Independent Bank Group, Inc. Reports Second Quarter Financial Results

MCKINNEY, TX / ACCESSWIRE / July 22, 2019 / Independent Bank Group, Inc. (NASDAQ: IBTX), the holding company for Independent Bank, today announced net income of $49.7 million, or $1.15 per diluted share, for the quarter ended June 30, 2019 compared to $29.6 million, or $1.02 per diluted share, for the quarter ended June 30, 2018 and $37.1 million, or $0.85 per diluted share, for the quarter ended March 31, 2019.

Highlights

  • Solid earnings with net income of $49.7 million, or $1.15 per diluted share and adjusted (non-GAAP) net income of $52.9 million, or $1.22 per diluted share
  • Strong organic deposit growth of 10.4% (annualized)
  • Organic loan growth of 6.6% for the quarter and 6.9% year to date (annualized)
  • Asset quality credit metrics remain at low levels
  • Repurchased $39 million of Company stock through the Share Repurchase Program
  • Successfully completed the operational conversion of Guaranty Bank and Trust

Independent Bank Group Chairman and CEO David R. Brooks stated, “Our second quarter performance reflects our focus on the execution of the conversion of the Guaranty core systems and the smooth transition of Guaranty customers to our technology platform. The successful completion of this major step in the integration process will enable us to begin to recognize the benefits of the Guaranty acquisition. We believe our second quarter results set us up for a successful second half of 2019.” Brooks continued, “We were also pleased to announce our new brand, Independent Financial. The new brand represents the next chapter in our 30-plus year story as we grow new markets and deliver a broadened array of products and services.”

Second Quarter 2019 Operating Results

Net Interest Income

  • Net interest income was $129.6 million for second quarter 2019 compared to $78.9 million for second quarter 2018 and $121.7 million for first quarter 2019. The increase in net interest income from the previous year was primarily due to increased average earning assets and purchase accounting accretion resulting primarily from the acquisition of Guaranty Bancorp. The acquisition of Integrity Bancshares in second quarter 2018 also contributed to the increase in net interest income from the prior year period.
  • The average balance of total interest-earning assets grew by $4.7 billion and totaled $12.6 billion for the quarter ended June 30, 2019 compared to $8.0 billion for the quarter ended June 30, 2018 and increased $448 million from $12.2 billion for the quarter ended March 31, 2019. The increase from the prior year was primarily due to $3.4 billion in earning assets acquired in the Guaranty transaction as well as organic growth. The increase from the linked quarter is primarily related to an increase in average loan balances including mortgage warehouse purchase loans.
  • The yield on interest-earning assets was 5.32% for second quarter 2019 compared to 4.89% for second quarter 2018 and 5.17% for first quarter 2019. The increase from the prior year was due primarily to higher rates on interest-earning assets due to continued increases in the Fed Funds rate during these periods as well as increased acquired loan accretion due to the Guaranty acquisition. The increase from the linked quarter is primarily due to increased acquired loan accretion resulting from early loan payoffs, somewhat offset by a decrease in security yields.
  • The cost of interest-bearing liabilities, including borrowings, was 1.70% for second quarter 2019 compared to 1.27% for second quarter 2018 and 1.59% for first quarter 2019. The increase from the prior year and linked quarter is primarily due to higher rates offered on our deposits, primarily commercial money market accounts and promotional certificates of deposit, resulting both from market competition and general increases in interest rates on deposit products tied to Fed Funds rates, as well as rate increases on short-term FHLB advances and junior subordinated debt.
  • The net interest margin was 4.11% for second quarter 2019 compared to 3.97% for second quarter 2018 and 4.05% for first quarter 2019. The adjusted (non-GAAP) net interest margin, which excludes unexpected accretion on loans acquired with deteriorated credit quality was 4.03% for second quarter 2019 compared to 3.93% for second quarter 2018 and 4.01% for first quarter 2019. The quarter ended June 30, 2019 includes $12.3 million of loan accretion related to the Guaranty acquisition versus $6.9 million in first quarter 2019. Excluding this accretion related to the Guaranty acquisition interest rate mark, the net interest margin would have been 3.72% as compared to 3.82% in first quarter 2019. The core net interest margin was impacted by mortgage warehouse purchase loan growth, lower security yields and liquidity.

Noninterest Income

  • Total noninterest income increased $6.1 million compared to second quarter 2018 and decreased $225 thousand compared to first quarter 2019.
  • The increase from the prior year primarily reflects increases of $2.6 million in service charges, $2.5 million in investment advisory and trust services and $616 thousand in earnings on bank owned life insurance all resulting primarily from the additional accounts acquired in the Guaranty transaction. The wealth management subsidiary and trust division were acquired with Guaranty.
  • The decrease from the linked quarter primarily reflects increases of $303 thousand in investment advisory and trust services and $609 thousand in mortgage banking revenue offset by a decrease of $1.2 million in other noninterest income. The increase in mortgage revenue is primarily a result of increased sales volume reflective of the market demand and reduced interest rates. The decrease in other noninterest income is primarily due to a decrease in acquired loan recoveries from $1.3 million in first quarter 2019 to $258 thousand in second quarter 2019.

