Southside Bancshares Inc. (NASDAQ:SBSI) Q4 2016 Earnings Conference Call - Final Transcript

Jan 27, 2017 • 10:00 am ET

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Southside Bancshares Inc. (NASDAQ:SBSI) Q4 2016 Earnings Conference Call - Final Transcript

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Presentation
Executive
Julie Shamburger

2016, our loans with oil and gas industry exposure remained very minimal at 1.1% of our total loan portfolio.

We recorded loan loss provision expense during the fourth quarter of $2.1 million, an increase from $1.6 million in the third quarter, which was related to loan growth and additional reserve on a few classified loans. During the year ended December 31, 2016, the allowance for loan loss decreased $1.8 million or 9.2% to $17.9 million or 0.70% of total loans when compared to 0.81% at December 31, 2015, primarily as a result of the charge-offs of two large impaired commercial borrowing relationships we previously reported during the second quarter of 2016.

Nonperforming assets decreased during the year ended December 31, 2016 by $17.4 million or 53.5% to $15.1 million or 0.27% of total assets compared to 0.63% of total assets at December 31, 2015. Next, I will give a brief update on our securities portfolio.

At December 31, 2016, we had a net unrealized loss in the securities portfolio of $29.2 million. The duration of the securities portfolio at December 31, 2016, and September 30, 2016, was approximately five years. On a linked-quarter basis, the size of the securities portfolio remained virtually the same, as the securities only increased $19.3 million during the fourth quarter.

During the fourth quarter, we sold $45 million of our lowest-yielding U.S. treasury notes at a loss of approximately $2.7 million. As the loan portfolio continues to grow, we will gradually reduce the securities portfolio. We anticipate continuing to utilize a barbell approach for our security purchases using U.S. agency CMOs for the short end and treasury notes, agency, and commercial mortgage-backed securities for the longer end.

During the fourth quarter, we reported our net interest margin at 3.03% and our net interest spread at 2.90%, both decreases of 16 basis points on a linked-quarter basis. The decrease in both the net interest margin and yield were a direct result of the sub debt outstanding during the fourth quarter, offset somewhat by the increase in our average loan balance and yield, as well as the increase in the average securities portfolio.

During the three months ended December 31, 2016, our non-interest expense decreased $2.6 million or 9% when compared to the fourth quarter 2015, primarily due to cost containment in almost all non-interest expense categories. We anticipate cost containment initiatives that were implemented in 2016 will result in additional cost savings in 2017.

We're also pleased to mention that in December we issued 2.185 million shares of our common stock at a price of $36.50 per share, resulting in net proceeds of $76 million after deducting the underwriting discount and related expenses. We believe this transaction strengthened our capital position and provides for loan and franchise growth.

Thank you and I will now turn the call over to Lee.

Executive
Lee Gibson

Thank you, Julie. 2016 was an exceptional year by any measure, primarily due to increased revenues and improvements in expense control.

A 12.2% increase in net