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CST: 23/10/2019 13:45:52   

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

89 Days ago

  • 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.

_______________

(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 lindsey.bibby@southside.com.

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 deposits 54,642     184,612     23,884     70,685     138,685  
Federal funds sold 560     3,350     9,460     18,284     14,850  
Securities available for sale, at estimated fair value 2,088,787     1,876,255     1,989,436     1,939,277     2,037,994  
Securities held to maturity, at carrying value 147,091     147,431     162,931     163,365     164,276  
Total securities 2,235,878     2,023,686     2,152,367     2,102,642     2,202,270  
Federal Home Loan Bank stock, at cost 44,718     35,269     32,583     32,291     42,994  
Loans held for sale 1,812     384     601     954     4,566  
Loans 3,460,143     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 loans 3,435,438     3,280,955     3,285,780     3,248,432     3,245,811  
Premises & equipment, net 140,105     138,290     135,972     133,939     132,578  
Goodwill 201,116     201,116     201,116     201,116     201,246  
Other intangible assets, net 15,471     16,600     17,779     19,009     20,287  
Bank owned life insurance 99,294     98,704     98,160     97,611     97,059  
Other assets 66,517     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 deposits 3,450,395     3,529,777     3,430,350     3,519,940     3,469,834  
Total deposits 4,479,256     4,567,893     4,425,030     4,553,512     4,508,741  
Other borrowings and Federal Home Loan Bank borrowings 849,821     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 costs 60,248     60,247     60,246     60,244     60,243  
Other liabilities 97,290     104,077     52,645     70,484     46,299  
Total liabilities 5,585,105     5,459,163     5,392,203     5,352,848     5,498,363  
Shareholders' equity 787,765     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 expense 17,541     17,902     15,612     14,742     13,686  
Net interest income 43,131     41,125     42,410     42,410     43,111  
Provision for loan losses 2,506     (918 )   2,446     975     1,281  
Net interest income after provision for loan losses 40,625     42,043     39,964     41,435     41,830  
Noninterest income                  
Deposit services 6,652     5,986     6,325     6,317     6,261  
Net gain (loss) on sale of securities available for sale 416     256     61     (741 )   (332 )
Gain on sale of loans 181     93     101     303     173  
Trust fees 1,520     1,541     1,573     1,568     1,931  
Bank owned life insurance 559     544     554     552     1,185  
Brokerage services 477     517     499     532     506  
Other 1,449     601     1,021     1,491     1,283  
Total noninterest income 11,254     9,538     10,134     10,022     11,007  
Noninterest expense                  
Salaries and employee benefits 17,891     18,046     17,823     17,628     16,633  
Net occupancy 3,289     3,175     3,475     3,396     3,360  
Acquisition expense         118     437     1,026  
Advertising, travel & entertainment 733     847     786     648     775  
ATM expense 246     180     250     251     243  
Professional fees 1,069     1,314     1,189     824     952  
Software and data processing 1,086     1,076     1,057     977     939  
Communications 489     487     477     354     478  
FDIC insurance 437     422     455     435     484  
Amortization of intangibles 1,129     1,179     1,228     1,279     1,328  
Other 3,331     2,901     3,338     2,733     3,056  
Total noninterest expense 29,700     29,627     30,196     28,962     29,274  
Income before income tax expense 22,179     21,954     19,902     22,495     23,563  
Income tax expense 3,569     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 outstanding 33,726     33,697     34,611     35,114     35,062  
Weighted-average diluted shares outstanding 33,876     33,846     34,748     35,288     35,233  
Common shares outstanding end of period 33,749     33,718     33,725     35,160     35,084  
Net income per common share                  
Basic $ 0.55     $ 0.56     $ 0.50     $ 0.58     $ 0.58  
Diluted 0.55     0.56     0.50     0.58     0.57  
Book value per common share 23.34     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 share 0.31     0.30     0.32     0.30     0.30  
                   
