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Independent Bank Group Reports Second Quarter Financial Results

 July 25, 2016 - 5:00 PM EDT

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Independent Bank Group Reports Second Quarter Financial Results

MCKINNEY, Texas, July 25, 2016 (GLOBE NEWSWIRE) -- Independent Bank Group, Inc. (NASDAQ:IBTX), the holding company for Independent Bank, today announced net income available to common shareholders of $11.8 million, or $0.64 per diluted share, for the quarter ended June 30, 2016 compared to $10.5 million, or $0.61 per diluted share, for the quarter ended June 30, 2015 and $12.4 million, or $0.67 per diluted share, for the quarter ended March 31, 2016.

Highlights

  • Core earnings were $13.8 million, or $0.74 per diluted share, compared to $12.4 million, or $0.67 per diluted share, for first quarter 2016, representing an increase of 10.5%
  • Annualized organic loan growth of 11.8% for the quarter and 13.2% year to date 
  • Credit quality metrics improved to historically low levels 
  • Significant paydowns in the energy portfolio reducing it to 2.9% of the total loan portfolio at quarter end
  • Completed $45 million subordinated debt offering enhancing the Company's capital position

Independent Bank Group Chairman and Chief Executive Officer David Brooks said, "This was another quarter of improved operating performance for our Company.  Continued solid loan growth and improved credit metrics drove strong core earnings. We also strengthened our capital position with our recent issuance of subordinated debt.  We believe that this quarter's results reflect our commitment to stronger earnings and enhancement of shareholder value."

Second Quarter 2016 Operating Results

Net Interest Income

  • Net interest income was $45.9 million for second quarter 2016 compared to $37.8 million for second quarter 2015 and $45.7 million for first quarter 2016. Net interest income increased compared to the linked quarter due to continued organic loan growth and despite significantly lower accretion income compared to first quarter 2016. The increase in net interest income from the previous year was primarily due to increased average loan balances resulting from organic loan growth as well as loans acquired in the Grand Bank acquisition in November 2015.
  • The yield on interest-earning assets was 4.49% for second quarter 2016 compared to 4.64% for second quarter 2015 and 4.60% for first quarter 2016. The first quarter 2016 included unusually high accretion income of $1.3 million compared to only $265 thousand during second quarter 2016.  In addition during first quarter 2016, $182 thousand in interest income was recognized resulting from the payoff of a nonaccrual loan as well as the collection of a $160 thousand extension fee on an energy credit that also increased the yield compared to the second quarter.  The decrease in the rate from prior year is primarily due to decreased market rates over the year and also due in part to lower accretion income on acquired loans in the second quarter 2016 compared to the same period in 2015.
  • The cost of interest bearing liabilities, including borrowings, was 0.66% for second quarter 2016 compared to 0.69% for second quarter 2015 and 0.65% for first quarter 2016.  The decrease from the prior year is primarily due to the maturities of higher rate FHLB advances during 2015.  The slight increase from the linked quarter is due to increased money market and CD costs.
  • The net interest margin was 3.96% for second quarter 2016 compared to 4.10% for second quarter 2015 and 4.08% for first quarter 2016.  The core margin, which excludes purchased loan accretion, was 3.94% for second quarter 2016 compared to 4.04% for second quarter 2015 and 3.96% for first quarter 2016.
  • The average balance of total interest-earning assets grew by $960.8 million and totaled $4.7 billion at June 30, 2016 compared to $3.7 billion at June 30, 2015 and grew by $155.8 million compared to $4.5 billion at March 31, 2016.  This increase from prior year and the linked quarter is due to organic growth while the change from prior year is also due to loans acquired in the Grand Bank acquisition.

Noninterest Income

  • Total noninterest income increased $820 thousand compared to second quarter 2015 and increased $459 thousand compared to first quarter 2016.
  • The increase from the prior year reflects an increase of $592 thousand in mortgage fee income and a $275 thousand increase in other noninterest income.  The increase in mortgage fee income is due to a decrease in mortgage rates and increased home purchase activity in the Dallas and Austin markets.  The increase in other noninterest income from the prior year is primarily related to an increase in earning credits on correspondent accounts.
  • The increase from the linked quarter primarily relates to an increase of $645 thousand in mortgage fee income offset by a decrease of $184 thousand in other noninterest income.  The increase in mortgage fee income is explained above and the decrease in other noninterest expense is primarily due to a decrease of $291 thousand in income distributions from small business investment funds offset by an increase of $102 thousand in earning credits on correspondent accounts for the respective periods.

