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Southside Bancshares, Inc. Announces Financial Results for the Three and Nine Months Ended September 30, 2017

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TYLER, Texas, Oct. 27, 2017 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. ("Southside" or the "Company") (NASDAQ:SBSI) today reported its financial results for the three and nine months ended September 30, 2017.

Southside reported net income of $14.5 million for the three months ended September 30, 2017, an increase of $1.6 million, or 12.8%, compared to $12.9 million for the same period in 2016.  Southside reported net income of $44.0 million for the nine months ended September 30, 2017, an increase of $6.2 million, or 16.4%, compared to $37.8 million for the same period in 2016.

Diluted earnings per common share were $0.49 for the three months ended September 30, 2017, an increase of $0.01, or 2.1%, compared to $0.48 for the three months ended September 30, 2016.  For the nine months ended September 30, 2017, diluted earnings per common share increased $0.10, or 7.2%, to $1.49 when compared to $1.39 for the same period in 2016.

The return on average shareholders' equity was 10.87% for both the nine months ended September 30, 2017 and 2016.  The return on average assets was 1.05% for the nine months ended September 30, 2017, compared to 0.98% for the same period in 2016.

"Strong third quarter financial performance resulted from a continued focus on our business model of serving our customers' needs, quality loan growth and continued cost containment," stated Lee R. Gibson, President and Chief Executive Officer of Southside.  "Similar to the second quarter, we experienced solid loan growth of $72.6 million, or 2.8%, on a linked quarter basis while maintaining strong asset quality ratios as evidenced by our nonperforming assets to total assets ratio of 0.17%.  During the third quarter our efficiency ratio reached a new low of 49.99%, while our efficiency ratio for the nine months ended September 30, 2017 declined to 50.62% from 54.78% for the same period in 2016.  Net income of $14.5 million during the third quarter included $365,000 of merger related expenses, net of tax, and $49,000 net of tax expense associated with branch closures."

"During the third quarter we decreased the securities portfolio $121 million on a linked quarter basis.  As long term interest rates decreased during August and into September, we sold selected, mostly longer duration securities."

"The shareholders of Diboll Bancshares, Inc. ("Diboll") have approved the merger with Southside and we have received the required approval from two of our three regulators. We still anticipate closing the merger sometime during the fourth quarter."

Loans and Deposits

For the nine months ended September 30, 2017, total loans increased by $126.2 million, or 4.9%, compared to December 31, 2016.  The net increase in our loans was comprised primarily of increases of $127.7 million of commercial real estate loans, $40.3 million of construction loans, and $23.7 million of municipal loans, which were partially offset by decreases of $28.1 million of 1-4 family residential loans, $27.0 million of loans to individuals, and $10.3 million of commercial loans. Oil and gas industry loans totaled 1.10% of the loan portfolio at September 30, 2017, compared to 1.09% at December 31, 2016.

Nonperforming assets decreased during the nine months ended September 30, 2017 by $6.0 million, or 39.6%, to $9.1 million, or 0.17% of total assets, compared to 0.27% of total assets at December 31, 2016, due to the payoff of several nonaccrual commercial loans during the three months ended June 30, 2017.

During the nine months ended September 30, 2017, the allowance for loan losses increased by $2.0 million, or 10.9%, to $19.9 million, or 0.74% of total loans, compared to 0.70% of total loans at December 31, 2016, primarily due to loan growth.

For the nine months ended September 30, 2017, deposits, net of brokered deposits, decreased $10.2 million, or 0.3%, compared to December 31, 2016.  During this same nine-month period, total deposits increased $31.1 million, or 0.9%, to $3.56 billion at September 30, 2017, due to an increase of $41.3 million in brokered deposits and $58.3 million in non-public fund deposits, partially offset by a decrease in public fund deposits of $68.5 million.  For the nine months ended September 30, 2017, the mix of non-interest bearing and interest bearing deposits changed.  Noninterest bearing deposits increased $77.7 million and interest bearing deposits decreased $46.6 million.

Net Interest Income for the Three Months Ended September 30, 2017

Net interest income increased $1.0 million, or 3.0%, to $35.0 million for the three months ended September 30, 2017, compared to $33.9 million for the same period in 2016.  The increase in net interest income was the result of a $5.3 million increase in interest income on loans and the securities portfolio, partially offset by the increase in interest expense of $4.3 million associated with our deposits and other interest bearing liabilities, compared to the same period in 2016.  For the three months ended September 30, 2017, our net interest spread decreased to 2.82%, compared to 3.06% for the same period in 2016.  Our net interest margin decreased to 3.02% for the three months ended September 30, 2017, compared to 3.19% for the same period in 2016.  Both the decrease in net interest spread and margin was due to higher average rates paid on interest bearing liabilities, partially offset by the increase in the average yield on earning assets.  The increase in average rates paid on interest bearing liabilities was primarily due to overall higher interest rates during 2017 and the remaining purchase accretion on the certificate of deposit premium amortizing during the third quarter of 2016.  The increase in the average yield on earning assets during the three months ended September 30, 2017 was the result of increases in the average yields on most of the earning asset categories partially offset by the mix in earning assets and the decrease in purchase accounting accretion on loans.  The net interest spread and margin on a linked quarter basis decreased from 2.89% and 3.07%, respectively, for the three months ended June 30, 2017, to 2.82% and 3.02%, respectively, for the three months ended September 30, 2017.