Selected Performance Ratios:                  
Return on average assets 1.20 %   1.21 %   1.14 %   1.30 %   1.30 %
Return on average shareholders’ equity 9.68     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 liabilities 1.61     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 liabilities 128.99     127.70     131.07     131.12     130.22  
Noninterest expense to average total assets 1.91     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 owned 1,069     978     1,206     1,413     1,137  
Repossessed assets     25             68  
                   
Asset Quality Ratios:                  
Nonaccruing loans to total loans 0.47 %   0.54 %   1.08 %   0.99 %   1.08 %
Allowance for loan losses to nonaccruing loans 150.86     136.54     75.54     80.22     70.92  
Allowance for loan losses to nonperforming assets 84.14     63.38     62.97     65.83     59.10  
Allowance for loan losses to total loans 0.71     0.73     0.82     0.80     0.77  
Nonperforming assets to total assets 0.46     0.61     0.70     0.65     0.68  
Net charge-offs (recoveries) to average loans 0.23     0.24     0.18     (0.01 )   0.05  
                   
Capital Ratios:                  
Shareholders’ equity to total assets 12.36     12.19     11.94     12.33     12.03  
Common equity tier 1 capital 14.02     14.38     14.77     15.90     15.49  
Tier 1 risk-based capital 15.46     15.88     16.29     17.43     17.02  
Total risk-based capital 18.52     19.06     19.59     20.75     20.31  
Tier 1 leverage capital 10.48     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 assets 12.36     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 Residential 782,073     786,198     794,499     791,274     791,359  
Commercial 1,251,248     1,104,378     1,194,118     1,218,714     1,245,936  
Commercial Loans 389,521     367,995     356,649     322,873     282,723  
Municipal Loans 357,028     343,026     353,370     344,792     345,595  
Loans to Individuals 100,708     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 expense 35,443     26,747  
Net interest income 84,256     87,244  
Provision for loan losses 1,588     5,016  
Net interest income after provision for loan losses 82,668     82,228  
Noninterest income      
Deposit services 12,638     12,440  
Net gain (loss) on sale of securities available for sale 672     (1,159 )
Gain on sale of loans 274     288  
Trust fees 3,061     3,691  
Bank owned life insurance 1,103     1,817  
Brokerage services 994     956  
Other 2,050     2,584  
Total noninterest income 20,792     20,617  
Noninterest expense      
Salaries and employee benefits 35,937     35,192  
Net occupancy 6,464     6,943  
Acquisition expense     1,858  
Advertising, travel & entertainment 1,580     1,460  
ATM expense 426     589  
Professional fees 2,383     2,022  
Software and data processing 2,162     1,962  
Communications 976     1,016  
FDIC insurance 859     981  
Amortization of intangibles 2,308     2,706  
Other 6,232     6,212  
Total noninterest expense 59,327     60,941  
Income before income tax expense 44,133     41,904  
Income tax expense 6,706     5,450  
Net income $ 37,427     $ 36,454  
       
Common share data:      
Weighted-average basic shares outstanding 33,711     35,042  
Weighted-average diluted shares outstanding 33,862     35,217  
Common shares outstanding end of period 33,749     35,084  
Net income per common share      
Basic $ 1.11     $ 1.04  
Diluted 1.11     1.04  
Book value per common share 23.34     21.43  
Tangible book value per common share (1) 16.92     15.11  
Cash dividends paid per common share 0.61     0.58  
       
Selected Performance Ratios:      
Return on average assets 1.20 %   1.16 %
Return on average shareholders’ equity 10.00     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 liabilities 1.61     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 liabilities 128.34     128.72  
Noninterest expense to average total assets 1.91     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 owned 1,069     1,137  
Repossessed assets     68  
       
Asset Quality Ratios:      
Nonaccruing loans to total loans 0.47 %   1.08 %
Allowance for loan losses to nonaccruing loans 150.86     70.92  
Allowance for loan losses to nonperforming assets 84.14     59.10  
Allowance for loan losses to total loans 0.71     0.77  
Nonperforming assets to total assets 0.46     0.68  
Net charge-offs (recoveries) to average loans 0.24     0.04  
       