Noninterest Expense

  • Total noninterest expense increased $6.6 million compared to second quarter 2015 and $2.5 million compared to first quarter 2016.
  • The increase in noninterest expense compared to second quarter 2015 is due primarily to an increase of $4.9 million in salaries and benefits expense in addition to increases of $537 thousand in data processing expenses, $376 thousand in FDIC assessment, $300 thousand in professional fees and $303 thousand in other noninterest expense.  Overall increases in noninterest expense from the prior year are generally due to the increase in number of employees and operating costs resulting from the Grand Bank transaction.  The increase in salaries and benefits from the prior year is also due to compensation costs of approximately $2.6 million recognized during the second quarter relating to the Company's senior leadership restructure including $2 million for the former Houston Region CEO's Separation Agreement which was previously disclosed.  The increase in professional fees is primarily due to increased legal fees on existing litigation inherited in the Bank of Houston transaction and legal fees related to energy loan workouts.
  • The increase from the linked quarter is primarily related to increases of $2.8 million in salaries and benefits and $317 thousand in professional fees offset by a decrease of $549 thousand in acquisition fees.  Salaries and benefits increased primarily due to the executive team restructure as discussed above.  Professional fees increased during second quarter 2016 primarily because legal expenses related to the energy portfolio and the existing Bank of Houston litigation.  Conversion-related acquisition expenses were lower in the second quarter as most of the expenses related to the November 2015 acquisition of Grand Bank were recognized in the first quarter of 2016.

Provision for Loan Losses

  • Provision for loan loss expense was $2.1 million for the second quarter 2016, an increase of $464 thousand compared to $1.7 million for second quarter 2015 and decrease of $874 thousand compared to $3.0 million for the first quarter 2016. The provision expense for second quarter 2016 was based upon loan growth and net charge-offs for the quarter.  It was lower compared to first quarter 2016 because it does not include a general provision to reflect potential risk in the energy portfolio that was made for this purpose in first quarter 2016.  The provision expense is higher compared to second quarter 2015 due to higher organic loan growth experienced during second quarter 2016.
  • The allowance for loan losses was $30.9 million, or 0.73% of total loans, at June 30, 2016, compared to $21.8 million, or 0.64% of total loans at June 30, 2015, and compared to $30.0 million, or 0.73% of total loans, at March 31, 2016. The maintenance of the allowance at the same percentage of total loans compared to first quarter 2016 reflects the improved credit metrics in the energy portfolio as well as the significant reduction in the total energy portfolio.  The increase in the allowance from the prior year is due to additions to general reserves for organic loan growth, specific allocations on impaired assets, as well as an increase in general reserves for the energy portfolio. As of June 30, 2016, the total energy related allowance to the total energy portfolio was 6.8%.

Income Taxes

  • Federal income tax expense of $5.9 million was recorded for the quarter ended June 30, 2016, an effective rate of 33.2%, compared to tax expense of $5.2 million and an effective rate of 33.0% for the quarter ended June 30, 2015 and tax expense of $6.2 million and an effective rate of 33.1% for the quarter ended March 31, 2016.

Second Quarter 2016 Balance Sheet Highlights:

Loans

  • Total loans held for investment were $4.251 billion at June 30, 2016 compared to $4.130 billion at March 31, 2016 and to $3.376 billion at June 30, 2015.  This represented total loan growth of $121.0 million for the quarter, or 11.8% on an annualized basis. Loans have grown 13.2%, annualized, from December 31, 2015.
  • Energy outstandings at the end of second quarter were $122.1 million (2.9% of total loans) versus $185.9 million at first quarter 2016, a reduction of 34.3%. The production portfolio, consisting of working interest and royalty credits, was $108.9 million (2.6% of total loans) made up of 21 credits and 20 relationships. Oil field service related loans represented an additional $13.2 million (0.3% of loans) and consisted of 25 borrowers.  As of June 30, 2016, there were four nonperforming classified energy credits with balances totaling $11.7 million and three performing classified energy credits with a balance of $20.5 million.  All energy related credits continue to be closely monitored and the Company is in close contact with borrowers to maintain a real time understanding of their current financial condition.

Asset Quality

  • Total nonperforming assets decreased to $18.7 million, or 0.34% of total assets at June 30, 2016 from $32.7 million, or 0.62% of total assets at March 31, 2016 and increased slightly from $16.3 million, or 0.37% of total assets at June 30, 2015.
  • Total nonperforming loans decreased to $17.2 million, or 0.40% of total loans at June 30, 2016 compared to $29.9 million, or 0.72% of total loans at March 31, 2016 and increased from $13.3 million, or 0.40% of total loans at June 30, 2015.
  • The decrease in nonperforming assets and nonperforming loans from the linked quarter is primarily due to the pay-off of a $17.1 million energy loan participation that had been placed on nonaccrual during the first quarter 2016.
  • Charge-offs were 0.11% annualized in the second quarter 2016 compared to 0.01% annualized in the linked and prior year quarters.  The increase in charge-offs for the current quarter is primarily due a $925 thousand charge-off related to the $17.1 million energy loan discussed above, which was paid off at a discount during the second quarter 2016.

