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Independent Bank Group, Inc. Reports Third Quarter Financial Results

McKINNEY, TX / ACCESSWIRE / October 21, 2019 / Independent Bank Group, Inc. (NASDAQ:IBTX), the holding company for Independent Bank, today announced net income of $55.6 million, or $1.30 per diluted share, for the quarter ended September 30, 2019 compared to $35.7 million, or $1.17 per diluted share, for the quarter ended September 30, 2018 and $49.7 million, or $1.15 per diluted share, for the quarter ended June 30, 2019.

Highlights

  • Net income of $55.6 million, or $1.30 per diluted share and adjusted (non-GAAP) net income of $57.8 million, or $1.35 per diluted share
  • Strong organic deposit growth of 7.7% for the quarter and 11.2% year to date (annualized)
  • Disciplined organic loan growth of 5.6% for the quarter and 6.5% year to date (annualized)
  • Asset quality credit metrics improved from prior quarter and remain at historically low levels
  • Sale of two acquired loan pools and a branch, recognizing total gains of $8.3 million

"We are pleased to report another solid quarter of financial performance," said Independent Bank Group Chairman and CEO David R. Brooks. "These results reflect continued growth and solid earnings, driven, in part, by the recognition of the anticipated cost saves associated with the Guaranty acquisition." Brooks continued, "Given market uncertainties, we have taken a disciplined approach to loan growth. Our conservative credit culture has served us well in the past and will continue to serve us well in the current economic environment." Brooks concluded "We continue to focus on providing strong returns to our shareholders and we look forward to a successful finish to the year."

Third Quarter 2019 Operating Results

Net Interest Income

  • Net interest income was $125.4 million for third quarter 2019 compared to $86.3 million for third quarter 2018 and $129.6 million for second 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 decrease from the linked quarter is primarily due to decreased acquired loan accretion.
  • The average balance of total interest-earning assets grew by $4.3 billion and totaled $13.0 billion for the quarter ended September 30, 2019 compared to $8.7 billion for the quarter ended September 30, 2018 and increased $318.6 million from $12.6 billion for the quarter ended June 30, 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 5.06% for third quarter 2019 compared to 4.99% for third quarter 2018 and 5.32% for second 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 decrease from the linked quarter is primarily due to decreased acquired loan accretion and lower loan yields which decreased five basis points excluding accretion.
  • The cost of interest-bearing liabilities, including borrowings, was 1.72% for third quarter 2019 compared to 1.47% for third quarter 2018 and 1.70% for second quarter 2019. The increase from the prior year is primarily due to higher rates offered on our deposits 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. The slight increase from the linked quarter is primarily due to higher deposit rates offered on checking accounts and promotional certificates of deposits mitigated by decreased money market rates.
  • The net interest margin was 3.84% for third quarter 2019 compared to 3.94% for third quarter 2018 and 4.11% for second quarter 2019. The adjusted (non-GAAP) net interest margin, which excludes unexpected accretion on loans acquired with deteriorated credit quality, was 3.82% for third quarter 2019 compared to 3.89% for third quarter 2018 and 4.03% for second quarter 2019. The quarter ended September 30, 2019 includes $9.9 million of loan accretion versus $16.3 million in second quarter 2019. The net interest margin excluding all loan accretion decreased 6 basis points to 3.54% for third quarter 2019 compared to 3.60% in second quarter 2019 primarily as a result of lower loan yields.

Noninterest Income

  • Total noninterest income increased $14.6 million compared to third quarter 2018 and increased $11.1 million compared to second quarter 2019.
  • The increase from the prior year primarily reflects increases of $2.5 million in service charges, $2.5 million in investment advisory and trust services, $571 thousand in earnings on bank owned life insurance and $931 thousand in other noninterest income all resulting primarily from the additional accounts acquired in the Guaranty transaction. Additionally, the increase reflects $6.8 million in gains on the sales of consumer and residential mortgage loan pools which were acquired with the Guaranty acquisition and $1.5 million in gain on the sale of a branch in the North Texas area.
  • The increase from the linked quarter primarily reflects increases of $1.1 million in mortgage banking, $8.3 million in gains on sales described above, and $1.6 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 increase in other noninterest income is primarily due to increased swap dealer income of $910 thousand in addition to increases in mortgage warehouse fees and other miscellaneous income.

