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Press Release

Southside Bancshares, Inc. Announces Financial Results for the Second Quarter Ended June 30, 2019

Company Release - 7/26/2019 6:30 AM ET
  • Second quarter net income was $18.6 million and earnings per diluted common share were $0.55
  • Linked quarter loans increased $155.0 million, or 4.7%, to $3.46 billion from $3.31 billion
  • Linked quarter net interest margin (FTE) increased 10 basis points from 3.07% to 3.17%
  • Second quarter annualized return on average shareholders’ equity of 9.68% and return on average tangible common equity of 14.12% (1)
  • Second quarter annualized return on average assets of 1.20%
  • Linked quarter nonperforming assets as a percent of total assets decreased from 0.61% to 0.46%

TYLER, Texas, July 26, 2019 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the quarter ended June 30, 2019.  Southside reported net income of $18.6 million for the three months ended June 30, 2019, a decrease of $1.6 million, or 7.9%, compared to $20.2 million for the same period in 2018.  Earnings per diluted common share decreased $0.02, or 3.5%, to $0.55 for the three months ended June 30, 2019, from $0.57 for the same period in 2018.  The annualized return on average shareholders’ equity for the three months ended June 30, 2019 was 9.68%, compared to 10.79% for the same period in 2018.  The annualized return on average assets was 1.20% for the three months ended June 30, 2019, compared to 1.30% for the same period in 2018.

“I am extremely pleased to report that Southside had an outstanding second quarter highlighted by a linked quarter increase in loans of $155 million, increases in net interest margin and spread of ten basis points, and a 24.6% decrease in linked quarter nonperforming assets as a percentage of assets to 0.46%,” stated Lee R. Gibson, President and Chief Executive Officer of Southside.  “The strong loan growth resulted from a combination of closing and funding several loans that had been in our pipeline for some time and a slowdown in large prepayments.”

“The ten basis point increase in the net interest margin and spread on a linked quarter basis was due to an increase in average loans as a percent of earning assets and in part to a nonrecurring loss on a fair value hedge interest rate swap of $507,000 recorded in net interest income during the first quarter.  We expect loan revenue during the third quarter will benefit from the full impact of the loan growth that we experienced during the second quarter.  During the second quarter, we recorded approximately $2.5 million in provision expense, of which approximately $1.3 million was directly related to the second quarter loan growth.  Economic conditions in our East Texas markets continue to be good while economic conditions in our DFW and Austin markets remain strong.”

“I’m also pleased to share that we are preparing to expand our footprint.  On July 23, 2019, we filed for regulatory approval to open a retail in-store branch in Kingwood, Texas, located in Montgomery County.  Kingwood is a community located northeast of Houston, approximately 15 miles south of our Splendora branch.  We anticipate opening this new location in November 2019 pending regulatory approval.”

Operating Results for the Three Months Ended June 30, 2019

Net income was $18.6 million for the three months ended June 30, 2019 compared with $20.2 million for the same period in 2018, a decrease of $1.6 million, or 7.9%.  Net income per diluted common share was $0.55 for the three months ended June 30, 2019 compared with $0.57 for the same period in 2018, a decrease of 3.5%.  The decrease in net income was largely driven by the increase in provision for loan losses, noninterest expense and income tax expense, partially offset by an increase in noninterest income.  Annualized returns on average assets and average shareholders’ equity for the three months ended June 30, 2019 were 1.20% and 9.68%, respectively.  Our efficiency ratio (FTE) was 51.44% (1) for the three months ended June 30, 2019, an improvement from 53.66% for the three months ended March 31, 2019.

Net interest income before provision for loan losses for the three months ended June 30, 2019 and 2018 was $43.1 million.  Linked quarter, net interest income before provision for loan losses increased $2.0 million, or 4.9%, to $43.1 million, compared with $41.1 million during the three months ended March 31, 2019.  The increase in net interest income for the linked quarter was due to the increase in interest income on our interest earning assets, primarily a result of the mix in our earning assets during the second quarter ended June 30, 2019.

Our tax equivalent net interest margin was 3.17% for the three months ended June 30, 2019 compared with 3.19% for the same period in 2018.  The decrease was primarily due to the higher rates paid on interest bearing liabilities.  Our tax equivalent net interest margin increased 10 basis points when compared to 3.07% for the three months ended March 31, 2019.  This increase was due to an increase in average loans as a percent of earning assets and in part to a nonrecurring loss on a fair value hedge interest rate swap of $507,000 recorded in net interest income during the first quarter.

Noninterest income was $11.3 million for the three months ended June 30, 2019, an increase compared with $11.0 million for the same period in 2018.  The increase was primarily due to a net gain on sale of securities, an increase in deposit services income and other noninterest income, partially offset by decreases in bank owned life insurance income and trust fees.  On a linked quarter basis, noninterest income increased $1.7 million, or 18.0%, primarily due to an increase in deposit services income, an increase in net gain on sale of securities, an increase in swap fee income and a nonrecurring partial loss on fair value hedge interest rate swaps during the first quarter of 2019.

Noninterest expense was $29.7 million for the three months ended June 30, 2019 compared with $29.3 million for the same period in 2018, an increase of $0.4 million, or 1.5%.  The increase was primarily due to an increase in salaries and employee benefits and other noninterest expense, partially offset by the decrease in acquisition expense.  On a linked quarter basis, noninterest expense increased $0.1 million, or 0.2%, compared with the three months ended March 31, 2019.