Deposits and Borrowings

  • Total deposits were $4.208 billion at June 30, 2016 compared to $4.172 billion at March 31, 2016 and compared to $3.467 billion at June 30, 2015.
  • Total borrowings (other than junior subordinated debentures) were $578.2 million at June 30, 2016, an increase of $133.4 million from March 31, 2016 and an increase of $306.7 million from June 30, 2015.  These changes reflect the issuance of $43.4 million, net of discount and costs, of our 5.875% subordinated debentures issued in second quarter 2016 with the remainder resulting from the use of short term FHLB advances during the applicable periods.

Capital

  • The tangible common equity to tangible assets and the Tier 1 capital to average assets ratios were 6.88% and 7.42% (estimated), respectively, at June 30, 2016 compared to 6.86% and 7.36%, respectively, at March 31, 2016 and 7.11% and 8.40%, respectively, at June 30, 2015.  The total stockholders’ equity to total assets ratio was 11.56%, 11.71% and 12.79% at June 30, 2016, March 31, 2016 and June 30, 2015, respectively.  Total capital to risk weighted assets was 11.35% at June 30, 2016 (estimated) compared to 10.47% at March 31, 2016 and 12.05% at June 30, 2015.  The respective changes in capital ratios from the previous year and the linked quarter is primarily due to the redemption of the SBLF preferred stock in January 2016 and the issuance of $45 million subordinated debentures in June 2016.
  • Book value and tangible book value per common share were $34.08 and $19.28, respectively, at June 30, 2016 compared to $33.38 and $18.54, respectively, at March 31, 2016 and $31.30 and $17.18, respectively, at June 30, 2015.
  • Return on tangible equity (on an annualized basis) was 13.52% for the second quarter 2016 compared to 14.57% and 14.48% for the first quarter 2016 and second quarter 2015, respectively.
  • Return on average assets and return on average equity (on an annualized basis) were 0.88% and 7.60%, respectively, for second quarter 2016 compared to 0.95% and 8.10%, respectively, for first quarter 2016 and 0.99% and 7.91%, respectively, for second quarter 2015.  Ratios for the second quarter 2016 were negatively impacted by $2.6 million in additional compensation costs related to the senior leadership changes during the second quarter 2016.

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 42 banking offices in three market regions located in the Dallas/Fort Worth, Austin and Houston, Texas areas.

Conference Call

A conference call covering Independent Bank Group’s second quarter earnings announcement will be held on Tuesday, July 26, 2016 at 8:30 a.m. (EDT) and can be accessed by calling 1-877-303-7611 and by identifying the conference ID number 46069669. A recording of the conference call will be available from July 26, 2016 through August 2, 2016 by accessing our website, www.ibtx.com

Forward-Looking Statements

The numbers as of and for the quarter ended June 30, 2016 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”). 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 Independent Bank Group 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 Independent Bank Group’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. Independent Bank Group’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. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: (1) local, regional, national, and international economic conditions and the impact they may have on us and our customers and our assessment of that impact; (2) volatility and disruption in national and international financial markets; (3) government intervention in the U.S. financial system, whether through changes in the discount rate or money supply or otherwise; (4) changes in the level of nonperforming assets and charge-offs; (5) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (6) adverse conditions in the securities markets that lead to impairment in the value of securities in our investment portfolio; (7) inflation, deflation, changes in market interest rates, developments in the securities market, and monetary fluctuations; (8) the timely development and acceptance of new products and services and perceived overall value of these products and services by customers; (9) changes in consumer spending, borrowings, and savings habits; (10) technological changes; (11) the ability to increase market share and control expenses; (12) changes in the competitive environment among banks, bank holding companies, and other financial service providers; (13) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we and our subsidiaries must comply; (14) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters; (15) the costs and effects of legal and regulatory developments including the resolution of legal proceedings; and (16) our success at managing the risks involved in the foregoing items and (17) the other factors that are described in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, the Annual Report on Form 10-K filed on February 25, 2016, or the Prospectus Supplement filed pursuant to Rule 424(b)(5) on June 23, 2016, under the heading “Risk Factors”, and other reports and statements filed by the Company with the SEC. Any forward-looking statement made by the Company in this release 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 “core earnings”, “tangible book value”, “tangible book value per common share”, “core efficiency ratio”, “Tier 1 capital to average assets”, “Tier 1 capital to risk weighted assets”, “tangible common equity to tangible assets”, “net interest margin excluding purchase accounting accretion”, "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, core deposit intangibles 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.

