Southside Bancshares, Inc.

Good day, and thank you for standing by. Welcome to the Southside Bank Shares, Inc. Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Ms. Lindsay Bell, Vice President of Investor Relations.

Please go ahead. Thank you, Rache. Good morning, everyone, and welcome to Southside Bank Share's second quarter 2021 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 will remind you that any forward-looking statements are subject to risk and uncertainty. 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 Schamburger, 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 Shares' second quarter earnings call for 2021. This morning, I am pleased to report we had another solid quarter. with net income of $21.3 million, earnings per share of $0.65, and an annualized ROA of 1.2%, and an annualized return on average tangible common equity of 13.13%. Our quarterly results included continued link quarter deposit and loan growth, net of PPP loans, and continued strong asset quality metrics. The second quarter results included a provision for credit losses of $1.7 million due to a decline in the downside component of the economic forecast and its effects on macroeconomic factors used in the CECL model. Our strong asset quality metrics included non-accruing loans to total loans of 0.14% and non-performing assets to total assets of 0.21%. Our link quarter loan growth net of PPP loans of $14.5 million was partially offset by earlier than anticipated loan payoffs due to recently completed construction projects selling prior to stabilization at very low cap rates. A year ago, we were seeing construction projects typically sold post-stabilization. Annualized loan growth as of June 30, 2021, was 4%. We continue to believe 7% loan growth for 2021 net of PPP loans is achievable as our loan pipeline remains very healthy, a trend we anticipate will continue throughout the year given the outlook for the high growth markets we serve. The $656,000 decrease in our net interest income linked quarter was due entirely to the decrease in PPP loan accretion during the quarter. Length quarter or net interest margin and spread decreased 14 basis points, primarily due to an 18 basis point decrease in the yield on earning assets. The average yield on loans decreased 16 basis points, half of which was due to the decrease in the combined PPP and purchase loan accretion. The average yield on securities decreased 18 basis points linked quarter, largely due to a 42 basis point decrease in the yield on mortgage-backed securities, primarily a result of higher prepays, and a 23 basis point decrease in the yield on taxable securities, primarily due to an increase in the average balance of a treasury position during the second quarter. The mortgage-backed securities position continues to decrease as a percentage of the overall securities portfolio. In addition, during July, we have sold approximately $57 million of our lower-yielding mortgage-backed securities. On September 30th, we anticipate the redemption of our 5.5% coupon $100 million sub-debt issue pending regulatory approval. which will have a positive impact on both net interest income and the net interest margin beginning in the fourth quarter. For the six months into June 30th, 2021, our net interest margin has increased 11 basis points when compared to the prior year. During the second quarter, we continue to see a nice increase in non-maturity deposits, which represents our lowest cost interest-bearing liabilities. Over the past 15 months, we have experienced significant growth in non-maturity deposits, which has allowed us to strategically lower our higher-cost funding sources, CDs, and FHLB borrowings. Economic conditions in our market areas remain strong, bolstered by company relocations or expansions combined with population growth. as the Texas economy continues to benefit from individuals and companies migrating from other states. The DFW and Austin markets that we serve continue to be among the highest growth markets in the country. I look forward to answering your questions following Julie's presentation, and I will now turn the call over to Julie.