Noninterest Expense

  • Total noninterest expense increased $28.8 million compared to second quarter 2018 and decreased $8.6 million compared to first quarter 2019.
  • The increase in noninterest expense compared to second quarter 2018 is due primarily to increases of $13.7 million in salaries and benefits, $3.6 million in occupancy expenses, $2.0 million in data processing, $988 thousand in impairment of other real estate, $1.8 million in amortization of other intangibles, and $4.8 million in other noninterest expense. The overall increase in salaries and benefits, occupancy, data processing, amortization of other intangibles and noninterest expense from the prior year is reflective of additional headcount, branch locations and accounts acquired in the January 2019 Guaranty transaction and the June 2018 Integrity transaction as well as organic growth during the year. The increase in impairment of other real estate is primarily a result of impairments taken on the branches closed in our branch restructure during second quarter 2019. During the quarter, we recorded a $1.4 million loss contingency reserve related to chargebacks on a merchant card deposit account acquired with Guaranty. As of June 30, 2019, we have estimated total losses of $5.2 million, of which, we believe $3.8 million existed at close and has been recorded as an adjustment to goodwill. Salaries and benefits expense is also elevated due to severance and retention payments made or accrued totaling $1.8 million related primarily to the Guaranty transaction and our branch restructuring which occurred during May 2019, as well as the Company’s increase in the 401(k) contribution match which began third quarter 2018.
  • The decrease from the linked quarter is primarily related to decreases of $1.8 million in salaries and benefits and $11.3 million in acquisition expenses offset by increases of $594 thousand in occupancy, $680 thousand in data processing and $2.4 million in other noninterest expense. The decrease in salaries and benefits expense is primarily a result of a decrease in severance expense related to the Guaranty transaction and our branch restructuring noted above. Acquisition expenses were elevated in the first quarter 2019 primarily due to $8.7 million in change in control payments as well as an increase in professional fees, contract termination fees, and conversion-related expenses related to Guaranty. The increase in occupancy expense is primarily due to the opening of our new corporate office during second quarter of 2019. The increase in data processing expense is primarily related to the acquisition of Guaranty and fully integrating their various systems and related software. The increase in other noninterest expense is primarily related to the operational loss discussed above in addition to increased charitable contributions.

Provision for Loan Losses

  • Provision for loan loss was $4.7 million for second quarter 2019, an increase of $2.0 million compared to $2.7 million for second quarter 2018 and an increase of $1.5 million compared to $3.2 million for first quarter 2019. Provision expense is primarily reflective of organic loan growth as well as charge-offs or specific reserves taken during the respective period. In addition, the increase from the linked quarter is primarily a result of a specific reserve related to a commercial loan.
  • The allowance for loan losses was $51.1 million, or 0.47% of total loans at June 30, 2019, compared to $43.3 million, or 0.58% of total loans at June 30, 2018, and compared to $46.5 million, or 0.43% of total loans, at March 31, 2019. The dollar increases from prior periods are primarily due to additional general reserves for organic loan growth as well as the specific reserve increase noted above. In addition, the decrease in the allowance for loan losses as a percentage of loans from prior year reflects that loans acquired in the Guaranty and Integrity transactions were recorded at fair value without an allowance at the respective acquisition date.

Income Taxes

  • Federal income tax expense of $13.4 million was recorded for the quarter ended June 30, 2019, an effective rate of 21.2% compared to tax expense of $7.5 million and an effective rate of 20.2% for the quarter ended June 30, 2018 and tax expense of $11.1 million and an effective rate of 23.1% for the quarter ended March 31, 2019. The higher effective tax rate in first quarter 2019 was due to $1.4 million in deductibility limitations related to the change in control payments made as part of the Guaranty transaction and $203 thousand in nondeductible acquisition expenses. The increase in the effective tax rate compared to second quarter 2018 is a result of increased state income tax expense.

Second Quarter 2019 Balance Sheet Highlights

Loans

  • Total loans held for investment, net of mortgage warehouse purchase loans, were $10.8 billion at June 30, 2019 compared to $10.7 billion at March 31, 2019 and $7.5 billion at June 30, 2018. The $91.9 million change for the quarter represents organic growth of total loans held for investment of $175.4 million for the quarter, or 6.6% on an annualized basis, and the transfer of two acquired loan pools totaling $83.5 million to held for sale at quarter end June 30, 2019. Loans held for investment increased $3.4 billion from June 30, 2018, or 45.3%, $2.8 billion of which was acquired in the Guaranty acquisition and $517.6 million of which was organic growth, or 6.9% for the year over year period.
  • Average mortgage warehouse purchase loans were $295.9 million for the quarter ended June 30, 2019 compared to $128.0 million for the quarter ended March 31, 2019, representing an increase of $167.9 million, or 131.3% for the quarter, and compared to $124.0 million for the quarter ended June 30, 2018, an increase of $171.9 million, or 138.7% year over year. The change from the linked quarter and prior year quarter is reflective of the Company’s focused attention to grow the warehouse line of business in addition to increased mortgage loan market activity related to seasonality and fluctuating interest rates during the respective periods.
  • Commercial real estate (CRE) loans were $5.8 billion at both June 30, 2019 and March 31, 2019 and $3.9 billion at June 30, 2018, or 51.4%, 53.3% and 51.4% of total loans, respectively.

Asset Quality

  • Total nonperforming assets increased to $28.0 million, or 0.19% of total assets at June 30, 2019, compared to $16.9 million or 0.12% of total assets at March 31, 2019, and $16.9 million, or 0.17% of total assets at June 30, 2018.
  • Total nonperforming loans increased to $16.9 million, or 0.16% of total loans at June 30, 2019, from $10.7 million, or 0.10% of total loans at March 31, 2019, and from $12.6 million, or 0.17% of total loans at June 30, 2018.
  • The increase in the dollar amount of nonperforming loans from the linked quarter and prior year is primarily due to the addition of two commercial real estate credits totaling $3.4 million and one commercial credit totaling $1.9 million placed on nonaccrual status. The increase in the dollar amount of nonperforming assets is primarily due to loan activity noted above, as well as the transfer of six former branch properties to other real estate owned. These former branch locations were recorded at $6.8 million at date of transfer.
  • Charge-offs were 0.01% annualized in the second quarter 2019 compared to 0.06% annualized in the linked quarter and 0.08% annualized in the prior year quarter.