Independent Bank Group, Inc. and Subsidiaries
Consolidated Financial Data
Three Months Ended June 30, 2016, March 31, 2016, December 31, 2015, September 30, 2015, and June 30, 2015
(Dollars in thousands, except for share data)
(Unaudited)

   
  As of and for the quarter ended
  June 30, 2016   March 31, 2016   December 31, 2015   September 30, 2015   June 30, 2015
Selected Income Statement Data                  
Interest income $ 51,941     $ 51,464     $ 47,414     $ 43,130     $ 42,747  
Interest expense 6,058     5,804     5,263     5,041     4,967  
Net interest income 45,883     45,660     42,151     38,089     37,780  
Provision for loan losses 2,123     2,997     1,970     3,932     1,659  
Net interest income after provision for loan losses 43,760     42,663     40,181     34,157     36,121  
Noninterest income 4,929     4,470     4,254     3,799     4,109  
Noninterest expense 31,023     28,519     28,527     25,830     24,455  
Income tax expense 5,857     6,162     5,347     3,924     5,204  
Net income 11,809     12,452     10,561     8,202     10,571  
Preferred stock dividends       8       60       60       60  
Net income available to common shareholders 11,809     12,444     10,501     8,142     10,511  
Core net interest income (1) 45,618     44,327     41,635     38,001     37,225  
Core Pre-Tax Pre-Provision Earnings (1) 22,713     21,590     18,875     17,123     17,379  
Core Earnings (1) 13,764     12,438     11,377     8,917     10,532  
                   
Per Share Data (Common Stock)                  
Earnings:                  
Basic $ 0.64     $ 0.67     $ 0.58     $ 0.48     $ 0.61  
Diluted 0.64     0.67     0.58     0.47     0.61  
Core earnings:                  
Basic (1) 0.75     0.67     0.63     0.52     0.62  
Diluted (1) 0.74     0.67     0.63     0.52     0.61  
Dividends 0.08     0.08     0.08     0.08     0.08  
Book value 34.08     33.38     32.79     31.81     31.30  
Tangible book value  (1) 19.28     18.54     17.85     17.72     17.18  
Common shares outstanding 18,475,978     18,461,480     18,399,194     17,111,394     17,108,394  
Weighted average basic shares outstanding (4) 18,469,182     18,444,284     17,965,055     17,110,090     17,111,958  
Weighted average diluted shares outstanding (4) 18,547,074     18,528,031     18,047,960     17,199,281     17,198,981  
                   
Selected Period End Balance Sheet Data                  
Total assets $ 5,446,797     $ 5,261,967     $ 5,055,000     $ 4,478,339     $ 4,375,727  
Cash and cash equivalents 436,605     356,526     293,279     353,950     424,196  
Securities available for sale 287,976     302,650     273,463     200,188     180,465  
Loans, held for sale 13,942     8,515     12,299     6,218     7,237  
Loans, held for investment 4,251,457     4,130,496     3,989,405     3,529,275     3,375,553  
Allowance for loan losses 30,916     29,984     27,043     25,088     21,764  
Goodwill and core deposit intangible 273,480     273,972     275,000     241,171     241,534  
Other real estate owned 1,567     1,745     2,168     2,323     2,958  
Noninterest-bearing deposits 1,107,620     1,070,611     1,071,656     884,272     886,087  
Interest-bearing deposits 3,100,785     3,101,341     2,956,623     2,649,768     2,581,397  
Borrowings (other than junior subordinated debentures)   578,169     444,745     371,283     334,485     271,504  
Junior subordinated debentures 18,147     18,147     18,147     18,147     18,147  
Series A Preferred Stock         23,938     23,938     23,938  
Total stockholders' equity 629,628     616,258     603,371     568,257     559,447  
                             
                             

Independent Bank Group, Inc. and Subsidiaries
Consolidated Financial Data
Three Months Ended June 30, 2016, March 31, 2016, December 31, 2015, September 30, 2015, and June 30, 2015
(Dollars in thousands, except for share data)
(Unaudited)

