Southside Bancshares, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Southside Bank Shares Incorporated first quarter 2023 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone keypad. At this time, I would like to turn the conference over to Ms. Lindsay Bales, Vice President of Investor Relations. Ms. Bales, please begin.

Thank you, Howard. Good morning, everyone, and welcome to Southside Bank Share's first quarter 2023 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 case. 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' first quarter earnings call for 2023. This morning, we reported net income of $26 million, earnings per share of 83 cents, a return on average assets of 1.38%, a return on average tangible common equity of 19.36%, and continued strong asset quality metrics. On a length quarter basis, our loan growth was less than originally anticipated. This was due to anticipated first quarter loan closing delays, now expected to close in the second quarter, and a few payoffs. During the quarter, we also lost loan opportunities due to our underwriting requiring lower leverage than our competitors. That said, we have no plans to change our time tested credit underwriting standards. Because of our healthy pipeline, loans we anticipate funding during the second quarter, projected construction loan advances, and the markets we serve, we are still budgeting for overall loan growth for 2023 in the high single digits. Increased competition for deposits largely accounted for the 19 basis point decrease in our net interest margin. Pricing competition from both financial institutions and US Treasury bills required us to adjust our pricing more than originally anticipated. Additionally, as uncertainty in the banking industry unfolded, We implemented measures to further enhance our already very solid liquidity position by maintaining additional cash at Fed at a very small spread and pledging additional securities at Fed, increasing availability there. Totally to enhance our interest rate risk profile, we utilized the Fed's new bank term funding program, and as of yesterday, had obtained $287 million of one year term funding at an average rate of 4.47% that at our discretion can be repriced or repaid at any time without penalty. We anticipate the net interest margin will continue to be pressured as competition for deposits remains high. Our interest rate swaps and fair value swaps continue to provide a hedge to offset a portion of the potential margin compression. Linked quarter deposits, net of broker and public fund deposits decreased 3.4% during the quarter, 78% of which occurred prior to the banking industry events in early March. Over half of the decline in our total deposits linked quarter was a result of changing a portion of our swap funding from broker deposits to lower cost fed borrowings resulting $2 million reduction in broker deposits. Given the recent banking events, I think it's important to point out that as of March 31st, 2023, 73.5% of our deposits are FDIC insured or fully collateralized. In addition, the average balance of our granular deposit account base is only $30,000. While we are keeping a watchful eye on the economy as more economists forecast increasing chances of a recession, we are glad to report that the markets we serve remain healthy and continue to grow. I look forward to answering your questions following Julie's remarks, and I will now turn the call over to Julie.