Income tax expense increased $0.2 million for the three months ended June 30, 2019 compared to the same period in 2018.  On a linked quarter basis, income tax expense increased $0.4 million.  Our effective tax rate (“ETR”) increased to 16.1% for the three months ended June 30, 2019 compared to 14.3% for the three months ended March 31, 2019 and June 30, 2018.  The higher ETR for the period was primarily due to a decrease in tax-exempt income as a percentage of pre-tax income.

Operating Results for the Six Months Ended June 30, 2019

Net income was $37.4 million for the six months ended June 30, 2019 compared with $36.5 million for the same period in 2018, an increase of $1.0 million, or 2.7%.  Net income per diluted common share was $1.11 for the six months ended June 30, 2019 compared with $1.04 for the same period in 2018, an increase of 6.7%.  The increase in net income was largely driven by the increase in interest income, as well as the decrease in provision for loan losses and noninterest expense, partially offset by an increase in interest expense and income tax expense.  Annualized returns on average assets and average shareholders’ equity for the six months ended June 30, 2019 were 1.20% and 10.00%, respectively.  Our efficiency ratio (FTE) was 52.53% (1) for the six months ended June 30, 2019.

Net interest income before provision for loan losses for the six months ended June 30, 2019 was $84.3 million compared with $87.2 million during the same period in 2018, a decrease of $3.0 million, or 3.4%.  The decrease in net interest income was due to higher funding costs of our interest bearing liabilities partially offset by the increase in interest income on our interest earning assets, a result of higher rates and a shift in the mix of earning assets.

Our tax equivalent net interest margin was 3.12% for the six months ended June 30, 2019 compared with 3.19% for the same period in 2018.  The decrease was primarily due to the higher rates paid on interest bearing liabilities.

Noninterest income was $20.8 million for the six months ended June 30, 2019, a slight increase compared with $20.6 million for the same period in 2018.  The increase was primarily due to a net gain on sale of securities and an increase in deposit services income, partially offset by decreases in bank owned life insurance, trust fees and other noninterest income.

Noninterest expense was $59.3 million for the six months ended June 30, 2019 compared with $60.9 million for the same period in 2018, a decrease of $1.6 million, or 2.6%.  The decrease was primarily due to a decrease in acquisition expense, net occupancy expense and amortization of intangibles, partially offset by increases in salaries and employee benefits, professional fees and software and data processing expense.

Income tax expense increased $1.3 million for the six months ended June 30, 2019 compared to the same period in 2018.  Our ETR was approximately 15.2% and 13.0% for the six months ended June 30, 2019 and 2018, respectively.

Balance Sheet Data

At June 30, 2019, we had $6.37 billion in total assets compared with $6.12 billion at December 31, 2018 and $6.22 billion at March 31, 2019.

Loans at June 30, 2019 were $3.46 billion, an increase of $147.3 million, or 4.4%, compared with $3.31 billion at December 31, 2018.  Linked quarter loans increased $155.0 million, or 4.7%, from $3.31 billion at March 31, 2019.  The linked quarter net increase in our loans consisted of increases of $146.9 million of commercial real estate loans, $21.5 million of commercial loans, $14.0 million of municipal loans and $0.6 million of loans to individuals, partially offset by decreases of $23.8 million of construction loans and $4.1 million of 1-4 family residential loans.

Securities at June 30, 2019 were $2.24 billion, an increase of $83.5 million, or 3.9%, compared with $2.15 billion at December 31, 2018.  Linked quarter securities increased $212.2 million, or 10.5%, from $2.02 billion at March 31, 2019.

Deposits at June 30, 2019 were $4.48 billion, an increase of $54.2 million, or 1.2%, compared with $4.43 billion at December 31, 2018.  Linked quarter deposits decreased $88.6 million, or 1.9%, from $4.57 billion at March 31, 2019 primarily due to a decrease in brokered and public fund deposits.

Asset Quality

Nonperforming assets at June 30, 2019 were $29.4 million, or 0.46% of total assets, a decrease of $13.5 million, or 31.6%, compared to $42.9 million, or 0.70% of total assets, at December 31, 2018, and $38.1 million, or 0.61% of total assets, at March 31, 2019.  During the three months ended June 30, 2019, our nonaccrual loans decreased $1.3 million and our accruing loans past due more than 90 days decreased $7.9 million due to one commercial real estate loan relationship that paid in full.

The allowance for loan losses at June 30, 2019 was $24.7 million, or 0.71% of total loans, compared to $27.0 million, or 0.82% of total loans at December 31, 2018, and $24.2 million, or 0.73% of total loans at March 31, 2019.  The increase in the allowance for the linked quarter was primarily the result of growth in the loan portfolio.

For the three months ended June 30, 2019, we recorded provision for loan losses of $2.5 million compared with a $1.3 million provision expense for the three months ended June 30, 2018 and a partial reversal of provision of $0.9 million for the three months ended March 31, 2019.  The provision for loan losses for the six months ended June 30, 2019 was $1.6 million compared with $5.0 million for the six months ended June 30, 2018.

Net charge-offs were $2.0 million for the three months ended June 30, 2019 compared with $0.4 million for the three months ended June 30, 2018 and $1.9 million for the three months ended March 31, 2019.  Net charge-offs for the second quarter of 2019 were primarily related to a previously reserved write-down on a large nonaccrual commercial real estate loan.  Net charge-offs were $3.9 million for the six months ended June 30, 2019 compared with $0.7 million for the six months ended June 30, 2018.