   
  As of and for the quarter ended
  June 30, 2016   March 31, 2016   December 31, 2015   September 30, 2015   June 30, 2015
Selected Performance Metrics                  
Return on average assets 0.88 %   0.95 %   0.86 %   0.76 %   0.99 %
Return on average equity (2) 7.60     8.10     7.28     5.96     7.91  
Return on tangible equity (2) (5) 13.52     14.57     13.37     10.75     14.48  
Adjusted return on average assets (1) 1.03     0.95     0.93     0.83     0.99  
Adjusted return on average equity (1) (2) 8.86     8.09     7.89     6.53     7.93  
Adjusted return on tangible equity (1) (2) (5) 15.76     14.57     14.49     11.77     14.51  
Net interest margin 3.96     4.08     3.96     4.08     4.10  
Adjusted net interest margin (3) 3.94     3.96     3.91     4.07     4.04  
Efficiency ratio 61.05     56.89     61.47     61.66     58.38  
Core efficiency ratio (1) 55.05     55.68     58.75     59.25     57.81  
                   
Credit Quality Ratios                  
Nonperforming assets to total assets 0.34 %   0.62 %   0.36 %   0.34 %   0.37 %
Nonperforming loans to total loans 0.40     0.72     0.37     0.33     0.40  
Nonperforming assets to total loans and other real estate 0.44     0.79     0.45     0.43     0.48  
Allowance for loan losses to non-performing loans 179.97     100.35     181.99     214.21     163.12  
Allowance for loan losses to total loans 0.73     0.73     0.68     0.71     0.64  
Net charge-offs to average loans outstanding (annualized) 0.11     0.01         0.07     0.01  
                   
Capital Ratios                  
Estimated common equity tier 1 capital to risk-weighted assets (1)   7.89 %   7.92 %   7.94 %   8.26 %   8.33 %
Estimated tier 1 capital to average assets 7.42     7.36     8.28     8.67     8.40  
Estimated tier 1 capital to risk-weighted assets (1) 8.27     8.32     8.92     9.37     9.49  
Estimated total capital to risk-weighted assets 11.35     10.47     11.14     11.86     12.05  
Total stockholders' equity to total assets 11.56     11.71     11.94     12.69     12.79  
Tangible common equity to tangible assets (1) 6.88     6.86     6.87     7.15     7.11  
                   
(1) Non-GAAP financial measures.  See reconciliation.
(2) Excludes average balance of Series A preferred stock.
(3) Excludes income recognized on acquired loans of $265, $1,333, $516, $88, and $555, respectively.
(4) Total number of shares includes participating shares (those with dividend rights).
(5)  Excludes average balance of goodwill and net core deposit intangibles.
 
 

Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Income
Three and Six Months Ended June 30, 2016 and 2015
(Dollars in thousands)
(Unaudited)

         
    Three Months Ended June 30,   Six Months Ended June 30,
    2016   2015   2016   2015
Interest income:                
Interest and fees on loans   $ 50,418     $ 41,625     $ 100,328     $ 81,205  
Interest on taxable securities   764     551     1,494     1,160  
Interest on nontaxable securities   444     449     895     863  
Interest on federal funds sold and other   315     122     688     255  
Total interest income   51,941     42,747     103,405     83,483  
Interest expense:                
Interest on deposits   3,923     3,018     7,574     5,727  
Interest on FHLB advances   998     718     1,999     1,470  
Interest on repurchase agreements and other borrowings     987     1,096     1,990     2,165  
Interest on junior subordinated debentures   150     135     299     263  
Total interest expense   6,058     4,967     11,862     9,625  
Net interest income   45,883     37,780     91,543     73,858  
Provision for loan losses   2,123     1,659     5,120     3,329  
Net interest income after provision for loan losses   43,760     36,121     86,423     70,529  
Noninterest income:                
Service charges on deposit accounts   1,752     1,679     3,447     3,264  
Mortgage fee income   2,021     1,429     3,397     2,729  
Gain on sale of other real estate   10     49     53     179  
Gain on sale of securities available for sale   4     90     4     90  
Gain on sale of premises and equipment   3         41      
Increase in cash surrender value of BOLI   270     268     535     538  
Other   869     594     1,922     1,275  
Total noninterest income   4,929     4,109     9,399     8,075  
Noninterest expense:                
Salaries and employee benefits   19,567     14,650     36,341     29,074  
Occupancy   4,041     4,027     8,081     7,937  
Data processing   1,203     666     2,385     1,354  
FDIC assessment   869     493     1,595     1,012  
Advertising and public relations   251     253     546     599  
Communications   550     554     1,085     1,093  
Net other real estate owned expenses (including taxes)   2     37     35     96  
Other real estate impairment       25     55     25  
Core deposit intangible amortization   492     367     980     739  
Professional fees   977     677     1,637     1,167  
Acquisition expense, including legal   90     28     729     500  
Other   2,981     2,678     6,073     5,245  
Total noninterest expense   31,023     24,455     59,542     48,841  
Income before taxes   17,666     15,775     $ 36,280     $ 29,763  
Income tax expense   5,857     5,204     $ 12,019     $ 9,740  
Net income   $ 11,809     $ 10,571     $ 24,261     $ 20,023  
                 