Deposits and Borrowings

  • Total deposits were $11.5 billion at June 30, 2019 compared to $11.2 billion at March 31, 2019 and compared to $7.5 billion at June 30, 2018. The increase in deposits from the linked quarter is primarily due to $291.2 million of organic growth, or 10.4% for the quarter, annualized. The increase in deposits from the prior year is due to $3.1 billion of deposits acquired in the Guaranty acquisition as well as organic growth of $888.4 million, or 11.8%, for the year over year period.
  • Total borrowings (other than junior subordinated debentures) were $792.5 million at June 30, 2019, an increase of $254.1 million from March 31, 2019 and a decrease of $95.2 million from June 30, 2018. The change in the linked quarter and prior year reflects the use of short-term FHLB advances as needed for liquidity and to fund the mortgage warehouse loans. The change from the prior year also reflects the addition of $40 million in subordinated debt assumed in the Guaranty acquisition as well as $35 million in borrowings against the Company’s unsecured revolving line of credit with an unrelated commercial bank.

Capital

  • Independent Bank Group is well capitalized under regulatory guidelines. At June 30, 2019, our estimated common equity Tier 1 to risk-weighted assets, Tier 1 capital to average assets, Tier 1 capital to risk-weighted assets and total capital to risk-weighted asset ratios were 9.24%, 9.06%, 9.69% and 11.54%, respectively, compared to 9.60%, 9.33%, 10.07%, and 11.96%, respectively, at March 31, 2019.
  • A total of 725 thousand shares were repurchased during second quarter 2019 in the amount of $39 million.

Subsequent Events

The Company is required, under generally accepted accounting principles, to evaluate subsequent events through the filing of its consolidated financial statements for the quarter ended June 30, 2019 on Form 10-Q. As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of June 30, 2019 and will adjust amounts preliminarily reported, if necessary.

About Independent Bank Group

Independent Bank Group, through its wholly owned subsidiary, Independent Bank, provides a wide range of relationship-driven commercial banking products and services tailored to meet the needs of businesses, professionals and individuals. Independent Bank Group operates in four market regions located in the Dallas/Fort Worth, Austin, and, Houston areas in Texas and the Colorado Front Range area, including Denver, Colorado Springs and Fort Collins.

Conference Call

A conference call covering Independent Bank Group’s second quarter earnings announcement will be held on Tuesday, July 23, 2019 at 8:30 a.m. (EDT) and can be accessed by the webcast link, https://edge.media-server.com/mmc/p/7s44n5x4, or by calling 1-877-303-7611 and by identifying the conference ID/booking number 7893913 or by identifying “Independent Bank Group Second Quarter 2019 Earnings Conference Call”. The conference materials will also be available by accessing the Investor Relations page of our website, www.ibtx.com.

A recording of the conference call and the conference materials will be available from July 23, 2019 through August 1, 2019 on our website.