Capital Ratios:      
Shareholders’ equity to total assets 12.36     12.03  
Common equity tier 1 capital 14.02     15.49  
Tier 1 risk-based capital 15.46     17.02  
Total risk-based capital 18.52     20.31  
Tier 1 leverage capital 10.48     10.76  
Period end tangible equity to period end tangible assets (3) 9.28     8.80  
Average shareholders’ equity to average total assets 12.03     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 sale 1,965     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 securities 2,143,105     17,786     3.33 %   2,309,751     18,234     3.20 %
Federal Home Loan Bank stock, at cost, and equity investments 52,311     440     3.37 %   53,764     355     2.68 %
Interest earning deposits 66,017     411     2.50 %   64,690     386     2.42 %
Federal funds sold 3,365     39     4.65 %   7,635     47     2.50 %
Total earning assets 5,654,086     62,256     4.42 %   5,733,116     61,239     4.33 %
Cash and due from banks 78,757             83,147          
Accrued interest and other assets 534,835             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 deposits 1,119,464     5,861     2.10 %   1,154,203     5,697     2.00 %
Interest bearing demand accounts 1,969,593     5,334     1.09 %   1,982,891     5,286     1.08 %
Total interest bearing deposits 3,454,262     11,457     1.33 %   3,497,758     11,241     1.30 %
Federal Home Loan Bank borrowings 755,748     3,899     2.07 %   816,389     4,457     2.21 %
Subordinated notes, net of unamortized debt issuance costs 98,469     1,410     5.74 %   98,428     1,400     5.77 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,247     718     4.78 %   60,246     729     4.91 %
Other borrowings 14,530     57     1.57 %   16,788     75     1.81 %
Total interest bearing liabilities 4,383,256     17,541     1.61 %   4,489,609     17,902     1.62 %
Noninterest bearing deposits 1,014,746             986,343          
Accrued expenses and other liabilities 73,494             89,768          
Total liabilities 5,471,496             5,565,720          
Shareholders’ equity 771,344             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 sale 633     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 securities 2,170,210     18,325     3.35 %   2,217,796     18,254     3.27 %
Federal Home Loan Bank stock, at cost, and equity investments 44,304     393     3.52 %   54,216     377     2.76 %
Interest earning deposits 36,098     411     4.52 %   77,977     414     2.11 %
Federal funds sold 16,967     97     2.27 %   16,072     77     1.90 %
Total earning assets 5,558,052     60,554     4.32 %   5,654,566     59,543     4.18 %
Cash and due from banks 79,544             78,623          
Accrued interest and other assets 452,257             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 deposit 1,123,101     5,170     1.83 %   1,173,672     4,744     1.60 %
Interest bearing demand accounts 1,968,786     4,908     0.99 %   1,953,904     4,495     0.91 %
Total interest bearing deposits 3,453,294     10,335     1.19 %   3,489,981     9,497     1.08 %
Federal Home Loan Bank borrowings 612,134     3,066     1.99 %   654,153     3,108     1.88 %
Subordinated notes, net of unamortized debt issuance costs 98,385     1,431     5.77 %   98,346     1,423     5.74 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,245     699     4.60 %   60,244     684     4.50 %
Other borrowings 16,405     81     1.96 %   9,651     30     1.23 %
Total interest bearing liabilities 4,240,463     15,612     1.46 %   4,312,375     14,742     1.36 %
Noninterest bearing deposits 1,034,556             1,064,797          
Accrued expenses and other liabilities 47,234             48,699          
Total liabilities 5,322,253             5,425,871          
Shareholders’ equity 741,369             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 sale 1,794     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 securities 2,249,312     18,265     3.26 %
Federal Home Loan Bank stock, at cost, and equity investments 54,729     411     3.01 %
