Southside Bancshares(SBSI) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported third quarter net income of $20.5 million, a decrease of$ 4.1 million or 16.8% on a linked-quarter basis, with diluted earnings per share of $0.68, a decrease of 16% linked quarter [3][6] - Net interest income increased by$ 1.86 million, or 3.5% compared to the linked quarter, with a net interest margin increase of 8 basis points to 2.95% [3][12] - The allowance for credit losses increased by $2 million to$ 47.6 million, with nonperforming assets remaining low at $7.7 million or 0.09% of total assets [7][11] Business Line Data and Key Metrics Changes - Loans decreased slightly to$ 4.58 billion, down from $4.59 billion, with annualized year-to-date loan growth at 1.6% [6][10] - The decrease in loans was driven by a reduction in commercial real estate loans by$ 15.2 million and municipal loans by $14.9 million, partially offset by increases in construction loans and residential loans [6][7] - The average interest rate on loans was approximately 8.1% [7] Market Data and Key Metrics Changes - The company experienced a decrease in deposits by$ 60.2 million or 0.9% on a linked quarter basis, primarily due to a commercial account that typically increases in the second quarter and exits in the third quarter [10] - The securities portfolio was $2.70 billion, a slight decrease from$ 2.71 billion, with a net unrealized loss in the AFS securities portfolio of $24.7 million [8][9] Company Strategy and Development Direction - The company has reduced its target loan growth for 2024 from 5% to 3% due to anticipated additional loan payoffs [5] - An initiative to expand commercial and industrial (C&I) lending is underway, with plans to hire additional relationship managers [5][24] - The company is focusing on potential M&A opportunities in the Texas market, anticipating increased activity in 2025 [30][31] Management's Comments on Operating Environment and Future Outlook - Management noted that the markets served remain healthy and continue to grow, despite headwinds from anticipated loan payoffs [5] - The company expects some additional payoffs in the fourth quarter, impacting the ability to achieve the previously set loan growth target [18] - Management expressed optimism about the prospects for the remainder of the year and the upcoming fourth quarter results [36] Other Important Information - The company did not repurchase any shares during the third quarter but has approximately 583,000 shares remaining in the current repurchase authorization [11] - Noninterest expense increased by$ 567,000 or 1.6% on a linked-quarter basis, with expectations of $37 million for the fourth quarter of 2024 [12][34] Q&A Session Summary Question: Can you discuss the securities portfolio actions and the hedge? - Management indicated that the net effect on the margin will be positive, approximately 1 or 2 basis points, due to the sale of lower-yielding securities and purchase of higher-yielding agency mortgage-backed securities [15][16] Question: What is the outlook for loan payoffs and the loan pipeline? - Management noted that while loan payoffs are a sign of a good economy, they anticipate additional payoffs in the fourth quarter, leading to a reduction in the loan growth target [17][18] Question: Can you provide an update on the C&I initiative? - Management confirmed two hires during the quarter and plans for additional hires, expecting to see results from this initiative in 2025 [24] Question: How are deposit costs trending post Fed rate cuts? - Management reported that they were able to cut deposit rates significantly, with expectations of continued reductions in the coming months [25][26] Question: What is the target profile for potential M&A? - Management indicated a target range of$ 1.2 billion to $4 billion for potential acquisitions, focusing on banks along the I-35 corridor in Texas [31]