Southside Bancshares, Inc.

Good morning, ladies and gentlemen. Welcome to the Southside Bank Shares, Inc. Fourth Quarter and Year-End 2020 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Lindsay Bales, Vice President, Investor Relations. Please go ahead.

Thank you, Tiffany. Good morning, everyone, and welcome to Southside Bank Shares' fourth quarter and year-end 2020 earnings call. A transcript of today's call will be posted on Southside.com under Investor Relations. During today's call and other disclosures and presentations, I will 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 Form 10-K. Joining me today are Lee Gibson, President and CEO, and Julie Schamberger, CFO. First, Lee will share his comments on the quarter, then Julie will give an overview of our financial results. I will now turn the call over to Lee.

Good morning, and welcome to Southside Bank Share's fourth quarter and year-end earnings call for 2020. This morning, we reported record annual and fourth quarter net income and earnings per share. Closing the year on a strong note, the fourth quarter results were largely driven by an increase in net interest income and a partial reversal of provision for credit losses. Additionally, during the quarter, we expensed approximately $1 million related to three branch closings. In March, we will close two in-store branches in East Texas that are in close proximity to other Southside branches and one leased branch in North Texas. During the fourth quarter, our net interest margin increased 18 basis points, of which 14 basis points were attributable to additional accretion income on loans forgiven by the SBA. Overall, during 2020, our net interest margin increased one basis point to 3.07%, while our net interest spread increased 15 basis points. Increasing our NEM during 2020, given the relatively flat and historically low interest rate environment, was a big contributor to the success we enjoyed during 2020. The decision to purchase $500 million of high-quality municipal bonds at extremely attractive yields during a short-term bond market liquidity crisis in March, combined with funding decisions, were big contributors to maintaining the NIM. For the year ended December 31st, 2020, net income increased 10.2% to a record $82.2 million, compared to $74.6 million in 2019. The increase was due to an increase in net interest income and non-interest income that was partially offset by a $15 million increase in the provision for credit losses, largely due to the implementation during the same time when heightened economic uncertainties related to COVID-19 surfaced. At year end, our asset quality metrics improved slightly when compared to 2019, as nonperforming assets to total assets decreased from 0.26% to 0.25%. COVID-19 modified loans have decreased to $35 million as of Monday. Of this total, $32 million, representing two loans on three hotels, are expected to resume payments within the next two weeks, which will further reduce modified loans to $3 million. We continue to diligently focus on asset quality through ongoing monitoring of loan portfolio and the most at risk categories. We just completed the latest deep dive into our loan portfolio this week. In addition to our normal procedures, we are reviewing more detailed reports by industry within the loan portfolio and as needed on an individual loan basis. Overall, we are encouraged and optimistic by what we've learned and observed as a result of this heightened scrutiny. Our long-established consistent credit underwriting standards were stress tested well by the pandemic and reaffirmed our belief that they are sound. Our loan pipeline has increased during 2021, a trend we anticipate will continue throughout the year given the outlook for the high growth markets we serve. After carefully considering potential loan growth for 2021, we are currently budgeting for 7% loan growth net of any PPP loans forgiven or originated. During the fourth quarter, we successfully issued a $100 million sub debt offering. This low cost capital provides further optionality to grow through acquisitions or organically. We believe during the next few years bank consolidation in Texas will accelerate. As a result, utilizing the strength of our balance sheet, liquidity, and capital position, we believe we are well positioned to actively pursue attractive bank acquisitions while at the same time organically growing and expanding our Texas franchise in the coming years. The Texas markets we serve continue to experience growth and increased economic activity due to the end migration from other states and corporate relocations. Tyler, where we are headquartered, will soon be home to a new medical school that is projected to significantly enhance economic activity, much of which is slated to occur within a block from our main campus. After what seemed like A very difficult and challenging start to the year, 2020, in my opinion, ultimately turned out to be the best year in the 60-year history of Southside. During 2020, we all became better bankers and embraced technology at a new level. During 2021, we will invest in additional revenue producers, many of which have been identified and we will make continued investments in technology to enhance the customer experience and produce additional efficiencies. In closing, a few weeks ago, we were honored to be recognized by Bank Director Magazine as one of the top 10 banking powerhouses in America, as measured over the last 20 years, further confirming our commitment to our long-term business model and growth strategy. I want to thank all of our team members for their significant contributions in making this recognition and our record results for 2020 a reality. I will now turn the call over to Julie.