Forward-Looking Statements

The numbers as of and for the quarter ended June 30, 2019 are unaudited. From time to time, our comments and releases may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”) that are subject to risks and uncertainties and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements can be identified by words such as “believes,” “anticipates,” “expects,” “forecast,” “guidance,” “intends,” “targeted,” “continue,” “remain,” “should,” “may,” “plans,” “estimates,” “will,” “will continue,” “will remain,” variations on such words or phrases, or similar references to future occurrences or events in future periods; however, such words are not the exclusive means of identifying such statements. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, and other financial items; (ii) statements of plans, objectives, and expectations of the Company or its management or Board of Directors; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Forward-looking statements are based on the Company’s current expectations and assumptions regarding its business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. The Company’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Many possible events or factors could affect the Company’s future financial results and performance and could cause such results or performance to differ materially from those expressed in forward looking statements. These factors include, but are not limited to, the following: (1) the Company’s ability to sustain its current internal growth rate and total growth rate; (2) changes in geopolitical, business and economic events, occurrences and conditions, including changes in rates of inflation or deflation, nationally, regionally and in the Company’s target markets, particularly in Texas and Colorado; (3) worsening business and economic conditions nationally, regionally and in the Company’s target markets, particularly in Texas and Colorado, and the geographic areas in those states in which the Company operates; (4) the Company’s dependence on its management team and its ability to attract, motivate and retain qualified personnel; (5) the concentration of the Company’s business within its geographic areas of operation in Texas and Colorado; (6) changes in asset quality, including increases in default rates on loans and higher levels of nonperforming loans and loan charge-offs; (7) concentration of the loan portfolio of Independent Bank, before and after the completion of acquisitions of financial institutions, in commercial and residential real estate loans and changes in the prices, values and sales volumes of commercial and residential real estate; (8) the ability of Independent Bank to make loans with acceptable net interest margins and levels of risk of repayment and to otherwise invest in assets at acceptable yields and presenting acceptable investment risks; (9) inaccuracy of the assumptions and estimates that the managements of Independent Bank and the financial institutions that it acquires make in establishing reserves for probable loan losses and other estimates; (10) lack of liquidity, including as a result of a reduction in the amount and sources of liquidity that the Company currently has; (11) material increases or decreases in the amount of deposits held by Independent Bank or other financial institutions that the Company acquires and the cost of those deposits; (12) the Company’s access to the debt and equity markets and the overall cost of funding its operations; (13) regulatory requirements to maintain minimum capital levels or maintenance of capital at levels sufficient to support the Company’s anticipated growth; (14) changes in market interest rates that affect the pricing of the loans and deposits of each of Independent Bank and the financial institutions that the Company acquires and the net interest income of each of Independent Bank and the financial institutions that the Company acquires; (15) fluctuations in the market value and liquidity of the securities the Company holds for sale, including as a result of changes in market interest rates; (16) effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services; (17) the institution and outcome of, and costs associated with, litigation and other legal proceedings against one of more of the Company, Independent Bank and financial institutions that the Company acquires or to which any of such entities is subject; (18) the occurrence of market conditions adversely affecting the financial industry generally; (19) the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by the Company’s regulators, and changes in federal government policies, as well as changes in regulatory requirements applicable to, and resulting from regulatory supervision of, the Company and Independent Bank as a financial institution with total assets greater than $10 billion; (20) changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC and the Public Company Accounting Oversight Board, or PCAOB, as the case may be; (21) governmental monetary and fiscal policies; (22) changes in the scope and cost of FDIC insurance and other coverage; (23) the effects of war or other conflicts, acts of terrorism (including cyber attacks) or other catastrophic events, including storms, droughts, tornadoes, hurricanes and flooding, that may affect general economic conditions; (24) the Company’s actual cost savings resulting from previous or future acquisitions are less than expected, it is unable to realize those cost savings as soon as expected, or it incurs additional or unexpected costs; (25) the Company’s revenues after previous or future acquisitions are less than expected; (26) the liquidity of, and changes in the amounts and sources of liquidity available to, the Company, before and after the acquisition of any financial institutions that the Company acquires; (27) deposit attrition, operating costs, customer loss and business disruption before and after the Company’s completed acquisitions, including, without limitation, difficulties in maintaining relationships with employees, may be greater than the Company expected; (28) the effects of the combination of the operations of financial institutions that the Company acquired in the recent past or may acquire in the future with the Company’s operations and the operations of Independent Bank, the effects of the integration of such operations being unsuccessful, and the effects of such integration being more difficult, time-consuming or costly than expected or not yielding the cost savings that the Company expects; (29) the impact of investments that the Company or Independent Bank may have made or may make and the changes in the value of those investments; (30) the quality of the assets of financial institutions and companies that the Company has acquired in the recent past or may acquire in the future being different than the Company determined or determine in its due diligence investigation in connection with the acquisition of such financial institutions and any inadequacy of loan loss reserves relating to, and exposure to unrecoverable losses on, loans acquired; (31) the Company’s ability to continue to identify acquisition targets and successfully acquire desirable financial institutions to sustain its growth, to expand its presence in its markets and to enter new markets; (32) technology-related changes are harder to make or are more expensive than expected; (33) attacks on the security of, and breaches of, the Company or Independent Bank’s digital information systems, the costs the Company or Independent Bank incur to provide security against such attacks and any costs and liability the Company or Independent Bank incurs in connection with any breach of those systems; (34) the potential impact of technology and “FinTech” entities on the banking industry generally; (35) our success at managing the risks involved in the foregoing items; and (36) the other factors that are described in the Company’s Annual Report on Form 10-K filed on February 28, 2019, under the heading “Risk Factors”, and other reports and statements filed by the Company with the SEC as well as those described in Guaranty Bancorp’s Annual Report on Form 10-K filed on February 28, 2018, and other reports and statements filed by Guaranty Bancorp with the SEC. Any forward-looking statement made by the Company in this document speaks only as of the date on which it is made. Factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this press release contains certain non-GAAP financial measures. These measures and ratios include “adjusted net income”, “adjusted earnings”, “tangible book value”, “tangible book value per common share”, “adjusted efficiency ratio”, “tangible common equity to tangible assets”, “adjusted net interest margin”, “return on tangible equity”, “adjusted return on average assets” and “adjusted return on average equity” and are supplemental measures that are not required by, or are not presented in accordance with, accounting principles generally accepted in the United States. We consider the use of select non-GAAP financial measures and ratios to be useful for financial operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results. We believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.

We believe that these measures provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however we acknowledge that our financial measures have a number of limitations relative to GAAP financial measures. Certain non-GAAP financial measures exclude items of income, expenditures, expenses, assets, or liabilities, including provisions for loan losses and the effect of goodwill, other intangible assets and income from accretion on acquired loans arising from purchase accounting adjustments, that we believe cause certain aspects of our results of operations or financial condition to be not indicative of our primary operating results. All of these items significantly impact our financial statements. Additionally, the items that we exclude in our adjustments are not necessarily consistent with the items that our peers may exclude from their results of operations and key financial measures and therefore may limit the comparability of similarly named financial measures and ratios. We compensate for these limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non- GAAP financial measure so that both measures and the individual components may be considered when analyzing our performance.