Net Interest Income for the Nine Months Ended September 30, 2017

Net interest income increased $740,000, or 0.7%, to $105.7 million for the nine months ended September 30, 2017, compared to $104.9 million for the same period in 2016.  The increase in net interest income was the result of a $12.1 million increase in interest income on loans and the securities portfolio, partially offset by the increase in interest expense of $11.4 million associated with our deposits and other interest bearing liabilities, compared to the same period in 2016.  For the nine months ended September 30, 2017, our net interest spread decreased to 2.88%, compared to 3.23% for the same period in 2016.  Our net interest margin decreased to 3.06% for the nine months ended September 30, 2017, compared to 3.35% for the same period in 2016.  Both the decrease in net interest spread and margin was due to higher average rates paid on interest bearing liabilities along with a decrease in the average yield on earning assets.  The increase in average rates paid on interest bearing liabilities was primarily due to overall higher interest rates during 2017 and the remaining purchase accretion on the certificate of deposit premium amortizing during the third quarter of 2016.  The decrease in the average yield on earning assets was the result of the mix in earning assets, a decrease in the average yields on investment securities combined with a decrease in purchase accounting accretion on loans and the effect on the average yield on loans in 2016 of the $1.3 million recovery of interest income on the payoff of a long-term nonaccrual loan during the first quarter of 2016, partially offset by the increase in average yield on mortgage-backed and related securities, FHLB stock, at cost and other investments and interest earning deposits.

Net Income for the Three Months Ended September 30, 2017

Net income increased $1.6 million, or 12.8%, for the three months ended September 30, 2017, to $14.5 million compared to the same period in 2016.  The increase was primarily the result of a $5.3 million increase in interest income, a $3.4 million decrease in noninterest expense, and a $0.7 million decrease in provision for loan losses, partially offset by a $4.3 million increase in interest expense, a $2.3 million decrease in noninterest income, and a $1.1 million increase in income tax expense.

Noninterest income decreased $2.3 million, or 19.8%, for the three months ended September 30, 2017, compared to the same period in 2016, due primarily to a decrease in the net gain on sale of securities available for sale, a decrease in gain on sale of loans, and a decrease in other noninterest income.

Noninterest expense decreased $3.4 million, or 12.0%, for the three months ended September 30, 2017, compared to the same period in 2016, primarily due to reductions in occupancy expense of $1.6 million, salary and employee benefit expense of $0.8 million, and other noninterest expense of $0.8 million.  During the third quarter of 2016, we incurred $1.8 million in occupancy expense due to the early termination of a lease that included the write-off of the associated leasehold improvements.  Salary and employee benefits decreased due to reductions in direct salary expense and retirement expense.  Other noninterest expense decreased primarily due to decreases in the provision expense for losses on loans sold with recourse and expense related to repossessed assets, partially offset by $0.4 million in acquisition expense related to the proposed merger with Diboll.

Net Income for the Nine Months Ended September 30, 2017

Net income increased $6.2 million, or 16.4%, for the nine months ended September 30, 2017, to $44.0 million compared to the same period in 2016.  The increase was primarily the result of a $12.1 million increase in interest income, a $7.2 million decrease in noninterest expense, and a $4.3 million decrease in provision for loan losses, partially offset by an $11.4 million increase in interest expense, a $4.3 million decrease in noninterest income, and a $1.8 million increase in income tax expense. Noninterest income decreased $4.3 million, or 13.2%, for the nine months ended September 30, 2017 compared to the same period in 2016, due to a decrease in net gain on sale of securities available for sale and a decrease in gain on sale of loans, partially offset by increases in other noninterest income.

