Southside Bancshares, Inc.

Good day, and thank you for standing by, and welcome to Southside Bank Shares, Inc., fourth quarter and year-end 2022 earnings call. At this time, all participants are in listen-only mode. After the 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. You will then hear an automated message advising your hand is raised. If you would draw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lindsay Bell, Vice President of Investor Relations. Please go ahead.

Thank you, Justin. Good morning, everyone, and welcome to Southside Bank Shares' fourth quarter and year-end 2022 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 uncertainty. 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 Shares' fourth quarter and year-end earnings call for 2022. This morning, we reported excellent fourth quarter and annual results for 2022. Highlights for the quarter included earnings per share of 87 cents, a return on average assets of 1.47%, a return on average tangible common equity of 21.35%, annualized length quarter loan growth of 8.2%, a length quarter four basis point increase in our net interest margin, an efficiency ratio of 30, excuse me, 46.38%, and continued strong asset quality metrics. During 2022 loans, net of PPP loans increased 14.8% or 533.5 million. net interest margin increased 16 basis points and the efficiency ratio decreased to 47.39 percent. I want to thank the entire Southside team for their continued contributions and efforts which made these results possible. We're extremely pleased with our continued solid loan growth during the fourth quarter of 2022. Our loan pipeline while not currently as strong as it was this time last year, remains solid, and we are encouraged by the loan growth prospects for 2023. In addition, we are seeing advances in our construction portfolio increasing as loans that closed several quarters ago are now beginning to fund. Given the outlook for the markets we serve, we are budgeting for 9% loan growth during 2023. As previously mentioned, approximately 743 million of our available for sale municipal securities are hedged to the call date with fair value swaps designed to reduce the overall fair value volatility of these securities. During the fourth quarter, this $743 million of fair value swaps began producing net interest income. As the overnight suffer rate, receive increased above the average fixed rate we pay. This was largely responsible for the length quarter 31 basis point increase in the average yield on our tax exempt municipal securities. In the month of December, we recorded approximately $645,000 of net interest income related to these swaps. During January 2023, we expect the net interest income associated with these swaps will increase to reflect the full effect of the mid-December increase in overnight SOFR resulting from the increase in the federal funds rate. Should the Federal Reserve further increase the fed funds rate, we would anticipate a further increase in net interest income from these fair value swaps. Should the Federal Reserve at some point decrease the federal funds rate, net interest income associated with these fair value swaps would decline, at which time we would likely unwind some or all of these fair value swaps. The economic conditions in our markets remain solid, bolstered by continued company relocations and existing company expansions combined with population growth a result of continued migration from other states. The combination of increased mortgage rates and high building costs has resulted in reduced housing starts and decreased margins, moving this market closer to pre-pandemic levels. We look forward to successfully executing on our business model in what we consider to be the best state in the country in which to operate. I look forward to answering your questions following Julie's remarks, and I will now turn the call over to Julie.