                 

Consolidated Balance Sheets
As of June 30, 2016 and December 31, 2015
(Dollars in thousands, except share information)
(Unaudited)

       
  June 30,   December 31,
Assets 2016   2015
Cash and due from banks $ 153,975     $ 129,096  
Interest-bearing deposits in other banks 282,630     164,183  
Cash and cash equivalents 436,605     293,279  
Certificates of deposit held in other banks 12,886     61,746  
Securities available for sale 287,976     273,463  
Loans held for sale 13,942     12,299  
Loans, net of allowance for loan losses 4,218,549     3,960,809  
Premises and equipment, net 93,151     93,015  
Other real estate owned 1,567     2,168  
Federal Home Loan Bank (FHLB) of Dallas stock and other restricted stock   26,379     14,256  
Bank-owned life insurance (BOLI) 56,396     40,861  
Deferred tax asset 5,192     5,892  
Goodwill 258,319     258,643  
Core deposit intangible, net 15,161     16,357  
Other assets 20,674     22,212  
Total assets $ 5,446,797     $ 5,055,000  
       
Liabilities, Temporary Equity and Stockholders’ Equity      
Deposits:      
Noninterest-bearing $ 1,107,620     $ 1,071,656  
Interest-bearing 3,100,785     2,956,623  
Total deposits 4,208,405     4,028,279  
FHLB advances 470,784     288,325  
Repurchase agreements     12,160  
Other borrowings 107,335     68,295  
Other borrowings, related parties 50     2,503  
Junior subordinated debentures 18,147     18,147  
Other liabilities 12,448     9,982  
Total liabilities 4,817,169     4,427,691  
Commitments and contingencies      
       
Temporary equity:  Series A preferred stock     23,938  
Stockholders’ equity:      
Common stock 185     184  
Additional paid-in capital 533,369     530,107  
Retained earnings 91,997     70,698  
Accumulated other comprehensive income 4,077     2,382  
Total stockholders’ equity 629,628     603,371  
 Total liabilities, temporary equity and stockholders’ equity $ 5,446,797     $ 5,055,000  
               
               

Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
Three Months Ended June 30, 2016 and 2015
(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,
  2016   2015
  Average
Outstanding
Balance
  Interest   Yield/
Rate
  Average
Outstanding
Balance
  Interest   Yield/
Rate
Interest-earning assets:                      
Loans $ 4,177,451     $ 50,418     4.85 %   $ 3,340,796     $ 41,625     5.00 %
Taxable securities 233,522     764     1.32     127,891     551     1.73  
Nontaxable securities 71,097     444     2.51     68,166     449     2.64  
Federal funds sold and other 174,227     315     0.73     158,626     122     0.31  
Total interest-earning assets 4,656,297     $ 51,941     4.49     3,695,479     $ 42,747     4.64  
Noninterest-earning assets 711,638             563,855          
Total assets $ 5,367,935             $ 4,259,334          
Interest-bearing liabilities:                      
Checking accounts $ 1,770,050     $ 1,998     0.45 %   $ 1,316,477     $ 1,432     0.44 %
Savings accounts 149,349     66     0.18     142,948     67     0.19  
Money market accounts 401,386     452     0.45     255,235     179     0.28  
Certificates of deposit 806,403     1,407     0.70     857,438     1,340     0.63  
Total deposits 3,127,188     3,923     0.50     2,572,098     3,018     0.47  
FHLB advances 461,231     998     0.87     203,989     718     1.41  
Other borrowings 64,497     987     6.15     76,416     1,096     5.75  
Junior subordinated debentures 18,147     150     3.32     18,147     135     2.98  
Total interest-bearing liabilities 3,671,063     6,058     0.66     2,870,650     4,967     0.69  
Noninterest-bearing checking accounts 1,060,507             825,075          
Noninterest-bearing liabilities 11,384             6,956          
Stockholders’ equity 624,981             556,653          
Total liabilities and equity $ 5,367,935             $ 4,259,334          
Net interest income     $ 45,883             $ 37,780      
Interest rate spread         3.83 %           3.95 %
Net interest margin         3.96             4.10  
Average interest earning assets to interest bearing liabilities           126.84             128.73  
                           
                           

Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
Six Months Ended June 30, 2016 and 2015
(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,
  2016   2015
  Average
Outstanding
Balance
  Interest   Yield/
Rate
  Average
Outstanding
Balance
  Interest   Yield/
Rate
Interest-earning assets:                      
Loans $ 4,104,386     $ 100,328     4.92 %   $ 3,297,657     $ 81,205     4.97 %
Taxable securities 221,131     1,494     1.36     130,937     1,160     1.79  
Nontaxable securities 72,853     895     2.47     68,702     863     2.53  
Federal funds sold and other 180,041     688     0.77     150,343     255     0.34  
Total interest-earning assets 4,578,411     $ 103,405     4.54     3,647,639     $ 83,483     4.62  
Noninterest-earning assets 726,698             549,604          
Total assets $ 5,305,109             $ 4,197,243          
Interest-bearing liabilities:                      
Checking accounts $ 1,681,673     $ 3,743     0.45 %   $ 1,291,995     $ 2,790     0.44 %
Savings accounts 146,832     130     0.18     143,349     132     0.19  
Money market accounts 453,001     911     0.40     245,963     279     0.23  
Certificates of deposit 815,878     2,790     0.69     838,212     2,526     0.61  
Total deposits 3,097,384     7,574     0.49     2,519,519     5,727     0.46  
FHLB advances 448,480     1,999     0.90     211,871     1,470     1.40  
Other borrowings 68,397     1,990     5.85     76,683     2,165     5.69  
Junior subordinated debentures 18,147     299     3.31     18,147     263     2.92  
Total interest-bearing liabilities 3,632,408     11,862     0.66     2,826,220     9,625     0.69  
Noninterest-bearing checking accounts 1,038,270             811,450          
Noninterest-bearing liabilities 11,202             7,746          
Stockholders’ equity 623,229             551,827          
Total liabilities and equity $ 5,305,109             $ 4,197,243          
Net interest income     $ 91,543             $ 73,858      
Interest rate spread         3.88 %           3.93 %
Net interest margin         4.02             4.08  
Average interest earning assets to interest bearing liabilities           126.04             129.06  
                           
                           

Independent Bank Group, Inc. and Subsidiaries
Loan Portfolio Composition
As of June 30, 2016 and December 31, 2015
(Dollars in thousands)
(Unaudited)

         
The following table sets forth loan totals by category as of the dates presented: 
 
    June 30, 2016   December 31, 2015
    Amount   % of Total   Amount   % of Total
Commercial   $ 636,557     14.9 %   $ 731,818     18.3 %
Real estate:                
Commercial real estate   2,229,913     52.3     1,949,734     48.7  
Commercial construction, land and land development     444,738     10.4     419,611     10.5  
Residential real estate (1)   640,187     15.0     620,289     15.5  
Single-family interim construction   232,658     5.5     187,984     4.7  
Agricultural   48,976     1.1     50,178     1.3  
Consumer   32,233     0.8     41,966     1.0  
Other   137         124      
Total loans   4,265,399     100.0 %   4,001,704     100.0 %
Deferred loan fees   (1,992 )       (1,553 )    
Allowance for losses   (30,916 )       (27,043 )    
Total loans, net   $ 4,232,491         $ 3,973,108      
 
(1) Includes loans held for sale at June 30, 2016 and December 31, 2015 of $13,942 and $12,299, respectively.
 
 

Independent Bank Group, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
Three Months Ended June 30, 2016, March 31, 2016, December 31, 2015, September 30, 2015, and June 30, 2015
(Dollars in thousands, except for share data)
(Unaudited)