Noninterest expense decreased $7.2 million, or 8.7%, for the nine months ended September 30, 2017, compared to the same period in 2016.  The decrease is primarily attributable to a reduction in salaries and employee benefits of $2.6 million, occupancy expense of $2.2 million, professional fees of $1.0 million, and other noninterest expense of $1.1 million.  The decrease in salaries and employee benefits is primarily due to a one-time expense of $1.7 million related to the acceptance of early retirement packages of 16 employees during the nine months ended September 30, 2016.  The decrease in occupancy expense is due to the early termination of a lease during the third quarter of 2016 and lower rent expense in 2017.  Professional fees decreased due to less consulting fees associated with cost containment and process improvement efforts initiated in January 2016.  Other noninterest expense decreased primarily due to a reduction in the provision expense for losses on unfunded loan commitments and loans sold with recourse, losses on other real estate owned, repossessed assets expense, and amortization expense on core deposit intangibles, partially offset by acquisition expense of $0.9 million related to the proposed merger with Diboll.

Conference Call

Southside's management team will host a conference call to discuss its third quarter 2017 financial results on Friday, October 27, 2017 at 9:00 a.m. CDT.  The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 92812124 or by identifying "Southside Bancshares, Inc., Third Quarter 2017 Earnings Call."  To listen to the call via webcast, register at www.southside.com/about/investor-relations.

For those unable to listen to the conference call live, a recording of the conference call will be available from approximately 3:00 p.m. CDT October 27, 2017 through November 7, 2017 by accessing the company website, www.southside.com/about/investor-relations.

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: (i) tax-equivalent net interest income, (ii) tax-equivalent net interest margin, (iii) tax-equivalent net interest spread, and (iv) tax-equivalent efficiency ratio, which include the effects of taxable-equivalent adjustments using a federal income tax rate of 35% to increase tax-exempt interest income to a tax-equivalent basis.  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.  Tax-equivalent adjustments are reported in notes 2 and 3 to the  "Average Balances with Average Yields and Rates" tables below.

Tax-equivalent net interest income, net interest margin and net interest spread.  Net interest income on a tax-equivalent basis is a non-GAAP measure that adjusts for the tax-favored status of net interest income from 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 on a tax-equivalent basis is net interest income on a tax-equivalent basis divided by average interest-earning assets on a tax-equivalent basis.  The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin.  Net interest spread on a tax-equivalent basis is the difference in the average yield on average interest-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.

Tax-equivalent efficiency ratio.  The efficiency ratio, calculated on a tax-equivalent basis, 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 of intangibles and certain non-recurring expense by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding gains (losses) on sales of investment securities and certain non-recurring 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.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $5.48 billion in assets as of September 30, 2017, that owns 100% of Southside Bank.  Southside Bank currently has 57 banking centers in Texas and operates a network of 71 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 Suni Davis at (903) 531-7235, or suni.davis@southside.com.

Forward-Looking Statements

Certain statements of other than historical fact that are contained in this document and in other written material, press releases 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, pending acquisitions, and certain market risk disclosures, including the impact of interest rates 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, 2016, under "Forward-Looking Information" and 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.

  SOUTHSIDE BANCSHARES, INC.
  CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
  (In thousands, except per share data)
                   
                   
  As of
  2017   2016
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,
ASSETS                  
Cash and due from banks $ 57,947     $ 56,033     $ 54,345     $ 59,363     $ 54,255  
Interest earning deposits 120,996     175,039     185,289     102,251     144,833  
Federal funds sold 5,570     4,760     7,360     8,040      
Securities available for sale, at estimated fair value 1,292,072     1,397,811     1,444,043     1,479,600     1,622,128  
Securities held to maturity, at carrying value 909,844     925,538     929,793     937,487     775,682  
Federal Home Loan Bank stock, at cost 61,845     61,561     61,305     61,084     51,901  
Loans held for sale 2,177     3,036     5,303     7,641     5,301  
Loans 2,682,766     2,610,198     2,538,918     2,556,537     2,483,641  
Less: Allowance for loan losses (19,871 )   (19,241 )   (18,485 )   (17,911 )   (15,993 )
Net loans 2,662,895     2,590,957     2,520,433     2,538,626     2,467,648  
Premises & equipment, net 107,099     105,938     105,327     106,003     106,777  
Goodwill 91,520     91,520     91,520     91,520     91,520  
Other intangible assets, net 3,379     3,767     4,177     4,608     5,060  
Bank owned life insurance 99,616     99,011     98,377     97,775     97,002  
Other assets 69,470     63,511     148,977     69,769     42,796  
Total assets $ 5,484,430     $ 5,578,482     $ 5,656,249     $ 5,563,767     $ 5,464,903  
                   