Dividend

Southside Bancshares, Inc. declared a second quarter cash dividend of $0.31 per share on May 9, 2019, which was paid on June 6, 2019, to all shareholders of record as of May 23, 2019.

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(1)  Refer to the “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

Conference Call

Southside's management team will host a conference call to discuss its second quarter ended June 30, 2019 financial results on Friday, July 26, 2019 at 9:00 a.m. CDT.  The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 9381487 or by identifying “Southside Bancshares, Inc., Second Quarter 2019 Earnings Call.”  To listen to the call via webcast, register at http://investors.southside.com.

For those unable to listen to the conference call live, a recording will be available from approximately 12:00 p.m. CDT July 26, 2019 through August 7, 2019 by accessing the company website, http://investors.southside.com.

Non-GAAP Financial Measures

Our accounting and reporting policies conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry.  However, certain non-GAAP measures are used by management to supplement the evaluation of our performance.  These include the following fully taxable-equivalent measures (“FTE”): (i) Net interest income (FTE), (ii) Net interest margin (FTE), (iii) Net interest spread (FTE), and (iv) Efficiency ratio (FTE), which include the effects of taxable-equivalent adjustments using a federal income tax rate of 21% for the six months ended June 30, 2019 and 2018 to increase tax-exempt interest income to a tax-equivalent basis.  Interest income earned on certain assets is completely or partially exempt from federal income tax.  As such, these tax-exempt instruments typically yield lower returns than taxable investments.

Net interest income (FTE), Net interest margin (FTE) and Net interest spread (FTE).  Net interest income (FTE) is a non-GAAP measure that adjusts for the tax-favored status of net interest income from certain loans and investments.  We believe this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources.  The most directly comparable financial measure calculated in accordance with GAAP is our net interest income.  Net interest margin (FTE) is the ratio of net interest income (FTE) to average earning assets.  The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin.  Net interest spread (FTE) is the difference in the average yield on average earning assets on a tax-equivalent basis and the average rate paid on average interest bearing liabilities.  The most directly comparable financial measure calculated in accordance with GAAP is our net interest spread.

Efficiency ratio (FTE).  The efficiency ratio (FTE) is a non-GAAP measure that provides a measure of productivity in the banking industry.  This ratio is calculated to measure the cost of generating one dollar of revenue.  The ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue.  We calculate this ratio by dividing noninterest expense, excluding amortization expense on intangibles and certain nonrecurring expense by the sum of net interest income (FTE) and noninterest income, excluding net gain (loss) on sale of securities available for sale and certain nonrecurring impairments.  The most directly comparable financial measure calculated in accordance with GAAP is our efficiency ratio.

These non-GAAP financial measures should not be considered alternatives to GAAP-basis financial statements and other bank holding companies may define or calculate these non-GAAP measures or similar measures differently.  Whenever we present a non-GAAP financial measure in an SEC filing, we are also required to present the most directly comparable financial measure calculated and presented in accordance with GAAP and reconcile the differences between the non-GAAP financial measure and such comparable GAAP measure.

Management believes adjusting net interest income, net interest margin and net interest spread to a fully taxable-equivalent basis is a standard practice in the banking industry as these measures provide useful information to make peer comparisons. Tax-equivalent adjustments are reflected in the respective earning asset categories as listed in the “Average Balances with Average Yields and Rates” tables.

A reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures is included at the end of the financial statement tables.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $6.37 billion in assets as of June 30, 2019, that owns 100% of Southside Bank.  Southside Bank currently has 59 branches in Texas and operates a network of 81 ATMs/ITMs.

To learn more about Southside Bancshares, Inc., please visit our investor relations website at www.southside.com/about/investor-relations.  Our investor relations site provides a detailed overview of our activities, financial information and historical stock price data.  To receive e-mail notification of company news, events and stock activity, please register on the E-mail Notification portion of the website.  Questions or comments may be directed to Lindsey Bibby at (903) 630-7965, or [email protected].

Forward-Looking Statements

Certain statements of other than historical fact that are contained in this press release and in other written material, documents and oral statements issued by or on behalf of the Company may be considered to be “forward-looking statements” within the meaning of and subject to the safe harbor protections of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date.  These statements may include words such as “expect,” “estimate,” “project,” “anticipate,” “appear,” “believe,” “could,” “should,” “may,” “likely,” “intend,” “probability,” “risk,” “target,” “objective,” “plans,” “potential,” and similar expressions.  Forward-looking statements are statements with respect to the Company’s beliefs, plans, expectations, objectives, goals, anticipations, assumptions and estimates about the Company's future performance and are subject to significant known and unknown risks and uncertainties, which could cause the Company's actual results to differ materially from the results discussed in the forward-looking statements.  For example, discussions about trends in asset quality, capital, liquidity, the pace of loan and revenue growth, the Company's ability to sell nonperforming assets, expense reductions, planned operational efficiencies, earnings, successful integration of completed acquisitions and certain market risk disclosures, including the impact of interest rates, tax reform and other economic factors, are based upon information presently available to management and are dependent on choices about key model characteristics and assumptions and are subject to various limitations.  By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future.

