Southside Bancshares, Inc.

Good day, and thank you for standing by, and welcome to Southside Bank Shares, Inc. Second Quarter 2022 Earnings Conference Call. At this time, all participants are on a listen-only mode. After this speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lindsey Biles, Vice President of Investor Relations. Please go ahead.

Thank you, Justin. Good morning, everyone, and welcome to Southside Bank Shares' second quarter 2022 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 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 Schamburger, CFO. First, Lee will share his comments on the quarter, and then Julie will give an overview of our financial results. I will now turn the call over to Lee.

Good morning, everyone, and welcome to Southside Bank Share's second quarter earnings call for 2022. This morning, we reported strong financial results for the second quarter. Highlights for the quarter included earnings per share of 79 cents, a return on average tangible common equity of 18.62%, annualized linked quarter loan growth of 18.3% net of PPP, a linked quarter eight basis point increase in the net interest margin, an efficiency ratio of 47.74%, and continued strong asset quality metrics. The linked quarter increase in our net interest margin reflected a 17 basis point increase in the average yield on loans, a nine basis point increase in the average yield on securities, partially offset by an eight basis point increase in the average rate on our interest bearing liabilities. We're extremely pleased with our continued strong loan growth during the second quarter of 2022. Our loan pipeline remains strong, and we are encouraged about the loan growth prospects for the second half of 22. However, I do want to point out that approximately $60 million of the second quarter loan growth may be short term and pay off prior to year end. Given the solid outlook for the high growth markets we serve, as well as the growth occurring in our other markets, We're increasing our anticipated full year 2022 loan growth estimate, net of PPP, from 9% to the mid-teens. During the quarter, as interest rates increased, we sold lower coupon mortgage-backed securities and purchased primarily higher coupon mortgage-backed securities. In addition, we purchased municipal securities, over half of which had 5% coupons. We hedged approximately 72% of the municipal securities purchased during the quarter to the call date to reduce the overall duration of these securities. We have also hedged additional AFS municipal securities. Currently, approximately 30% of the par amount of our AFS municipal securities are hedged to the call date. The economic conditions in our markets remain strong. bolstered by continued company relocations and existing company expansions combined with population growth resulting from continued migration from other states. The DFW and Austin markets that we serve continue to be among the highest performing growth markets in the country. Rising mortgage rates and higher costs have taken some of the steam out of the highly robust single-family market, moving this market closer to the very solid pre-pandemic levels. And there continues to be a housing shortage in several Texas markets. We continue to successfully execute our business model in what we consider to be the best state in which to operate in the country. We recently hired two additional seasoned lenders, one in Austin and one in Houston that should enhance overall loan growth. I want to recognize and thank the entire Southside team for their continued contributions and efforts, without which these results would not have been possible. I look forward to answering your questions following Julie's remarks. I will now turn the call over to Julie.