LIABILITIES AND SHAREHOLDERS' EQUITY                  
Noninterest bearing deposits $ 781,701     $ 757,353     $ 753,224     $ 704,013     $ 747,270  
Interest bearing deposits 2,782,474     2,866,720     2,952,072     2,829,063     2,834,117  
Total deposits 3,564,175     3,624,073     3,705,296     3,533,076     3,581,387  
Short-term obligations 999,583     1,024,257     960,730     873,615     720,634  
Long-term obligations 310,505     320,658     411,310     601,464     621,640  
Other liabilities 54,144     62,429     47,447     37,338     68,682  
Total liabilities 4,928,407     5,031,417     5,124,783     5,045,493     4,992,343  
Shareholders' equity 556,023     547,065     531,466     518,274     472,560  
Total liabilities and shareholders' equity $ 5,484,430     $ 5,578,482     $ 5,656,249     $ 5,563,767     $ 5,464,903  



  At or For the Three Months Ended
  2017   2016
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,
Income Statement:                  
Total interest income $ 46,473     $ 46,009     $ 44,888     $ 43,680     $ 41,132  
Total interest expense 11,513     10,585     9,608     9,039     7,202  
Net interest income 34,960     35,424     35,280     34,641     33,930  
Provision for loan losses 960     1,346     1,098     2,065     1,631  
Net interest income after provision for loan losses 34,000     34,078     34,182     32,576     32,299  
Noninterest income                  
Deposit services 5,476     5,255     5,114     5,183     5,335  
Net gain (loss) on sale of securities available for sale 627     (75 )   322     (2,676 )   2,343  
Gain on sale of loans 347     505     701     461     818  
Trust income 873     899     890     900     867  
Bank owned life insurance income 636     635     634     649     656  
Brokerage services 561     682     547     466     551  
Other 888     1,392     1,465     1,730     1,162  
     Total noninterest income 9,408     9,293     9,673     6,713     11,732  
Noninterest expense                  
Salaries and employee benefits 14,395     14,915     15,919     16,194     15,203  
Occupancy expense 2,981     2,897     2,863     2,825     4,569  
Advertising, travel & entertainment 487     548     583     648     588  
ATM and debit card expense 1,024     889     927     820     868  
Professional fees 996     1,050     939     982     1,148  
Software and data processing expense 732     688     725     687     736  
Telephone and communications 459     476     526     572     407  
FDIC insurance 441     445     441     215     643  
Other 3,492     3,629     2,935     2,934     4,263  
     Total noninterest expense 25,007     25,537     25,858     25,877     28,425  
Income before income tax expense 18,401     17,834     17,997     13,412     15,606  
Income tax expense 3,890     3,353     3,008     1,839     2,741  
Net income $ 14,511     $ 14,481     $ 14,989     $ 11,573     $ 12,865  
                   
Common share data:      
Weighted-average basic shares outstanding 29,370     29,318     29,288     27,542     26,923  
Weighted-average diluted shares outstanding 29,570     29,519     29,504     27,731     27,080  
Shares outstanding end of period 29,433     29,344     29,306     29,261     26,939  
Net income per common share                  
Basic $ 0.49     $ 0.49     $ 0.51     $ 0.42     $ 0.48  
Diluted 0.49     0.49     0.51     0.42     0.48  
Book value per common share 18.89     18.64     18.14     17.71     17.54  
Cash dividend paid per common share 0.28     0.28     0.25     0.30     0.24  
                   
Selected Performance Ratios:                  
Return on average assets 1.03 %   1.04 %   1.08 %   0.83 %   0.98 %
Return on average shareholders' equity 10.38     10.70     11.57     9.56     10.78  
Average yield on earning assets (1) 3.90     3.88     3.82     3.73     3.78  
Average rate on interest bearing liabilities 1.08     0.99     0.89     0.83     0.72  
Net interest spread (tax-equivalent basis) (1) 2.82     2.89     2.93     2.90     3.06  
Net interest margin (tax-equivalent basis) (1) 3.02     3.07     3.08     3.03     3.19  
Average earning assets to average interest bearing liabilities 123.32     121.57     120.04     119.88     120.40  
Noninterest expense to average total assets 1.77     1.83     1.87     1.85     2.17  
Efficiency ratio (tax-equivalent basis) (1) 49.99     50.26     51.60     52.00     53.88  

(1) See "Non-GAAP Financial Measures."

  At or For the
Nine Months Ended
  September 30,
  2017   2016
Income Statement:      
Total interest income $ 137,370     $ 125,233  
Total interest expense 31,706     20,309  
Net interest income 105,664     104,924  
Provision for loan losses 3,404     7,715  
Net interest income after provision for loan losses 102,260     97,209  
Noninterest income      
Deposit services 15,845     15,519  
Net gain on sale of securities available for sale 874     5,512  
Gain on sale of loans 1,553     2,334  
Trust income 2,662     2,591  
Bank owned life insurance income 1,905     1,977  
Brokerage services 1,790     1,661  
Other 3,745     3,104  
     Total noninterest income 28,374     32,698  
Noninterest expense      
Salaries and employee benefits 45,229     47,784  
Occupancy expense 8,741     10,897  
Advertising, travel & entertainment 1,618     1,995  
ATM and debit card expense 2,840     2,316  
Professional fees 2,985     3,964  
Software and data processing expense 2,145     2,224  
Telephone and communications 1,461     1,359  
FDIC insurance 1,327     1,926  
Other 10,056     11,180  
     Total noninterest expense 76,402     83,645  
Income before income tax expense 54,232     46,262  
Income tax expense 10,251     8,486  
Net income $ 43,981     $ 37,776  