     
    For the Three Months Ended
    June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015 June 30, 2015
Net Interest Income - Reported (a) $ 45,883   $ 45,660   $ 42,151   $ 38,089   $ 37,780  
Income recognized on acquired loans   (265 ) (1,333 ) (516 ) (88 ) (555 )
Adjusted Net Interest Income (b) 45,618   44,327   41,635   38,001   37,225  
Provision Expense - Reported (c) 2,123   2,997   1,970   3,932   1,659  
Noninterest Income - Reported (d) 4,929   4,470   4,254   3,799   4,109  
Gain on sale of loans         (116 )  
Gain on sale of OREO and repossessed assets   (10 ) (48 ) (70 ) (41 ) (49 )
Gain on sale of securities   (4 )   (44 )   (90 )
Gain on sale of premises and equipment   (3 ) (38 ) (16 ) 374    
Adjusted Noninterest Income (e) 4,912   4,384   4,124   4,016   3,970  
Noninterest Expense - Reported (f) 31,023   28,519   28,527   25,830   24,455  
Senior leadership restructure (6)   (2,575 )        
OREO Impairment     (55 )   (10 ) (25 )
IPO related stock grant   (156 ) (156 ) (156 ) (156 ) (156 )
Acquisition Expense (5)   (475 ) (1,187 ) (1,487 ) (770 ) (458 )
Adjusted Noninterest Expense (g) 27,817   27,121   26,884   24,894   23,816  
Pre-Tax Pre-Provision Earnings (a) + (d) - (f) $ 19,789   $ 21,611   $ 17,878   $ 16,058   $ 17,434  
Core Pre-Tax Pre-Provision Earnings (b) + (e) - (g) $ 22,713   $ 21,590   $ 18,875   $ 17,123   $ 17,379  
Core Earnings (2) (b) - (c) + (e) - (g) $ 13,764   $ 12,438   $ 11,377   $ 8,917   $ 10,532  
 Reported Efficiency Ratio (f) / (a + d) 61.05 % 56.89 % 61.47 % 61.66 % 58.38 %
 Core Efficiency Ratio (g) / (b + e) 55.05 % 55.68 % 58.75 % 59.25 % 57.81 %
Adjusted Return on Average Assets (1)   1.03 % 0.95 % 0.93 % 0.83 % 0.99 %
Adjusted Return on Average Equity (1)   8.86 % 8.09 % 7.89 % 6.53 % 7.93 %
Adjusted Return on Tangible Equity (1)   15.76 % 14.57 % 14.49 % 11.77 % 14.51 %
Total Average Assets   $ 5,367,935   $ 5,242,289   $ 4,847,375   $ 4,270,604   $ 4,259,334  
Total Average Stockholders' Equity (3)   $ 624,981   $ 618,059   $ 572,160   $ 541,939   $ 532,715  
Total Average Tangible Stockholders' Equity (3) (4)   $ 351,263   $ 343,418   $ 311,549   $ 300,578   $ 291,166  
 
(1) Calculated using core earnings
(2)  Assumes actual effective tax rate of 33.2%, 33.1%, 32.7%, 32.4%, and 33.0%, respectively.  December 31, 2015 tax rate adjusted for effect of non-deductible acquisition expenses.
(3)  Excludes average balance of Series A preferred stock.
(4)  Excludes average balance of goodwill and net core deposit intangibles.
(5)  Acquisition expenses include $385 thousand, $548 thousand, $860 thousand, $477 thousand, and $430 thousand of compensation and bonus expenses in addition to $90 thousand, $639 thousand, $627 thousand, $293 thousand, and $28 thousand of merger-related expenses for the quarters ended June 30, 2016, March 31, 2016, December 31, 2015, September 30, 2015, and June 30, 2015 respectively.
(6) Includes $1,952 related to the former Houston Region CEO's Separation Agreement.
 
 

Independent Bank Group, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
As of June 30, 2016 and December 31, 2015
(Dollars in thousands, except per share information)
(Unaudited)

       
Tangible Book Value Per Common Share      
       
  June 30,   December 31,
  2016   2015
Tangible Common Equity      
Total common stockholders' equity $ 629,628     $ 603,371  
Adjustments:      
Goodwill (258,319 )   (258,643 )
Core deposit intangibles, net (15,161 )   (16,357 )
Tangible common equity $ 356,148     $ 328,371  
Tangible assets $ 5,173,317     $ 4,780,000  
Common shares outstanding 18,475,978     18,399,194  
Tangible common equity to tangible assets   6.88 %   6.87 %
Book value per common share $ 34.08     $ 32.79  
Tangible book value per common share 19.28     17.85  
           

       
Tier 1 Common and Tier 1 Capital to Risk-Weighted Assets Ratio 
  June 30,   December 31,
  2016   2015
Tier 1 Common Equity      
Total common stockholders' equity - GAAP $ 629,628     $ 603,371  
Adjustments:      
Unrealized gain on available-for-sale securities (4,077 )   (2,382 )
Goodwill (258,319 )   (258,643 )
Core deposit intangibles, net (5,913 )   (4,253 )
Tier 1 common equity $ 361,319     $ 338,093  
Qualifying Restricted Core Capital Elements (junior subordinated debentures)   17,600     17,600  
Series A Preferred Stock     23,938  
Tier 1 Equity $ 378,919     $ 379,631  
Total Risk-Weighted Assets $ 4,579,687     $ 4,256,662  
Estimated tier 1 equity to risk-weighted assets ratio 8.27 %   8.92 %
Estimated tier 1 common equity to risk-weighted assets ratio 7.89     7.94  

 

Contacts:

Analysts/Investors:

Torry Berntsen
President
(972) 562-9004
tberntsen@ibtx.com

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

Media:

Peggy Smolen
Marketing Director
(972) 562-9004
psmolen@ibtx.com

Source: GlobeNewswire
(July 25, 2016 - 5:00 PM EDT)

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