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

Contacts:

Analysts/Investors:

Paul Langdale
Investor Relations Officer
(972) 562-9004
plangdale@ibtx.com

Michelle Hickox
Executive Vice President and Chief Financial Officer
(972) 562-9004
mhickox@ibtx.com

Media:

Peggy Smolen
Senior Vice President, Marketing & Communications Director

(972) 562-9004
psmolen@ibtx.com

Independent Bank Group, Inc. and Subsidiaries
Consolidated Financial Data
Three Months Ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018
(Dollars in thousands, except for share data)
(Unaudited)

As of and for the Quarter Ended
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
Selected Income Statement Data
Interest income
$ 167,663 $ 155,576 $ 112,805 $ 109,289 $ 97,082
Interest expense
38,020 33,924 25,697 23,021 18,173
Net interest income
129,643 121,652 87,108 86,268 78,909
Provision for loan losses
4,739 3,224 2,910 1,525 2,730
Net interest income after provision for loan losses
124,904 118,428 84,198 84,743 76,179
Noninterest income
16,199 16,424 9,887 12,749 10,133
Noninterest expense
77,978 86,595 51,848 52,655 49,158
Income tax expense
13,389 11,126 8,273 9,141 7,519
Net income
49,736 37,131 33,964 35,696 29,635
Adjusted net income (1)
52,928 52,028 34,120 36,593 32,239
Per Share Data (Common Stock)
Earnings:
Basic
$ 1.15 $ 0.85 $ 1.11 $ 1.17 $ 1.02
Diluted
1.15 0.85 1.11 1.17 1.02
Adjusted earnings:
Basic (1)
1.22 1.19 1.12 1.20 1.11
Diluted (1)
1.22 1.19 1.12 1.20 1.11
Dividends
0.25 0.25 0.14 0.14 0.14
Book value
52.37 51.17 52.50 51.42 50.49
Tangible book value (1)
26.66 25.84 27.44 26.21 25.23
Common shares outstanding
42,953,818 43,665,793 30,600,582 30,477,648 30,468,413
Weighted average basic shares outstanding (3)
43,331,988 43,759,348 30,503,062 30,473,603 29,065,426
Weighted average diluted shares outstanding (3)
43,331,988 43,759,348 30,503,062 30,563,717 29,157,817
Selected Period End Balance Sheet Data
Total assets
$ 14,708,922 $ 14,145,383 $ 9,849,965 $ 9,891,464 $ 10,017,037
Cash and cash equivalents
579,447 431,799 130,779 290,170 447,049
Securities available for sale
1,104,520 1,074,310 685,350 760,995 791,065
Loans held for sale
106,489 22,598 32,727 27,730 30,056
Loans held for investment, excluding mortgage warehouse purchase loans
10,784,041 10,692,183 7,717,510 7,554,124 7,479,977
Mortgage warehouse purchase loans
453,492 251,258 170,290 150,267 164,790
Allowance for loan losses
51,075 46,505 44,802 42,166 43,308
Goodwill and other intangible assets
1,104,187 1,105,705 766,839 768,317 769,630
Other real estate owned
10,972 6,018 4,200 4,610 4,200
Noninterest-bearing deposits
3,153,001 3,089,794 2,145,930 2,235,377 2,170,639
Interest-bearing deposits
8,377,586 8,149,632 5,591,864 5,547,475 5,362,766
Borrowings (other than junior subordinated debentures)
792,534 538,425 427,316 482,207 887,724
Junior subordinated debentures
53,725 53,676 27,852 27,803 27,753
Total stockholders’ equity
2,249,342 2,234,202 1,606,433 1,567,184 1,538,269

Independent Bank Group, Inc. and Subsidiaries
Consolidated Financial Data

Three Months Ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018
(Dollars in thousands, except for share data)
(Unaudited)

As of and for the Quarter Ended
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
Selected Performance Metrics
Return on average assets
1.39 % 1.08 % 1.34 % 1.41 % 1.30 %
Return on average equity
8.90 6.78 8.51 9.11 8.38
Return on tangible equity (4)
17.52 13.55 16.52 18.01 16.49
Adjusted return on average assets (1)
1.47 1.51 1.35 1.45 1.41
Adjusted return on average equity (1)
9.47 9.51 8.55 9.34 9.12
Adjusted return on tangible equity (1) (4)
18.65 18.98 16.60 18.47 17.94
Net interest margin
4.11 4.05 3.98 3.94 3.97
Adjusted net interest margin (2)
4.03 4.01 3.93 3.89 3.93
Efficiency ratio
51.25 60.37 51.91 51.64 53.64
Adjusted efficiency ratio (1)
47.39 47.05 51.26 49.77 49.50
Credit Quality Ratios (5)
Nonperforming assets to total assets
0.19 % 0.12 % 0.17 % 0.16 % 0.17 %
Nonperforming loans to total loans held for investment (6)
0.16 0.10 0.16 0.14 0.17
Nonperforming assets to total loans held for investment and other real estate (6)
0.26 0.16 0.22 0.20 0.23
Allowance for loan losses to non-performing loans
302.15 433.82 354.73 395.37 344.70
Allowance for loan losses to total loans held for investment (6)
0.47 0.43 0.58 0.56 0.58
Net charge-offs to average loans outstanding (annualized)
0.01 0.06 0.01 0.14 0.08
Capital Ratios
Estimated common equity tier 1 capital to risk-weighted assets
9.24 % 9.60 % 10.05 % 9.83 % 9.31 %
Estimated tier 1 capital to average assets
9.06 9.33 9.57 9.20 9.71
Estimated tier 1 capital to risk-weighted assets
9.69 10.07 10.41 10.20 9.67
Estimated total capital to risk-weighted assets
11.54 11.96 12.58 12.38 11.85
Total stockholders’ equity to total assets
15.29 15.79 16.31 15.84 15.36
Tangible common equity to tangible assets (1)
8.42 8.65 9.24 8.76 8.31

(1) Non-GAAP financial measure. See reconciliation.
(2)
Non-GAAP financial measure. Excludes unexpected income recognized on credit impaired acquired loans of $2,695, $1,016, $967, $1,051 and $954, respectively.

