Speaker Change: Finding that.
Speaker Change: Well, we will be able to reprice during the year and assuming they lower and were anticipating maybe to cut one kind of midyear and one towards the end of the year, then I would assume that we will be able to fill.
Speaker Change: Lower overall deposit rates.
Speaker Change: Got it alright, that's all from me thanks for taking my questions.
Speaker Change: Alright.
Speaker Change: Thank you one moment our next question.
Speaker Change: Our next question comes from the line of Jordan <unk> from Stephens. Your line is open.
Jordan: Hey, good morning.
Speaker Change: I had a question on the Securities book I know you mentioned about the restructure but looks.
Speaker Change: It looks like the yield on those were down about 30 bps on a linked quarter.
Speaker Change: What are your expectations for the Securities book overall as far as growing it and kind of what what yields you expect to put on.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: I would expect us to recoup a lot of that.
Speaker Change: Basis point decrease in that to go back up closer to where it was.
Speaker Change: Basically what we did was we had some higher priced higher coupon <unk>.
Speaker Change: Is that starting to prepay pretty fast when when long term rates near near their peak of the last 30 days.
Speaker Change: Place those with <unk>.
Speaker Change: Closer to par that had a similar yield to those premiums if they were prepaying at what we would consider to be more normalized.
Speaker Change: Prepayment speeds, so one I'm expecting the overall yield to go up.
Speaker Change: And it's primarily due to the reduced amortization expense associated with both the hedges and the.
Speaker Change: The <unk>.
Amortization of the premium mortgage backed securities since we bought more par ish type mortgage backed securities.
Speaker Change: So I would anticipate in summary anticipate that it's going to move back up closer to where it was.
Speaker Change: At the end of the third quarter.
Speaker Change: Perfect.
Speaker Change: And then just one more question.
Speaker Change: The fees it looks like it was had some good growth in kind of driven by that swap income I believe.
Speaker Change: Would you guys consider this a good run rate.
Speaker Change: That you saw in the quarter kind of going forward would be a good run rate.
Speaker Change: Okay.
Speaker Change: I wouldn't I wouldn't necessarily consider it a good run rate basically what we've.
Speaker Change: We took the.
Speaker Change: The.
Speaker Change: The swap.
Speaker Change: Okay.
Speaker Change: Received in 2024 and we're only.
Speaker Change: Budgeting a percentage of that for 2025, the change in the slope of the yield curve.
Speaker Change: Some of that those swap transactions.
Speaker Change: Less attractive, but if somebody wants a fixed rate loan and loans.
Speaker Change: About $2 5 million likely.
Speaker Change: Likely we're going to require a swap on it.
Speaker Change: That's a maturity beyond a year or so.
Speaker Change: We do anticipate.
Speaker Change: Some some nice fee income from it but I wouldn't consider the fourth quarter a run rate, we're anticipating a smaller amount.
Speaker Change: Okay, and then maybe.
Speaker Change: Okay.
Speaker Change: Go ahead.
Speaker Change: So I just had one more question actually on the buyback.
Speaker Change: What's your appetite from here and it looks like it's kind of the activity slowed over the last few quarters.
Speaker Change: If you could just give any color on that that'd be great.
Speaker Change: Yeah.
Speaker Change: At this point we're not.
Speaker Change: And things could change based on prices, we're not anticipating being active in the share buyback.
Speaker Change: At this point.
Speaker Change: Got some sub debt coming due at the end of the year and.
Speaker Change: Basically retaining cash so that we can have our options open as well.
Speaker Change: What we do with whether we.
Speaker Change: Just keep it in place and let it flow, whether we re issue or whether we pay.
Speaker Change: Pay down and re issue. So we're basically just trying to keep our options open at this point in time.
Speaker Change: Okay. Thanks for taking my questions I'll hop back in the queue.
Speaker Change: Alright. Thank.
Speaker Change: Thank you once again Thats Star 101 for a question Star one.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Tim Mitchell from Raymond James Your line is open.
Tim Mitchell: Hey, good morning, everyone.
Speaker Change: Good morning, Mark wanted to wanted to jump back to loan growth and dive deeper into the C&I initiatives you guys have been working on.
Speaker Change: Could you just discuss kind of any updates to the hires you've made in that group.
Speaker Change: Group.
Speaker Change: Any plans for this year, and then kind of what youre expecting in terms of the growth of that portfolio for 2025.
Speaker Change: Okay.
Speaker Change: We started that initiative in the third quarter.
Speaker Change: We hired an individual.
Speaker Change: I believe he.
Speaker Change: He has been.
Speaker Change: And then hired two individuals.
Speaker Change: With that.
Speaker Change: We're in a little slower than we anticipated in terms of the additional hires.
Speaker Change: But we look to add to that team. Additionally during 2025.
Speaker Change: <unk>.
Speaker Change: We are anticipating some C&I loan growth.
Speaker Change: We will begin to see in 2025, hopefully starting in the first quarter, but for sure by the second quarter of this year.
Speaker Change: Understood that's helpful.
Speaker Change: And then on the allowance it looked like it ticked down a basis point this quarter.
Speaker Change: Credit metrics.
Speaker Change: Christine.
Speaker Change: Are you budgeting for mid single digit loan growth.
Speaker Change: As credit.
Speaker Change: It means as the economy improves through the year I mean.
Speaker Change: What should we kind of how should we think about the provision expense through the year.
Speaker Change: Or would you potentially even look to release some reserves.
Speaker Change: The release of reserves.
Speaker Change: Is that was that the last part of the question.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Don't anticipate with our reserve level, where it is that we would be releasing reserves.
Speaker Change: Especially if we.
Speaker Change: We made our expected loan growth target.
Speaker Change: Mid single digits.
Speaker Change: That would be some more.
Speaker Change: The $2 $50 million to $300 million range, but I.
Speaker Change: I would anticipate that percentage, we're going to remain somewhat stable may move a couple of basis points, one way or the other but we're not looking for a bit.
Speaker Change: Big.
So the reserve.
Speaker Change: We feel like it.
Speaker Change: Appropriate where it is and.
Speaker Change: No.
Speaker Change: Sunday Sunday, you may actually may actually need some of that reserve.
Speaker Change: Understood.
Speaker Change: And then lastly could you just remind us the dollar amount and the rate on the sub debt.
Carl: Carl here.
Carl: The overall yield I think in the fourth quarter was four 9%.
Carl: Yeah.
Carl: And so if it if it begins to flow based on where suffer as today it would be somewhere in the mid sevens.
Carl: And if we were to re issue.
Carl: I hate to speculate at this point, where that would be in November when that when that comes due.
Carl: $90 million.
Carl: $92 million.
Carl: Got it alright, thanks for taking my questions.
Carl: You bet.
Speaker Change: Thank you.
Speaker Change: And I'm not showing any further questions in the queue I'd like to turn the call back over to Lee Gibson CEO for closing remarks.
Speaker Change: Thank you everyone for joining us today, we appreciate your interest in the SaaS side Bancshares, along with the opportunity to answer your questions.
Speaker Change: We enter 2025 optimistic and look forward to reporting first quarter results to you during our next earnings call in April. This concludes the call. Thank you.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.
Speaker Change: Okay.
Speaker Change: [music].