Southside Bancshares(US:SBSI)2020-10-23 17:11Financial Data and Key Metrics Changes - The company reported an annualized return on third quarter average tangible equity of 17.73% with earnings per share increasing by 41.4% to $0.82 and net income rising by 36.8% to $27.1 million compared to the same period in 2019 [6][14] - Net interest margin remained unchanged at 3.02% while net interest spread increased by 2 basis points to 2.84% [10][23] - Non-interest expense increased by $1.8 million or 5.9% for the linked quarter, primarily due to increases in salary and employee benefits, FDIC insurance, and other non-interest expenses [26][27] Business Line Data and Key Metrics Changes - The loan portfolio decreased by $62.6 million or 1.6% linked quarter, primarily in residential and commercial real estate loans, partially offset by an increase in construction loans [15] - For the nine-month period ending September 30, total loans increased by $221.8 million or 6.2%, including approximately $302.8 million of PPP loans, but excluding PPP loans, total loans decreased by $81 million or 2.3% year-to-date [16][18] - The allowance for loan loss decreased by $4.8 million or 8% to $55.1 million, largely due to a partial reversal of provision [18] Market Data and Key Metrics Changes - COVID-19 modified loans decreased by 76% to $76.5 million, representing 2.2% of total loans net of PPP loans [8][19] - Loans with oil and gas industry exposure were $116.4 million or 3.1% of total loans, with no COVID-19 modifications reported in this sector as of October 20 [20] Company Strategy and Development Direction - The company is focused on maintaining asset quality through ongoing monitoring of the loan portfolio and is encouraged by the gradual increase in economic activity in Texas markets [9][11] - The company believes it is well-positioned to navigate challenging times and resume growth in its Texas franchise [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for loan growth in 2021, contingent on the economic recovery post-COVID-19 [11] - The company is carefully considering loan growth projections for 2021, with expectations that markets will resume pre-pandemic strength [11] Other Important Information - The efficiency ratio increased to 50.07% compared to 48.29% on a linked quarter basis, primarily due to the increase in non-interest expense [27] - The effective tax rate increased to 12.3% for the third quarter from 11.5% in the previous quarter [28] Q&A Session Summary Question: Construction pipeline and market impacts - Management noted that there is a strong construction pipeline with increasing building costs, particularly in single-family homes and warehouses, while labor shortages are a concern [36][46] Question: Tax rate implications - If the overall tax rate increases, the company's effective tax rate may rise by approximately 5% due to the amount of tax-free income in its portfolios [37] Question: Provisioning and ACL levels - Management discussed the CECL model's dependence on economic forecasts and expressed confidence in the current allowance for credit losses [42][43] Question: Future NIM outlook - Management indicated that the net interest margin is expected to remain stable in the near term, with future performance dependent on loan growth and asset mix [44][46] Question: Status of loan deferrals - Most remaining loan deferrals are either on their second or third deferral, with expectations for further reductions in the deferral amount in the coming weeks [48]