(3) Total number of shares includes participating shares (those with dividend rights).
(4) Non-GAAP financial measure. Excludes average balance of goodwill and net other intangible assets.
(5) Nonperforming loans and assets excludes loans acquired with deteriorated credit quality
(6) Excludes mortgage warehouse purchase loans.

Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Income
Three and Six Months Ended June 30, 2019 and 2018
(Dollars in thousands)
(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Interest income:
Interest and fees on loans
$ 157,431 $ 91,614 $ 302,962 $ 174,889
Interest on taxable securities
5,277 3,501 10,727 6,404
Interest on nontaxable securities
2,127 1,179 4,352 2,372
Interest on interest-bearing deposits and other
2,828 788 5,198 1,531
Total interest income
167,663 97,082 323,239 185,196
Interest expense:
Interest on deposits
31,322 12,827 59,164 22,626
Interest on FHLB advances
2,984 2,847 5,594 4,733
Interest on other borrowings and repurchase agreements
2,923 2,097 5,638 4,199
Interest on junior subordinated debentures
791 402 1,548 762
Total interest expense
38,020 18,173 71,944 32,320
Net interest income
129,643 78,909 251,295 152,876
Provision for loan losses
4,739 2,730 7,963 5,425
Net interest income after provision for loan losses
124,904 76,179 243,332 147,451
Noninterest income:
Service charges on deposit accounts
6,164 3,533 12,074 7,018
Investment management and trust
2,522 4,741
Mortgage banking revenue
3,702 3,609 6,795 7,023
Gain on sale of other real estate
312 58 312 118
Gain (loss) on sale of securities available for sale
20 (10 ) 265 (234 )
Loss on sale of premises and equipment
(279 ) (89 ) (270 ) (97 )
Increase in cash surrender value of BOLI
1,374 758 2,733 1,497
Other
2,384 2,274 5,973 4,263
Total noninterest income
16,199 10,133 32,623 19,588
Noninterest expense:
Salaries and employee benefits
40,532 26,790 82,912 51,958
Occupancy
9,585 6,018 18,576 11,682
Data processing
4,449 2,467 8,218 4,872
FDIC assessment
962 712 2,210 1,453
Advertising and public relations
812 332 1,475 717
Communications
1,327 793 2,622 1,734
Other real estate owned expenses, net
79 119 150 209
Impairment of other real estate
988 1,424 85
Amortization of other intangible assets
3,235 1,393 6,470 2,724
Professional fees
1,544 1,133 2,714 2,252
Acquisition expense, including legal
3,723 3,444 18,710 3,989
Other
10,742 5,957 19,092 12,441
Total noninterest expense
77,978 49,158 164,573 94,116
Income before taxes
63,125 37,154 111,382 72,923
Income tax expense
13,389 7,519 24,515 14,324
Net income
$ 49,736 $ 29,635 $ 86,867 $ 58,599

Independent Bank Group, Inc. and Subsidiaries
Consolidated Balance Sheets
As of June 30, 2019 and December 31, 2018

(Dollars in thousands)
(Unaudited)

June 30, December 31,
Assets
2019 2018
Cash and due from banks
$ 141,310 $ 102,024
Interest-bearing deposits in other banks
438,137 28,755
Cash and cash equivalents
579,447 130,779
Certificates of deposit held in other banks
5,216 1,225
Securities available for sale, at fair value
1,104,520 685,350
Loans held for sale
106,489 32,727
Loans, net
11,183,877 7,839,695
Premises and equipment, net
244,523 167,866
Other real estate owned
10,972 4,200
Federal Home Loan Bank (FHLB) of Dallas stock and other restricted stock
33,346 26,870
Bank-owned life insurance (BOLI)
212,704 129,521
Deferred tax asset
13,189 13,180
Goodwill
994,097 721,797
Other intangible assets, net
110,090 45,042
Other assets
110,452 51,713
Total assets
$ 14,708,922 $ 9,849,965
Liabilities and Stockholders??? Equity
Deposits:
Noninterest-bearing
$ 3,153,001 $ 2,145,930
Interest-bearing
8,377,586 5,591,864
Total deposits
11,530,587 7,737,794
FHLB advances
580,000 290,000
Other borrowings
212,534 137,316
Junior subordinated debentures
53,725 27,852
Other liabilities
82,734 50,570
Total liabilities
12,459,580 8,243,532
Commitments and contingencies
Stockholders’ equity:
Preferred stock
Common stock
430 306
Additional paid-in capital
1,922,475 1,317,616
Retained earnings
309,314 296,816
Accumulated other comprehensive income (loss)
17,123 (8,305 )
Total stockholders’ equity
2,249,342 1,606,433
Total liabilities and stockholders’ equity
$ 14,708,922 $ 9,849,965

Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis

Three Months Ended June 30, 2019 and 2018
(Dollars in thousands)
(Unaudited)

The analysis below shows average interest earning assets and interest bearing liabilities together with the average yield on the interest earning assets and the average cost of the interest bearing liabilities for the periods presented.