Common share data:    
Weighted-average basic shares outstanding 29,326     26,976  
Weighted-average diluted shares outstanding 29,531     27,091  
Net income per common share      
Basic $ 1.50     $ 1.40  
Diluted 1.49     1.39  
Book value per common share 18.89     17.54  
Cash dividend paid per common share 0.81     0.71  


   
Selected Performance Ratios:      
Return on average assets 1.05 %   0.98 %
Return on average shareholders' equity 10.87     10.87  
Average yield on earning assets (1) 3.87     3.92  
Average yield on interest bearing liabilities 0.99     0.69  
Net interest spread (tax-equivalent basis) (1) 2.88     3.23  
Net interest margin (tax-equivalent basis) (1) 3.06     3.35  
Average earning assets to average interest bearing liabilities 121.64     120.08  
Noninterest expense to average total assets 1.83     2.18  
Efficiency ratio (tax-equivalent basis) (1) 50.62     54.78  

(1) See "Non-GAAP Financial Measures."

  Southside Bancshares, Inc.
  Selected Financial Data (unaudited)
  (dollars in thousands)
                   
  Three Months Ended
  2017   2016
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,
Nonperforming assets: $ 9,119     $ 9,165     $ 14,079     $ 15,105     $ 16,008  
Nonaccrual loans (1) 3,095     3,034     7,261     8,280     8,536  
Accruing loans past due more than 90 days (1)         1     6     1  
Restructured loans (2) 5,725     5,884     6,424     6,431     7,193  
Other real estate owned 298     233     367     339     237  
Repossessed assets 1     14     26     49     41  
                   
Asset Quality Ratios:                  
Nonaccruing loans to total loans 0.12 %   0.12 %   0.29 %   0.32 %   0.34 %
Allowance for loan losses to nonaccruing loans 642.04     634.18     254.58     216.32     187.36  
Allowance for loan losses to nonperforming assets 217.91     209.94     131.29     118.58     99.91  
Allowance for loan losses to total loans 0.74     0.74     0.73     0.70     0.64  
Nonperforming assets to total assets 0.17     0.16     0.25     0.27     0.29  
Net charge-offs to average loans 0.05     0.09     0.08     0.02     0.09  
                   
Capital Ratios:                  
Shareholders' equity to total assets 10.14     9.81     9.40     9.32     8.65  
Average shareholders' equity to average total assets 9.91     9.72     9.36     8.66     9.10  

(1) Excludes purchased credit impaired ("PCI") loans measured at fair value at acquisition.
(2) Includes $3.0 million, $3.0 million, $3.0 million, $3.1 million, and $3.2 million in PCI loans restructured as of September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016, and September 30, 2016, respectively.

Loan Portfolio Composition

The following table sets forth loan totals by category for the periods presented:

  Three Months Ended
  2017   2016
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,
Real Estate Loans:                  
Construction $ 420,497     $ 386,853     $ 362,367     $ 380,175     $ 466,323  
1-4 Family Residential 609,159     615,405     622,881     637,239     644,746  
Commercial 1,073,646     1,033,629     974,307     945,978     759,795  
Commercial Loans 166,919     172,311     176,908     177,265     191,154  
Municipal Loans 322,286     305,023     297,417     298,583     293,949  
Loans to Individuals 90,259     96,977     105,038     117,297     127,674  
Total Loans $ 2,682,766     $ 2,610,198     $ 2,538,918     $ 2,556,537     $ 2,483,641  

The "Average Balances with Average Yields and Rates" 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 (dollars in thousands) for the periods presented.