Interest earning deposits 92,291     400     1.74 %
Federal funds sold 16,251     71     1.75 %
Total earning assets 5,700,133     59,031     4.15 %
Cash and due from banks 75,560          
Accrued interest and other assets 473,142          
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 deposit 1,175,230     4,303     1.47 %
Interest bearing demand accounts 1,981,427     4,070     0.82 %
Total interest bearing deposits 3,516,997     8,581     0.98 %
Federal Home Loan Bank borrowings 692,386     3,007     1.74 %
Subordinated notes, net of unamortized debt issuance costs 98,306     1,407     5.74 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,243     658     4.38 %
Other borrowings 9,283     33     1.43 %
Total interest bearing liabilities 4,377,215     13,686     1.25 %
Noninterest bearing deposits 1,045,298          
Accrued expenses and other liabilities 50,843          
Total liabilities 5,473,356          
Shareholders’ equity 750,921          
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 sale 1,292     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 securities 2,225,967     36,020     3.26 %   2,325,017     37,386     3.24 %
Federal Home Loan Bank stock, at cost, and other investments 53,034     795     3.02 %   60,831     825     2.73 %
Interest earning deposits 65,357     797     2.46 %   99,848     799     1.61 %
Federal funds sold 5,489     86     3.16 %   14,759     120     1.64 %
Total earning assets 5,693,383     123,495     4.37 %   5,795,214     118,426     4.12 %
Cash and due from banks 80,940             76,789          
Accrued interest and other assets 523,926             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 deposits 1,136,738     11,558     2.05 %   1,172,658     8,198     1.41 %
Interest bearing demand deposits 1,976,205     10,620     1.08 %   1,995,214     7,442     0.75 %
Total interest bearing deposits 3,475,890     22,698     1.32 %   3,524,945     16,032     0.92 %
Federal Home Loan Bank borrowings 785,901     8,356     2.14 %   809,879     6,639     1.65 %
Subordinated notes, net of unamortized debt issuance costs 98,448     2,810     5.76 %   98,287     2,805     5.76 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,247     1,447     4.84 %   60,242     1,227     4.11 %
Other borrowings 15,653     132     1.70 %   8,696     44     1.02 %
Total interest bearing liabilities 4,436,139     35,443     1.61 %   4,502,049     26,747     1.20 %
Noninterest bearing deposits 1,000,623             1,031,065          
Accrued expenses and other liabilities 81,167             47,034          
Total liabilities 5,517,929             5,580,148          
Shareholders’ equity 754,377             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     $ 56,970     $ 55,770  
Efficiency ratio   52.95 %   56.00 %   54.70 %   51.11 %   49.54 %   54.43 %   51.46 %
Efficiency ratio (FTE) (1)   51.44 %   53.66 %   52.18 %   48.91 %   47.56 %   52.53 %   49.43 %
Average earning assets   $ 5,654,086     $ 5,733,116     $ 5,558,052     $ 5,654,566     $ 5,700,133     $ 5,693,383     $ 5,795,214  
Net interest margin   3.06 %   2.91 %   3.03 %   2.98 %   3.03 %   2.98 %   3.04 %
Net interest margin (FTE) (1)   3.17 %   3.07 %   3.21 %   3.14 %   3.19 %   3.12 %   3.19 %
Net interest spread   2.69 %   2.56 %   2.68 %   2.65 %   2.75 %   2.63 %   2.77 %
Net interest spread (FTE) (1)   2.81 %   2.71 %   2.86 %   2.82 %   2.90 %   2.76 %   2.92 %
  1. These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.
  2. These adjustments may include net gain and loss on sale of securities available for sale, loss on fair value hedge, other-than-temporary impairment charges and additional bank owned life insurance income realized as a result of the death benefits for a retired covered officer, in the periods where applicable.
  3. These adjustments may include acquisition expenses, foreclosure expenses and branch closure expenses, in the periods where applicable. 

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