Additional information concerning the Company and its business, including additional factors that could materially affect the Company’s financial results, is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, under “Part I - Item 1. Forward Looking Information” and "Part I - Item 1A. Risk Factors" and in the Company’s other filings with the Securities and Exchange Commission.  The Company disclaims any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.


 As of
 2019 2018
 June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
ASSETS         
Cash and due from banks$77,319  $81,981  $87,375  $85,103  $78,534 
Interest earning deposits54,642  184,612  23,884  70,685  138,685 
Federal funds sold560  3,350  9,460  18,284  14,850 
Securities available for sale, at estimated fair value2,088,787  1,876,255  1,989,436  1,939,277  2,037,994 
Securities held to maturity, at carrying value147,091  147,431  162,931  163,365  164,276 
Total securities2,235,878  2,023,686  2,152,367  2,102,642  2,202,270 
Federal Home Loan Bank stock, at cost44,718  35,269  32,583  32,291  42,994 
Loans held for sale1,812  384  601  954  4,566 
Loans3,460,143  3,305,110  3,312,799  3,274,524  3,270,883 
Less: Allowance for loan losses(24,705) (24,155) (27,019) (26,092) (25,072)
Net loans3,435,438  3,280,955  3,285,780  3,248,432  3,245,811 
Premises & equipment, net140,105  138,290  135,972  133,939  132,578 
Goodwill201,116  201,116  201,116  201,116  201,246 
Other intangible assets, net15,471  16,600  17,779  19,009  20,287 
Bank owned life insurance99,294  98,704  98,160  97,611  97,059 
Other assets66,517  152,249  78,417  95,288  71,293 
Total assets$6,372,870  $6,217,196  $6,123,494  $6,105,354  $6,250,173 
          
LIABILITIES AND SHAREHOLDERS' EQUITY         
Noninterest bearing deposits$1,028,861  $1,038,116  $994,680  $1,033,572  $1,038,907 
Interest bearing deposits3,450,395  3,529,777  3,430,350  3,519,940  3,469,834 
Total deposits4,479,256  4,567,893  4,425,030  4,553,512  4,508,741 
Other borrowings and Federal Home Loan Bank borrowings849,821  628,498  755,875  570,242  784,754 
Subordinated notes, net of unamortized debt
issuance costs
98,490  98,448  98,407  98,366  98,326 
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,248  60,247  60,246  60,244  60,243 
Other liabilities97,290  104,077  52,645  70,484  46,299 
Total liabilities5,585,105  5,459,163  5,392,203  5,352,848  5,498,363 
Shareholders' equity787,765  758,033  731,291  752,506  751,810 
Total liabilities and shareholders' equity$6,372,870  $6,217,196  $6,123,494  $6,105,354  $6,250,173 


 Three Months Ended
 2019 2018
 June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
Income Statement:         
Total interest income$60,672  $59,027  $58,022  $57,152  $56,797 
Total interest expense17,541  17,902  15,612  14,742  13,686 
Net interest income43,131  41,125  42,410  42,410  43,111 
Provision for loan losses2,506  (918) 2,446  975  1,281 
Net interest income after provision for loan losses40,625  42,043  39,964  41,435  41,830 
Noninterest income         
Deposit services6,652  5,986  6,325  6,317  6,261 
Net gain (loss) on sale of securities available for sale416  256  61  (741) (332)
Gain on sale of loans181  93  101  303  173 
Trust fees1,520  1,541  1,573  1,568  1,931 
Bank owned life insurance559  544  554  552  1,185 
Brokerage services477  517  499  532  506 
Other1,449  601  1,021  1,491  1,283 
Total noninterest income11,254  9,538  10,134  10,022  11,007 
Noninterest expense         
Salaries and employee benefits17,891  18,046  17,823  17,628  16,633 
Net occupancy3,289  3,175  3,475  3,396  3,360 
Acquisition expense    118  437  1,026 
Advertising, travel & entertainment733  847  786  648  775 
ATM expense246  180  250  251  243 
Professional fees1,069  1,314  1,189  824  952 
Software and data processing1,086  1,076  1,057  977  939 
Communications489  487  477  354  478 
FDIC insurance437  422  455  435  484 
Amortization of intangibles1,129  1,179  1,228  1,279  1,328 
Other3,331  2,901  3,338  2,733  3,056 
Total noninterest expense29,700  29,627  30,196  28,962  29,274 
Income before income tax expense22,179  21,954  19,902  22,495  23,563 
Income tax expense3,569  3,137  2,521  2,192  3,360 
Net income$18,610  $18,817  $17,381  $20,303  $20,203 
          
Common share data:   
Weighted-average basic shares outstanding33,726  33,697  34,611  35,114  35,062 
Weighted-average diluted shares outstanding33,876  33,846  34,748  35,288  35,233 
Common shares outstanding end of period33,749  33,718  33,725  35,160  35,084 
Net income per common share         
Basic$0.55  $0.56  $0.50  $0.58  $0.58 
Diluted0.55  0.56  0.50  0.58  0.57 
Book value per common share23.34  22.48  21.68  21.40  21.43 
Tangible book value per common share (1)16.92  16.02  15.19  15.14  15.11 
Cash dividends paid per common share0.31  0.30  0.32  0.30  0.30 
          