  Average Balances with Average Yields and Rates
  (unaudited)
  Three Months Ended
  September 30, 2017   June 30, 2017
  Avg Balance   Interest Income   Avg Yield/Rate   Avg Balance   Interest Income   Avg Yield/Rate
ASSETS                      
Loans (1) (2) $ 2,657,562     $ 30,378     4.54 %   $ 2,557,093     $ 29,080     4.56 %
Loans held for sale 5,060     47     3.69 %   5,914     60     4.07 %
Securities:                      
Investment securities (taxable) (4) 11,085     58     2.08 %   58,168     267     1.84 %
Investment securities (tax-exempt) (3) (4) 758,828     9,214     4.82 %   749,259     9,386     5.02 %
Mortgage-backed and related securities (4) 1,550,494     10,567     2.70 %   1,594,269     10,818     2.72 %
    Total securities 2,320,407     19,839     3.39 %   2,401,696     20,471     3.42 %
FHLB stock, at cost, and other investments 66,994     329     1.95 %   66,744     299     1.80 %
Interest earning deposits 144,700     506     1.39 %   156,124     364     0.94 %
Federal funds sold 4,626     21     1.80 %   5,326     14     1.05 %
Total earning assets 5,199,349     51,120     3.90 %   5,192,897     50,288     3.88 %
Cash and due from banks 53,220             50,961          
Accrued interest and other assets 360,073             358,041          
Less: Allowance for loan losses (19,556 )           (18,495 )        
Total assets $ 5,593,086             $ 5,583,404          
LIABILITIES AND SHAREHOLDERS' EQUITY                      
Savings deposits $ 260,860     117     0.18 %   $ 262,009     121     0.19 %
Time deposits 988,380     2,878     1.16 %   1,014,101     2,723     1.08 %
Interest bearing demand deposits 1,562,993     2,425     0.62 %   1,616,036     2,294     0.57 %
Total interest bearing deposits 2,812,233     5,420     0.76 %   2,892,146     5,138     0.71 %
Short-term interest bearing liabilities 1,095,968     3,382     1.22 %   1,010,484     2,480     0.98 %
Long-term interest bearing liabilities – FHLB Dallas 149,512     778     2.06 %   210,416     1,075     2.05 %
Subordinated notes (5) 98,190     1,413     5.71 %   98,151     1,398     5.71 %
Long-term debt (6) 60,239     520     3.42 %   60,238     494     3.29 %
Total interest bearing liabilities 4,216,142     11,513     1.08 %   4,271,435     10,585     0.99 %
Noninterest bearing deposits 773,739             729,564          
Accrued expenses and other liabilities 48,682             39,819          
Total liabilities 5,038,563             5,040,818          
Shareholders' equity 554,523             542,586          
Total liabilities and shareholders' equity $ 5,593,086             $ 5,583,404          
Net interest income (tax-equivalent basis) (7)     $ 39,607             $ 39,703      
Net interest margin on average earning assets (tax-equivalent basis) (7)         3.02 %           3.07 %
Net interest spread (tax-equivalent basis) (7)         2.82 %           2.89 %

(1) Interest on loans includes net fees on loans that are not material in amount.

(2) Interest income includes taxable-equivalent adjustments of $1,103 and $1,050 for the three months ended September 30, 2017 and June 30, 2017, respectively.  See "Non-GAAP Financial Measures."

(3) Interest income includes taxable-equivalent adjustments of $3,544 and $3,229 for the three months ended September 30, 2017 and June 30, 2017, respectively.  See "Non-GAAP Financial Measures."

(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

(5) The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $1.8 million for both the three months ended September 30, 2017 and June 30, 2017.

(6) Represents issuance of junior subordinated debentures.  In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended September 30, 2017 and June 30, 2017 reflect unamortized debt issuance costs of $72,000 and $73,000, respectively.

(7) See "Non-GAAP Financial Measures."

Note:  As of September 30, 2017 and June 30, 2017, loans totaling $3,095 and $3,034, 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.