Noninterest Expense

  • Total noninterest expense increased $24.3 million compared to third quarter 2018 and decreased $1.0 million compared to second quarter 2019.
  • The increase in noninterest expense compared to third quarter 2018 is due primarily to increases of $7.5 million in salaries and benefits, $2.8 million in occupancy expenses, $1.5 million in data processing, $1.7 million in amortization of other intangibles, $7.8 million in acquisition expense, and $4.6 million in other noninterest expense offset by $2.9 million decrease in FDIC assessment. The overall increase in salaries and benefits, occupancy, data processing, amortization of other intangibles and other noninterest expense from the prior year is reflective of additional headcount, branch locations and accounts acquired in the January 2019 Guaranty transaction as well as organic growth during the year. In addition, the increase in salaries and benefits expense is due to $911 thousand of conversion bonuses and severance and retention expenses related to the Guaranty transaction and our branch restructuring which was completed in third quarter 2019. The increase in acquisition expense is primarily a result of contract termination costs totaling $6.9 million related to Guaranty's debit card provider. In addition, the increase in other noninterest expense is a result of recording $1.2 million of impairments on other assets related to a CRA SBIC fund and a lease right of use asset on a closed branch. The decrease in FDIC assessment is related to a $3.2 million Small Bank Assessment Credit recorded in third quarter 2019.
  • The decrease from the linked quarter is primarily related to decreases of $2.9 million in salaries and benefits and $3.1 million in FDIC assessment, and $988 thousand in impairment of other real estate offset by an increase of $5.7 million in acquisition expense. The decrease in salaries and benefits expense is primarily a result of decreased salaries and severance expense related to the Guaranty transaction and our branch restructuring which occurred during second and third quarter 2019. The decrease in FDIC assessment expense and the increase in acquisition expenses were due the changes discussed above.

Provision for Loan Losses

  • Provision for loan loss was $5.2 million for third quarter 2019, an increase of $3.7 million compared to $1.5 million for third quarter 2018 and an increase of $494 thousand compared to $4.7 million for second quarter 2019. Provision expense is primarily reflective of organic loan growth as well as charge-offs or specific reserves taken during the respective period. Provision expense is elevated in third quarter 2019 due to two commercial credits which were charged-off during third quarter in excess of the specific reserves placed on them in previous periods. One of these credits is a loan that was partially reserved in second quarter 2019 with the other being an energy credit that has been in workout for several quarters.
  • The allowance for loan losses was $50.4 million, or 0.46% of total loans held for investment, net of mortgage warehouse purchase loans, at September 30, 2019, compared to $42.2 million, or 0.56% at September 30, 2018, and compared to $51.1 million, or 0.47% at June 30, 2019. The dollar increase from third quarter 2018 is primarily due to additional general reserves for organic loan growth. The slight dollar decrease from the linked quarter is primarily a result of the two commercial credit charge-offs mentioned 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 transaction were recorded at fair value without an allowance at the respective acquisition date.

Income Taxes

  • Federal income tax expense of $14.9 million was recorded for the quarter ended September 30, 2019, an effective rate of 21.1% compared to tax expense of $9.1 million and an effective rate of 20.4% for the quarter ended September 30, 2018 and tax expense of $13.4 million and an effective rate of 21.2% for the quarter ended June 30, 2019. The increase in the effective tax rate compared to third quarter 2018 is a result of increased state income tax expense.

Third Quarter 2019 Balance Sheet Highlights

Loans

  • Total loans held for investment, net of mortgage warehouse purchase loans, were $10.9 billion at September 30, 2019 compared to $10.8 billion at June 30, 2019 and $7.6 billion at September 30, 2018. The $152.1 million change for the quarter represents organic growth of total loans held for investment of $152.9 million for the quarter, or 5.6% on an annualized basis, offset by $792 thousand of loans included in assets transferred with a branch sale transaction which closed in July 2019. Loans held for investment increased $3.4 billion from September 30, 2018, or 44.8%, $2.8 billion of which was acquired in the Guaranty acquisition, and $592.9 million of which was organic growth, or 7.9% for the year over year period, offset by $792 thousand of loans transferred with the branch sale.
  • Average mortgage warehouse purchase loans were $434.1 million for the quarter ended September 30, 2019 compared to $295.9 million for the quarter ended June 30, 2019, representing an increase of $138.2 million, or 46.7% for the quarter, and compared to $136.1 million for the quarter ended September 30, 2018, an increase of $298.1 million, or 219.0% 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 decreasing interest rates during the respective periods.
  • Commercial real estate (CRE) loans were $5.9 billion at September 30, 2019, $5.8 billion at June 30, 2019, and $4.0 billion at September 30, 2018, or 51.0%, 51.4% and 51.7% of total loans, respectively.

Asset Quality

  • Total nonperforming assets decreased to $18.4 million, or 0.12% of total assets at September 30, 2019, compared to $28.0 million or 0.19% of total assets at June 30, 2019, and increased from $15.4 million, or 0.16% of total assets at September 30, 2018.
  • Total nonperforming loans decreased to $11.9 million, or 0.11% of total loans at September 30, 2019, from $16.9 million, or 0.16% of total loans at June 30, 2019, and increased from $10.7 million, or 0.14% of total loans at September 30, 2018.
  • The decrease in the dollar amount of nonperforming loans from the linked quarter is primarily due to $5.6 million of charge-offs on two commercial credits which were partially reserved in prior periods and $1.7 million in pay downs, offset by $1.1 million in nonaccrual additions and the addition of $1.3 million of loans ninety days past due and still accruing. The decrease in the dollar amount of nonperforming assets is primarily due to loan activity noted above, as well as the $4.5 million in other real estate owned sales.
  • The increase in the dollar amount of nonperforming loans from the prior year is primarily due to the net addition of nonperforming loans of $1.2 million. The increase in the dollar amount of nonperforming assets is primarily due to the net loan activity noted above and the net addition of other real estate owned of $1.8 million.
  • Charge-offs were 0.21% annualized in the third quarter 2019 compared to 0.01% annualized in the linked quarter and 0.14% annualized in the prior year quarter. The increase in the third quarter 2019 charge-offs was primarily a result of the $5.6 million in charge-offs as mentioned above.