Selected Performance Ratios:         
Return on average assets1.20% 1.21% 1.14% 1.30% 1.30%
Return on average shareholders’ equity9.68  10.35  9.30  10.61  10.79 
Return on average tangible common equity (1)14.12  15.44  13.95  15.70  16.13 
Average yield on earning assets (FTE) (1)4.42  4.33  4.32  4.18  4.15 
Average rate on interest bearing liabilities1.61  1.62  1.46  1.36  1.25 
Net interest spread (FTE) (1)2.81  2.71  2.86  2.82  2.90 
Net interest margin (FTE) (1)3.17  3.07  3.21  3.14  3.19 
Average earning assets to average interest bearing liabilities128.99  127.70  131.07  131.12  130.22 
Noninterest expense to average total assets1.91  1.91  1.98  1.86  1.89 
Efficiency ratio (FTE) (1)51.44  53.66  52.18  48.91  47.56 
  1. Refer to the “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.
 Three Months Ended
 2019 2018
 June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
Nonperforming assets:$29,363  $38,111  $42,906  $39,638  $42,423 
Nonaccrual loans (1)16,376  17,691  35,770  32,526  35,351 
Accruing loans past due more than 90 days (1)  7,927      7 
Restructured loans (2)11,918  11,490  5,930  5,699  5,860 
Other real estate owned1,069  978  1,206  1,413  1,137 
Repossessed assets  25      68 
          
Asset Quality Ratios:         
Nonaccruing loans to total loans0.47% 0.54% 1.08% 0.99% 1.08%
Allowance for loan losses to nonaccruing loans150.86  136.54  75.54  80.22  70.92 
Allowance for loan losses to nonperforming assets84.14  63.38  62.97  65.83  59.10 
Allowance for loan losses to total loans0.71  0.73  0.82  0.80  0.77 
Nonperforming assets to total assets0.46  0.61  0.70  0.65  0.68 
Net charge-offs (recoveries) to average loans0.23  0.24  0.18  (0.01) 0.05 
          
Capital Ratios:         
Shareholders’ equity to total assets12.36  12.19  11.94  12.33  12.03 
Common equity tier 1 capital14.02  14.38  14.77  15.90  15.49 
Tier 1 risk-based capital15.46  15.88  16.29  17.43  17.02 
Total risk-based capital18.52  19.06  19.59  20.75  20.31 
Tier 1 leverage capital10.48  10.18  10.64  11.06  10.76 
Period end tangible equity to period end tangible assets (3)9.28  9.01  8.68  9.05  8.80 
Average shareholders’ equity to average total assets12.36  11.70  12.23  12.28  12.06 
  1. Excludes purchased credit impaired ("PCI") loans measured at fair value at acquisition if the timing and amount of cash flows expected to be collected from those sales can be reasonably estimated.
  2. Includes $0.8 million, $0.7 million, $3.1 million, $3.2 million and $2.9 million in PCI loans restructured as of June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018, and June 30, 2018, respectively.
  3. Refer to the “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

Loan Portfolio Composition

The following table sets forth loan totals by category for the periods presented (in thousands):

 Three Months Ended
 2019 2018
 June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
Real Estate Loans:         
Construction$579,565  $603,411  $507,732  $484,254  $487,286 
1-4 Family Residential782,073  786,198  794,499  791,274  791,359 
Commercial1,251,248  1,104,378  1,194,118  1,218,714  1,245,936 
Commercial Loans389,521  367,995  356,649  322,873  282,723 
Municipal Loans357,028  343,026  353,370  344,792  345,595 
Loans to Individuals100,708  100,102  106,431  112,617  117,984 
Total Loans$3,460,143  $3,305,110  $3,312,799  $3,274,524  $3,270,883 


 Six Months Ended
 2019 2018
 June 30, June 30,
Income Statement:   
Total interest income$119,699  $113,991 
Total interest expense35,443  26,747 
Net interest income84,256  87,244 
Provision for loan losses1,588  5,016 
Net interest income after provision for loan losses82,668  82,228 
Noninterest income   
Deposit services12,638  12,440 
Net gain (loss) on sale of securities available for sale672  (1,159)
Gain on sale of loans274  288 
Trust fees3,061  3,691 
Bank owned life insurance1,103  1,817 
Brokerage services994  956 
Other2,050  2,584 
Total noninterest income20,792  20,617 
Noninterest expense   
Salaries and employee benefits35,937  35,192 
Net occupancy6,464  6,943 
Acquisition expense  1,858 
Advertising, travel & entertainment1,580  1,460 
ATM expense426  589 
Professional fees2,383  2,022 
Software and data processing2,162  1,962 
Communications976  1,016 
FDIC insurance859  981 
Amortization of intangibles2,308  2,706 
Other6,232  6,212 
Total noninterest expense59,327  60,941 
Income before income tax expense44,133  41,904 
Income tax expense6,706  5,450 
Net income$37,427  $36,454 
    
Common share data:   
Weighted-average basic shares outstanding33,711  35,042 
Weighted-average diluted shares outstanding33,862  35,217 
Common shares outstanding end of period33,749  35,084 
Net income per common share   
Basic$1.11  $1.04 
Diluted1.11  1.04 
Book value per common share23.34  21.43 
Tangible book value per common share (1)16.92  15.11 
Cash dividends paid per common share0.61  0.58 
    