Three Months Ended June 30,
2019 2018
Average Outstanding Balance Interest Yield/Rate (4) Average Outstanding Balance Interest Yield/Rate (4)
Interest-earning assets:
Loans (1)
$ 11,088,633 $ 157,431 5.69 % $ 7,021,447 $ 91,614 5.23 %
Taxable securities
776,869 5,277 2.72 605,009 3,501 2.32
Nontaxable securities
332,552 2,127 2.57 183,043 1,179 2.58
Interest-bearing deposits and other
446,075 2,828 2.54 154,986 788 2.04
Total interest-earning assets
12,644,129 167,663 5.32 7,964,485 97,082 4.89
Noninterest-earning assets
1,753,723 1,200,430
Total assets
$ 14,397,852 $ 9,164,915
Interest-bearing liabilities:
Checking accounts
$ 3,846,970 $ 10,653 1.11 % $ 2,959,101 $ 6,217 0.84 %
Savings accounts
524,642 332 0.25 284,103 136 0.19
Money market accounts
2,074,568 11,041 2.13 884,630 3,889 1.76
Certificates of deposit
1,782,799 9,296 2.09 893,931 2,585 1.16
Total deposits
8,228,979 31,322 1.53 5,021,765 12,827 1.02
FHLB advances
500,330 2,984 2.39 563,875 2,847 2.03
Other borrowings and repurchase agreements
201,540 2,923 5.82 137,843 2,097 6.10
Junior subordinated debentures
53,708 791 5.91 27,736 402 5.81
Total interest-bearing liabilities
8,984,557 38,020 1.70 5,751,219 18,173 1.27
Noninterest-bearing checking accounts
3,093,478 1,973,582
Noninterest-bearing liabilities
78,305 21,578
Stockholders??? equity
2,241,512 1,418,536
Total liabilities and equity
$ 14,397,852 $ 9,164,915
Net interest income
$ 129,643 $ 78,909
Interest rate spread
3.62 % 3.62 %
Net interest margin (2)
4.11 3.97
Net interest income and margin (tax equivalent basis) (3)
$ 130,568 4.14 $ 79,324 3.99
Average interest earning assets to interest bearing liabilities
140.73 138.48

(1) Average loan balances include nonaccrual loans.
(2)
Net interest margins for the periods presented represent: (i) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (ii) average interest-earning assets for the period.

(3) A tax-equivalent adjustment has been computed using a federal income tax rate of 21% for the three months ended June 30, 2019 and 2018, respectively.
(4) Yield and rates for the three month periods are annualized.

Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
Six Months Ended June 30, 2019 and 2018
(Dollars in thousands)
(Unaudited)

The analysis below shows average interest earning assets and interest bearing liabilities together with the average yield on the interest earning assets and the average cost of the interest bearing liabilities for the periods presented.

Six Months Ended June 30,
2019 2018
Average Outstanding Balance Interest Yield/ Rate (4) Average Outstanding Balance Interest Yield/ Rate (4)
Interest-earning assets:
Loans (1)
$ 10,899,746 $ 302,962 5.61 % $ 6,730,278 $ 174,889 5.24 %
Taxable securities
774,837 10,727 2.79 596,779 6,404 2.16
Nontaxable securities
333,757 4,352 2.63 186,219 2,372 2.57
Interest-bearing deposits and other
413,248 5,198 2.54 161,808 1,531 1.91
Total interest-earning assets
12,421,588 323,239 5.25 7,675,084 185,196 4.87
Noninterest-earning assets
1,766,074 1,187,653
Total assets
$ 14,187,662 $ 8,862,737
Interest-bearing liabilities:
Checking accounts
$ 3,877,885 $ 20,751 1.08 % $ 2,938,343 $ 11,175 0.77 %
Savings accounts
514,816 656 0.26 281,849 250 0.18
Money market accounts
1,987,400 20,652 2.10 802,540 6,511 1.64
Certificates of deposit
1,720,679 17,105 2.00 878,263 4,690 1.08
Total deposits
8,100,780 59,164 1.47 4,900,995 22,626 0.93
FHLB advances
473,329 5,594 2.38 523,345 4,733 1.82
Other borrowings and repurchase agreements
193,656 5,638 5.87 137,821 4,199 6.14
Junior subordinated debentures
53,683 1,548 5.81 27,711 762 5.55
Total interest-bearing liabilities
8,821,448 71,944 1.64 5,589,872 32,320 1.17
Noninterest-bearing checking accounts
3,059,110 1,871,129
Noninterest-bearing liabilities
76,521 18,699
Stockholders??? equity
2,230,583 1,383,037
Total liabilities and equity
$ 14,187,662 $ 8,862,737
Net interest income
$ 251,295 $ 152,876
Interest rate spread
3.61 % 3.70 %
Net interest margin (2)
4.08 4.02
Net interest income and margin (tax equivalent basis) (3)
$ 253,133 4.11 $ 153,746 4.04
Average interest earning assets to interest bearing liabilities
140.81 137.30

(1) Average loan balances include nonaccrual loans.
(2)
Net interest margins for the periods presented represent: (i) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (ii) average interest-earning assets for the period.

(3) A tax-equivalent adjustment has been computed using a federal income tax rate of 21% for the six months ended June 30, 2019 and 2018, respectively.
(4) Yield and rates for the six month periods are annualized.