  Average Balances with Average Yields and Rates
  (unaudited)
  Three Months Ended
  March 31, 2017   December 31, 2016
  Avg Balance   Interest Income   Avg Yield/Rate   Avg Balance   Interest Income   Avg Yield/Rate
ASSETS                      
Loans (1) (2) $ 2,549,230     $ 28,241     4.49 %   $ 2,512,820     $ 27,835     4.41 %
Loans held for sale 7,023     48     2.77 %   4,845     36     2.96 %
Securities:                      
Investment securities (taxable) (4) 86,511     377     1.77 %   115,057     485     1.68 %
Investment securities (tax-exempt) (3) (4) 779,772     9,929     5.16 %   812,771     10,352     5.07 %
Mortgage-backed and related securities (4) 1,570,510     10,045     2.59 %   1,520,045     9,294     2.43 %
    Total securities 2,436,793     20,351     3.39 %   2,447,873     20,131     3.27 %
FHLB stock, at cost, and other investments 66,547     298     1.82 %   62,087     210     1.35 %
Interest earning deposits 162,235     346     0.86 %   134,786     165     0.49 %
Federal funds sold 7,217     14     0.79 %   2,972     5     0.67 %
Total earning assets 5,229,045     49,298     3.82 %   5,165,383     48,382     3.73 %
Cash and due from banks 53,528             52,415          
Accrued interest and other assets 350,729             359,217          
Less: Allowance for loan losses (18,130 )           (16,467 )        
Total assets $ 5,615,172             $ 5,560,548          
LIABILITIES AND SHAREHOLDERS' EQUITY                      
Savings deposits $ 252,744     92     0.15 %   $ 250,706     76     0.12 %
Time deposits 927,610     2,227     0.97 %   926,021     2,261     0.97 %
Interest bearing demand deposits 1,707,996     1,962     0.47 %   1,646,535     1,543     0.37 %
Total interest bearing deposits 2,888,350     4,281     0.60 %   2,823,262     3,880     0.55 %
Short-term interest bearing liabilities 1,007,546     2,065     0.83 %   869,398     1,428     0.65 %
Long-term interest bearing liabilities – FHLB Dallas 301,775     1,402     1.88 %   457,754     1,837     1.60 %
Subordinated notes (5) 98,117     1,393     5.76 %   98,011     1,439     5.84 %
Long-term debt (6) 60,237     467     3.14 %   60,235     455     3.01 %
Total interest bearing liabilities 4,356,025     9,608     0.89 %   4,308,660     9,039     0.83 %
Noninterest bearing deposits 693,729             717,599          
Accrued expenses and other liabilities 39,960             52,714          
Total liabilities 5,089,714             5,078,973          
Shareholders' equity 525,458             481,575          
Total liabilities and shareholders' equity $ 5,615,172             $ 5,560,548          
Net interest income (tax-equivalent basis) (7)     $ 39,690             $ 39,343      
Net interest margin on average earning assets (tax-equivalent basis) (7)         3.08 %           3.03 %
Net interest spread (tax-equivalent basis) (7)         2.93 %           2.90 %

(1) Interest on loans includes net fees on loans that are not material in amount.

(2) Interest income includes taxable-equivalent adjustments of $1,035 and $1,045 for the three months ended March 31, 2017 and December 31, 2016, respectively.  See "Non-GAAP Financial Measures."

(3) Interest income includes taxable-equivalent adjustments of $3,375 and $3,657 for the three months ended March 31, 2017 and December 31, 2016, respectively.  See "Non-GAAP Financial Measures."

(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

(5) The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $1.9 million and $2.0 million for the three months ended March 31, 2017 and December 31, 2016, respectively.

(6) Represents issuance of junior subordinated debentures.  In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended March 31, 2017 and December 31, 2016 reflect unamortized debt issuance costs of $74,000 and $76,000, respectively.

(7) See "Non-GAAP Financial Measures."

Note:  As of March 31, 2017 and December 31, 2016, loans totaling $7,261 and $8,280, 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.

  Average Balances with Average Yields and Rates
  (unaudited)
  Three Months Ended
  September 30, 2016
  Avg Balance   Interest Income   Avg Yield/Rate
ASSETS          
Loans (1) (2) $ 2,436,349     $ 26,750     4.37 %
Loans held for sale 6,718     54     3.20 %
Securities:          
Investment securities (taxable) (4) 61,238     251     1.63 %
Investment securities (tax-exempt) (3) (4) 690,635     8,911     5.13 %
Mortgage-backed and related securities (4) 1,492,271     9,399     2.51 %
    Total securities 2,244,144     18,561     3.29 %
FHLB stock, at cost, and other investments 54,085     186     1.37 %
Interest earning deposits 57,598     89     0.61 %
Total earning assets 4,798,894     45,640     3.78 %
Cash and due from banks 49,418          
Accrued interest and other assets 385,917          
Less: Allowance for loan losses (14,989 )        
Total assets $ 5,219,240          
LIABILITIES AND SHAREHOLDERS' EQUITY          
Savings deposits $ 248,364     71     0.11 %
Time deposits 949,019     2,073     0.87 %
Interest bearing demand deposits 1,634,898     1,460     0.36 %
Total interest bearing deposits 2,832,281     3,604     0.51 %
Short-term interest bearing liabilities 608,130     1,122     0.73 %
Long-term interest bearing liabilities – FHLB Dallas 472,470     1,857     1.56 %
Subordinated notes (5) 12,823     189     5.86 %
Long-term debt (6) 60,234     430     2.84 %
Total interest bearing liabilities 3,985,938     7,202     0.72 %
Noninterest bearing deposits 702,539          
Accrued expenses and other liabilities 55,783          
Total liabilities 4,744,260          
Shareholders' equity 474,980          
Total liabilities and shareholders' equity $ 5,219,240          
Net interest income (tax-equivalent basis) (7)     $ 38,438      
Net interest margin on average earning assets (tax-equivalent basis) (7)         3.19 %
Net interest spread (tax-equivalent basis) (7)         3.06 %

(1) Interest on loans includes net fees on loans that are not material in amount.