Selected Performance Ratios:   
Return on average assets1.20% 1.16%
Return on average shareholders’ equity10.00  9.77 
Return on average tangible common equity (1)14.75  14.71 
Average yield on earning assets (FTE) (1)4.37  4.12 
Average rate on interest bearing liabilities1.61  1.20 
Net interest spread (FTE) (1)2.76  2.92 
Net interest margin (FTE) (1)3.12  3.19 
Average earning assets to average interest bearing liabilities128.34  128.72 
Noninterest expense to average total assets1.91  1.94 
Efficiency ratio (FTE) (1)52.53  49.43 
  1. Refer to the “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.
 Six Months Ended
 2019 2018
 June 30, June 30,
Nonperforming assets:$29,363  $42,423 
Nonaccrual loans (1)16,376  35,351 
Accruing loans past due more than 90 days (1)  7 
Restructured loans (2)11,918  5,860 
Other real estate owned1,069  1,137 
Repossessed assets  68 
    
Asset Quality Ratios:   
Nonaccruing loans to total loans0.47% 1.08%
Allowance for loan losses to nonaccruing loans150.86  70.92 
Allowance for loan losses to nonperforming assets84.14  59.10 
Allowance for loan losses to total loans0.71  0.77 
Nonperforming assets to total assets0.46  0.68 
Net charge-offs (recoveries) to average loans0.24  0.04 
    
Capital Ratios:   
Shareholders’ equity to total assets12.36  12.03 
Common equity tier 1 capital14.02  15.49 
Tier 1 risk-based capital15.46  17.02 
Total risk-based capital18.52  20.31 
Tier 1 leverage capital10.48  10.76 
Period end tangible equity to period end tangible assets (3)9.28  8.80 
Average shareholders’ equity to average total assets12.03  11.88 
  1. Excludes PCI loans measured at fair value at acquisition if the timing and amount of cash flows expected to be collected from those sales can be reasonably estimated.
  2. Includes $0.8 million and $2.9 million in PCI loans restructured as of June 30, 2019 and June 30, 2018, respectively.
  3. Refer to the “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

The tables that follow show average earning assets and interest bearing liabilities together with the average yield on the earning assets and the average rate of the interest bearing liabilities for the periods presented.  The interest and related yields presented are on a fully taxable-equivalent basis and are therefore non-GAAP measures.  See “Non-GAAP Financial Measures” and “Non-GAAP Reconciliation” for more information.

 Three Months Ended
 June 30, 2019 March 31, 2019
 Avg Balance Interest Avg Yield/Rate Avg Balance Interest Avg Yield/Rate
ASSETS           
Loans (1)$3,387,323  $43,559  5.16% $3,296,665  $42,210  5.19%
Loans held for sale1,965  21  4.29% 611  7  4.65%
Securities:           
Taxable investment securities (2)3,000  27  3.61% 3,000  28  3.79%
Tax-exempt investment securities (2)459,996  4,513  3.94% 659,187  5,732  3.53%
Mortgage-backed and related securities (2)1,680,109  13,246  3.16% 1,647,564  12,474  3.07%
Total securities2,143,105  17,786  3.33% 2,309,751  18,234  3.20%
Federal Home Loan Bank stock, at cost, and equity investments52,311  440  3.37% 53,764  355  2.68%
Interest earning deposits66,017  411  2.50% 64,690  386  2.42%
Federal funds sold3,365  39  4.65% 7,635  47  2.50%
Total earning assets5,654,086  62,256  4.42% 5,733,116  61,239  4.33%
Cash and due from banks78,757      83,147     
Accrued interest and other assets534,835      513,738     
Less: Allowance for loan losses(24,838)     (27,060)    
Total assets$6,242,840      $6,302,941     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings accounts$365,205  262  0.29% $360,664  258  0.29%
Certificates of deposits1,119,464  5,861  2.10% 1,154,203  5,697  2.00%
Interest bearing demand accounts1,969,593  5,334  1.09% 1,982,891  5,286  1.08%
Total interest bearing deposits3,454,262  11,457  1.33% 3,497,758  11,241  1.30%
Federal Home Loan Bank borrowings755,748  3,899  2.07% 816,389  4,457  2.21%
Subordinated notes, net of unamortized debt issuance costs98,469  1,410  5.74% 98,428  1,400  5.77%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,247  718  4.78% 60,246  729  4.91%
Other borrowings14,530  57  1.57% 16,788  75  1.81%
Total interest bearing liabilities4,383,256  17,541  1.61% 4,489,609  17,902  1.62%
Noninterest bearing deposits1,014,746      986,343     
Accrued expenses and other liabilities73,494      89,768     
Total liabilities5,471,496      5,565,720     
Shareholders’ equity771,344      737,221     
Total liabilities and shareholders’ equity$6,242,840      $6,302,941     
Net interest income (FTE)  $44,715      $43,337   
Net interest margin (FTE)    3.17%     3.07%
Net interest spread (FTE)    2.81%     2.71%
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note:  As of June 30, 2019 and March 31, 2019, loans totaling $16.4 million and $17.7 million, respectively, were on nonaccrual status.  Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

