SBSI Southside Bancshares Inc

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 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 debtissuance 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.