(2) Interest income includes taxable-equivalent adjustment of $1,064 for the three months ended September 30, 2016.  See "Non-GAAP Financial Measures."

(3) Interest income includes taxable-equivalent adjustment of $3,444 for the three months ended September 30, 2016.  See "Non-GAAP Financial Measures."

(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

(5) The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $220,000 for the three months ended September 30, 2016.

(6) Represents issuance of junior subordinated debentures.  In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended September 30, 2016 reflects unamortized debt issuance costs of $77,000.

(7) See "Non-GAAP Financial Measures."

Note:  As of September 30, 2016, loans totaling $8,536 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.

  Average Balances with Average Yields and Rates
  (unaudited)
  Nine Months Ended
  September 30, 2017   September 30, 2016
  Avg Balance   Interest Income   Avg Yield/Rate   Avg Balance   Interest Income   Avg Yield/Rate
ASSETS                      
Loans (1) (2) $ 2,588,358     $ 87,699     4.53 %   $ 2,432,652     $ 82,818     4.55 %
Loans held for sale 5,992     155     3.46 %   5,100     126     3.30 %
Securities:                      
Investment securities (taxable) (4) 51,645     702     1.82 %   41,708     572     1.83 %
Investment securities (tax-exempt) (3) (4) 762,543     28,529     5.00 %   661,430     26,041     5.26 %
Mortgage-backed and related securities (4) 1,571,685     31,430     2.67 %   1,465,923     28,156     2.57 %
    Total securities 2,385,873     60,661     3.40 %   2,169,061     54,769     3.37 %
FHLB stock, at cost, and other investments 66,763     926     1.85 %   54,051     588     1.45 %
Interest earning deposits 154,289     1,216     1.05 %   55,378     220     0.53 %
Federal funds sold 5,713     49     1.15 %            
Total earning assets 5,206,988     150,706     3.87 %   4,716,242     138,521     3.92 %
Cash and due from banks 52,568             50,738          
Accrued interest and other assets 356,212             378,000          
Less: Allowance for loan losses (18,732 )           (19,136 )        
Total assets $ 5,597,036             $ 5,125,844          
LIABILITIES AND SHAREHOLDERS' EQUITY                      
Savings deposits $ 258,568     330     0.17 %   $ 242,852     204     0.11 %
Time deposits 976,919     7,828     1.07 %   946,986     5,723     0.81 %
Interest bearing demand deposits 1,628,477     6,681     0.55 %   1,693,135     4,448     0.35 %
Total interest bearing deposits 2,863,964     14,839     0.69 %   2,882,973     10,375     0.48 %
Short-term interest bearing liabilities 1,038,326     7,927     1.02 %   469,831     2,724     0.77 %
Long-term interest bearing liabilities – FHLB Dallas 220,007     3,255     1.98 %   510,392     5,770     1.51 %
Subordinated notes (5) 98,153     4,204     5.73 %   4,305     189     5.86 %
Long-term debt (6) 60,238     1,481     3.29 %   60,233     1,251     2.77 %
Total interest bearing liabilities 4,280,688     31,706     0.99 %   3,927,734     20,309     0.69 %
Noninterest bearing deposits 732,637             685,982          
Accrued expenses and other liabilities 42,749             48,120          
Total liabilities 5,056,074             4,661,836          
Shareholders' equity 540,962             464,008          
Total liabilities and shareholders' equity $ 5,597,036             $ 5,125,844          
Net interest income (tax-equivalent basis) (7)     $ 119,000             $ 118,212      
Net interest margin on average earning assets (tax-equivalent basis) (7)         3.06 %           3.35 %
Net interest spread (tax-equivalent basis) (7)         2.88 %           3.23 %

(1) Interest on loans includes net fees on loans that are not material in amount.

(2) Interest income includes taxable-equivalent adjustments of $3,188 and $3,206 for the nine months ended September 30, 2017 and 2016, respectively.  See "Non-GAAP Financial Measures."

(3) Interest income includes taxable-equivalent adjustments of $10,148 and $10,082 for the nine months ended September 30, 2017 and 2016, respectively.  See "Non-GAAP Financial Measures."

(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

(5) The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $1.8 million  and $74,000 for the nine months ended September 30, 2017 and 2016, respectively.

(6) Represents issuance of junior subordinated debentures.  In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs be presented as a direct deduction from the related debt liability, our average long-term debt for the nine months ended September 30, 2017 and 2016 reflect unamortized debt issuance costs of $73,000 and $78,000, respectively.

(7) See "Non-GAAP Financial Measures."

Note:  As of September 30, 2017 and 2016, loans totaling $3,095 and $8,536, 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.

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