 Three Months Ended
 December 31, 2018 September 30, 2018
 Avg Balance Interest Avg Yield/Rate Avg Balance Interest Avg Yield/Rate
ASSETS           
Loans (1)$3,289,840  $41,320  4.98% $3,286,664  $40,396  4.88%
Loans held for sale633  8  5.01% 1,841  25  5.39%
Securities:           
Taxable investment securities (2)13,066  103  3.13% 4,285  36  3.33%
Tax-exempt investment securities (2)722,162  7,828  4.30% 795,397  8,132  4.06%
Mortgage-backed and related securities (2)1,434,982  10,394  2.87% 1,418,114  10,086  2.82%
Total securities2,170,210  18,325  3.35% 2,217,796  18,254  3.27%
Federal Home Loan Bank stock, at cost, and equity investments44,304  393  3.52% 54,216  377  2.76%
Interest earning deposits36,098  411  4.52% 77,977  414  2.11%
Federal funds sold16,967  97  2.27% 16,072  77  1.90%
Total earning assets5,558,052  60,554  4.32% 5,654,566  59,543  4.18%
Cash and due from banks79,544      78,623     
Accrued interest and other assets452,257      477,737     
Less: Allowance for loan losses(26,231)     (25,646)    
Total assets$6,063,622      $6,185,280     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings accounts$361,407  257  0.28% $362,405  258  0.28%
Certificates of deposit1,123,101  5,170  1.83% 1,173,672  4,744  1.60%
Interest bearing demand accounts1,968,786  4,908  0.99% 1,953,904  4,495  0.91%
Total interest bearing deposits3,453,294  10,335  1.19% 3,489,981  9,497  1.08%
Federal Home Loan Bank borrowings612,134  3,066  1.99% 654,153  3,108  1.88%
Subordinated notes, net of unamortized debt issuance costs98,385  1,431  5.77% 98,346  1,423  5.74%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,245  699  4.60% 60,244  684  4.50%
Other borrowings16,405  81  1.96% 9,651  30  1.23%
Total interest bearing liabilities4,240,463  15,612  1.46% 4,312,375  14,742  1.36%
Noninterest bearing deposits1,034,556      1,064,797     
Accrued expenses and other liabilities47,234      48,699     
Total liabilities5,322,253      5,425,871     
Shareholders’ equity741,369      759,409     
Total liabilities and shareholders’ equity$6,063,622      $6,185,280     
Net interest income (FTE)  $44,942      $44,801   
Net interest margin (FTE)    3.21%     3.14%
Net interest spread (FTE)    2.86%     2.82%
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note: As of December 31, 2018 and September 30, 2018, loans totaling $35.8 million and $32.5 million, respectively, were on nonaccrual status.  Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

 Three Months Ended
 June 30, 2018
 Avg Balance Interest Avg Yield/Rate
ASSETS     
Loans (1)$3,285,756  $39,865  4.87%
Loans held for sale1,794  19  4.25%
Securities:     
Taxable investment securities (2)6,891  51  2.97%
Tax-exempt investment securities (2)802,611  8,004  4.00%
Mortgage-backed and related securities (2)1,439,810  10,210  2.84%
Total securities2,249,312  18,265  3.26%
Federal Home Loan Bank stock, at cost, and equity investments54,729  411  3.01%
Interest earning deposits92,291  400  1.74%
Federal funds sold16,251  71  1.75%
Total earning assets5,700,133  59,031  4.15%
Cash and due from banks75,560     
Accrued interest and other assets473,142     
Less: Allowance for loan losses(24,558)    
Total assets$6,224,277     
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Savings accounts$360,340  208  0.23%
Certificates of deposit1,175,230  4,303  1.47%
Interest bearing demand accounts1,981,427  4,070  0.82%
Total interest bearing deposits3,516,997  8,581  0.98%
Federal Home Loan Bank borrowings692,386  3,007  1.74%
Subordinated notes, net of unamortized debt issuance costs98,306  1,407  5.74%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,243  658  4.38%
Other borrowings9,283  33  1.43%
Total interest bearing liabilities4,377,215  13,686  1.25%
Noninterest bearing deposits1,045,298     
Accrued expenses and other liabilities50,843     
Total liabilities5,473,356     
Shareholders’ equity750,921     
Total liabilities and shareholders’ equity$6,224,277     
Net interest income (FTE)  $45,345   
Net interest margin (FTE)    3.19%
Net interest spread (FTE)    2.90%
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note: As of June 30, 2018, loans totaling $35.4 million were on nonaccrual status.  Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