Independent Bank Group, Inc. and Subsidiaries
Loan Portfolio Composition
As of June 30, 2019 and December 31, 2018
(Dollars in thousands)
(Unaudited)

Totals loans by category

June 30, 2019 December 31, 2018
Amount % of Total Amount % of Total
Commercial (1)
$ 2,220,172 19.6 % $ 1,361,104 17.2 %
Real estate:
Commercial real estate
5,831,466 51.4 4,141,356 52.3
Commercial construction, land and land development
1,164,789 10.3 905,421 11.4
Residential real estate (2)
1,573,467 13.9 1,082,248 13.7
Single-family interim construction
379,422 3.3 331,748 4.2
Agricultural
107,685 0.9 66,638 0.8
Consumer (2)
66,432 0.6 31,759 0.4
Other
589 253
Total loans
11,344,022 100.0 % 7,920,527 100.0 %
Deferred loan fees
(2,581 ) (3,303 )
Allowance for loan losses
(51,075 ) (44,802 )
Total loans, net
$ 11,290,366 $ 7,872,422

(1) Includes mortgage warehouse purchase loans of $453,492 and $170,290 at June 30, 2019 and December 31, 2018, respectively.
(2)
Includes residential real estate loans held for sale at June 30, 2019 and December 31, 2018 of $74,064 and $32,727, respectively, and consumer loans held for sale at June 30, 2019 of $32,425.

Independent Bank Group, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures

Three Months Ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018
(Dollars in thousands, except for share data)
(Unaudited)

For the Three Months Ended
June 30, 2019 March 31, 2019 December 31, 2018 September 30, 2018 June 30, 2018
ADJUSTED NET INCOME
Net Interest Income – Reported
(a) $ 129,643 $ 121,652 $ 87,108 $ 86,268 $ 78,909
Unexpected income recognized on credit impaired acquired loans
(2,695 ) (1,016 ) (967 ) (1,051 ) (954 )
Adjusted Net Interest Income
(b) 126,948 120,636 86,141 85,217 77,955
Provision Expense – Reported
(c) 4,739 3,224 2,910 1,525 2,730
Noninterest Income – Reported
(d) 16,199 16,424 9,887 12,749 10,133
Gain on sale of OREO and repossessed assets
(312 ) (56 ) (95 ) (58 )
(Gain) loss on sale of securities
(20 ) (245 ) 232 115 10
Loss (gain) on sale of premises and equipment
279 (9 ) (220 ) 89
Recoveries on loans charged off prior to acquisition
(258 ) (1,311 ) (109 ) (230 ) (336 )
Adjusted Noninterest Income
(e) 15,888 14,859 9,954 12,319 9,838
Noninterest Expense – Reported
(f) 77,978 86,595 51,848 52,655 49,158
OREO impairment
(988 ) (436 )
IPO related stock grants
(11 )
Acquisition expense (4)
(6,069 ) (19,171 ) (1,094 ) (2,594 ) (4,296 )
Adjusted Noninterest Expense
(g) 70,921 66,988 50,754 50,061 44,851
Adjusted Net Income (1)
(b)-(c)+(e)-(g) $ 52,928 $ 52,028 $ 34,120 $ 36,593 $ 32,239
ADJUSTED PROFITABILITY
Adjusted Return on Average Assets (2)
1.47 % 1.51 % 1.35 % 1.45 % 1.41 %
Adjusted Return on Average Equity (2)
9.47 % 9.51 % 8.55 % 9.34 % 9.12 %
Adjusted Return on Tangible Equity (2)
18.65 % 18.98 % 16.60 % 18.47 % 17.94 %
Total Average Assets
$ 14,397,852 $ 13,975,192 $ 10,026,151 $ 10,028,224 $ 9,164,915
Total Average Stockholders’ Equity
$ 2,241,512 $ 2,219,533 $ 1,582,860 $ 1,554,502 $ 1,418,536
Total Average Tangible Stockholders’ Equity (3)
$ 1,138,340 $ 1,111,668 $ 815,533 $ 786,126 $ 720,653
EFFICIENCY RATIO
Amortization of other intangible assets
(h) $ 3,235 $ 3,235 $ 1,496 $ 1,519 $ 1,393
Reported Efficiency Ratio
(f-h)/(a+d) 51.25 % 60.37 % 51.91 % 51.64 % 53.64 %
Adjusted Efficiency Ratio
(g-h)/(b+e) 47.39 % 47.05 % 51.26 % 49.77 % 49.50 %

(1) Assumes an adjusted effective tax rate of 21.2%, 20.3%, 19.6%, 20.4%, and 19.8% for the quarters ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.
(2)
Calculated using adjusted net income.

(3) Excludes average balance of goodwill and net other intangible assets.
(4) Acquisition expenses include $2,346, $4,184, $608, $912 and $852, of compensation related expenses in addition to $3,723, $14,987, $486, $1,682 and $3,444 of merger-related expenses for the quarters ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.

Independent Bank Group, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
As of June 30, 2019 and December 31, 2018
(Dollars in thousands, except per share information)
(Unaudited)

Tangible Book Value & Tangible Common Equity To Tangible Asset Ratio
June 30, December 31,
2019 2018
Tangible Common Equity
Total common stockholders’ equity
$ 2,249,342 $ 1,606,433
Adjustments:
Goodwill
(994,097 ) (721,797 )
Other intangible assets, net
(110,090 ) (45,042 )
Tangible common equity
$ 1,145,155 $ 839,594
Tangible Assets
Total assets
$ 14,708,922 $ 9,849,965
Adjustments:
Goodwill
(994,097 ) (721,797 )
Other intangible assets, net
(110,090 ) (45,042 )
Tangible assets
$ 13,604,735 $ 9,083,126
Common shares outstanding
42,953,818 30,600,582
Tangible common equity to tangible assets
8.42 % 9.24 %
Book value per common share
$ 52.37 $ 52.50
Tangible book value per common share
26.66 27.44

SOURCE: Independent Bank Group, Inc.

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