 Six Months Ended
 June 30, 2019 June 30, 2018
 Avg Balance Interest Avg Yield/Rate Avg Balance Interest Avg Yield/Rate
ASSETS           
Loans (1)$3,342,244  $85,769  5.17% $3,293,090  $79,266  4.85%
Loans held for sale1,292  28  4.37% 1,669  30  3.62%
Securities:           
Investment securities (taxable) (2)3,000  55  3.70% 23,022  278  2.44%
Investment securities (tax-exempt) (2)559,041  10,245  3.70% 803,844  16,004  4.01%
Mortgage-backed and related securities (2)1,663,926  25,720  3.12% 1,498,151  21,104  2.84%
Total securities2,225,967  36,020  3.26% 2,325,017  37,386  3.24%
Federal Home Loan Bank stock, at cost, and other investments53,034  795  3.02% 60,831  825  2.73%
Interest earning deposits65,357  797  2.46% 99,848  799  1.61%
Federal funds sold5,489  86  3.16% 14,759  120  1.64%
Total earning assets5,693,383  123,495  4.37% 5,795,214  118,426  4.12%
Cash and due from banks80,940      76,789     
Accrued interest and other assets523,926      483,086     
Less: Allowance for loan losses(25,943)     (22,791)    
Total assets$6,272,306      $6,332,298     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings deposits$362,947  520  0.29% $357,073  392  0.22%
Time deposits1,136,738  11,558  2.05% 1,172,658  8,198  1.41%
Interest bearing demand deposits1,976,205  10,620  1.08% 1,995,214  7,442  0.75%
Total interest bearing deposits3,475,890  22,698  1.32% 3,524,945  16,032  0.92%
Federal Home Loan Bank borrowings785,901  8,356  2.14% 809,879  6,639  1.65%
Subordinated notes, net of unamortized debt issuance costs98,448  2,810  5.76% 98,287  2,805  5.76%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,247  1,447  4.84% 60,242  1,227  4.11%
Other borrowings15,653  132  1.70% 8,696  44  1.02%
Total interest bearing liabilities4,436,139  35,443  1.61% 4,502,049  26,747  1.20%
Noninterest bearing deposits1,000,623      1,031,065     
Accrued expenses and other liabilities81,167      47,034     
Total liabilities5,517,929      5,580,148     
Shareholders’ equity754,377      752,150     
Total liabilities and shareholders’ equity$6,272,306      $6,332,298     
Net interest income (FTE)  $88,052      $91,679   
Net interest margin on average earning assets (FTE)    3.12%     3.19%
Net interest spread (FTE)    2.76%     2.92%
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note:  As of June 30, 2019 and 2018, loans totaling $16.4 million and $35.4 million, respectively, were on nonaccrual status.  Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

The following tables set forth the reconciliation of return on average common equity to return on average tangible common equity, book value per share to tangible book value per share, net interest income to net interest income adjusted to a fully taxable-equivalent basis assuming a 21% marginal tax rate for interest earned on tax-exempt assets such as municipal loans and investment securities, along with the calculation of total revenue, adjusted noninterest expense, efficiency ratio (FTE), net interest margin (FTE) and net interest spread (FTE) for the applicable periods presented.

  Three Months Ended Six Months Ended
  2019 2018 2019 2018
  June 30, Mar. 31, Dec. 31, Sept. 30, June 30, June 30, June 30,
Reconciliation of return on average common equity to return on average tangible common equity:              
Net income $18,610  $18,817  $17,381  $20,303  $20,203  $37,427  $36,454 
After-tax amortization expense 892  931  970  1,010  1,049  1,823  2,138 
Adjusted net income available to common shareholders $19,502  $19,748  $18,351  $21,313  $21,252  $39,250  $38,592 
Average shareholders' equity $771,344  $737,221  $741,369  $759,409  $750,921  $754,377  $752,150 
Less: Average intangibles for the period (217,266) (218,438) (219,645) (220,956) (222,342) (217,849) (223,021)
Average tangible shareholders' equity $554,078  $518,783  $521,724  $538,453  $528,579  $536,528  $529,129 
Return on average tangible common equity 14.12% 15.44% 13.95% 15.70% 16.13% 14.75% 14.71%
Reconciliation of book value per share to tangible book value per share:              
Common equity at end of period $787,765  $758,033  $731,291  $752,506  $751,810  $787,765  $751,810 
Less: Intangible assets at end of period (216,587) (217,716) (218,895) (220,125) (221,533) (216,587) (221,533)
Tangible common shareholders' equity at end of period $571,178  $540,317  $512,396  $532,381  $530,277  $571,178  $530,277 
Total assets at end of period $6,372,870  $6,217,196  $6,123,494  $6,105,354  $6,250,173  $6,372,870  $6,250,173 
Less: Intangible assets at end of period (216,587) (217,716) (218,895) (220,125) (221,533) (216,587) (221,533)
Tangible assets at end of period $6,156,283  $5,999,480  $5,904,599  $5,885,229  $6,028,640  $6,156,283  $6,028,640 
Period end tangible equity to period end tangible assets 9.28% 9.01% 8.68% 9.05% 8.80% 9.28% 8.80%
Common shares outstanding end of period 33,749  33,718  33,725  35,160  35,084  33,749  35,084 
Tangible book value per common share $16.92  $16.02  $15.19  $15.14  $15.11  $16.92  $15.11 
Reconciliation of efficiency ratio to efficiency ratio (FTE), net interest margin to net interest margin (FTE) and net interest spread to net interest spread (FTE):              
Net interest income (GAAP) $43,131  $41,125  $42,410  $42,410  $43,111  $84,256  $87,244 
Tax equivalent adjustments:              
Loans 598  598  599  590  583  1,196  1,165 
Investment securities (tax-exempt) 986  1,614  1,933  1,801  1,651  2,600  3,270 
Net interest income (FTE) (1) 44,715  43,337  44,942  44,801  45,345  88,052  91,679 
Noninterest income 11,254  9,538  10,134  10,022  11,007  20,792  20,617 
Nonrecurring income (2) (557) 171  (66) 741  (304) (386) 523 
Total revenue $55,412  $53,046  $55,010  $55,564  $56,048  $108,458  $112,819 
Noninterest expense $29,700  $29,627  $30,196  $28,962  $29,274  $59,327  $60,941 
Pre-tax amortization expense (1,129) (1,179) (1,228) (1,279) (1,328) (2,308) (2,706)
Nonrecurring expense (3) (67) 18  (264) (507) (1,287) (49) (2,465)
Adjusted noninterest expense $28,504  $28,466  $28,704  $27,176  $26,659  $