Deposits and Borrowings

  • Total deposits were $11.7 billion at September 30, 2019 compared to $11.5 billion at June 30, 2019 and compared to $7.8 billion at September 30, 2018. The increase in deposits from the linked quarter is primarily due to $225.0 million of organic growth, or 7.7% for the quarter, annualized, offset by $27.7 million of deposits transferred with the July 2019 branch sale. 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 $863.9 million, or 11.1%, for the year over year period, offset by $27.7 million of deposits transferred with the branch sale.
  • Total borrowings (other than junior subordinated debentures) were $767.6 million at September 30, 2019, a decrease of $24.9 million from June 30, 2019 and an increase of $285.4 million from September 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 mortgage warehouse purchase 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 September 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 9.42%, 9.21%, 9.85% and 11.49%, respectively, compared to 9.22%, 9.06%, 9.66%, and 11.51%, respectively, at June 30, 2019.

Subsequent Events

The Company sold the trust business acquired in the Guaranty acquisition effective October 1, 2019. As part of the transaction, the Company transferred approximately $306 million in assets held in fiduciary or agency capacities for $4.7 million in proceeds, and recognized a net gain of approximately $1.4 million.

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 September 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 September 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 third quarter earnings announcement will be held on Tuesday, October 22, 2019 at 8:30 a.m. (EDT) and can be accessed by the webcast link, https://webcasts.eqs.com/indepbankgroup20191022/en, or by calling 1-877-407-0989 and by identifying the meeting number 13694813 or by identifying "Independent Bank Group Third 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 October 23, 2019 through November 1, 2019 on our website.

Forward-Looking Statements

The numbers as of and for the quarter ended September 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
Vice President, Investor Relations Officer
(972) 562-9004
plangdale@ibtx.com

Michelle Hickox
Executive Vice President, 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 September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018
(Dollars in thousands, except for share data)
(Unaudited)

  As of and for the Quarter Ended 
  September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
 
Selected Income Statement Data               
Interest income $165,307  $167,663  $155,576  $112,805  $109,289 
Interest expense  39,914   38,020   33,924   25,697   23,021 
Net interest income  125,393   129,643   121,652   87,108   86,268 
Provision for loan losses  5,233   4,739   3,224   2,910   1,525 
Net interest income after provision for loan losses  120,160   124,904   118,428   84,198   84,743 
Noninterest income  27,324   16,199   16,424   9,887   12,749 
Noninterest expense  76,948   77,978   86,595   51,848   52,655 
Income tax expense  14,903   13,389   11,126   8,273   9,141 
Net income  55,633   49,736   37,131   33,964   35,696 
Adjusted net income (1)  57,827   52,928   52,028   34,120   36,593 
                     
Per Share Data (Common Stock)                    
Earnings:                    
Basic $1.30  $1.15  $0.85  $1.11  $1.17 
Diluted  1.30   1.15   0.85   1.11   1.17 
Adjusted earnings:                    
Basic (1)  1.35   1.22   1.19   1.12   1.20 
Diluted (1)  1.35   1.22   1.19   1.12   1.20 
Dividends  0.25   0.25   0.25   0.14   0.14 
Book value  53.52   52.37   51.17   52.50   51.42 
Tangible book value (1)  27.89   26.66   25.84   27.44   26.21 
Common shares outstanding  42,952,642   42,953,818   43,665,793   30,600,582   30,477,648 
Weighted average basic shares outstanding (3)  42,950,749   43,331,988   43,759,348   30,503,062   30,473,603 
Weighted average diluted shares outstanding (3)  42,950,749   43,331,988   43,759,348   30,503,062   30,563,717 
                     
Selected Period End Balance Sheet Data                    
Total assets $14,959,127  $14,708,922  $14,145,383  $9,849,965  $9,891,464 
Cash and cash equivalents  570,101   579,447   431,799   130,779   290,170 
Securities available for sale  1,083,816   1,104,520   1,074,310   685,350   760,995 
Loans, held for sale  32,929   106,489   22,598   32,727   27,730 
Loans, held for investment, excluding mortgage warehouse purchase loans  10,936,136   10,784,041   10,692,183   7,717,510   7,554,124 
Mortgage warehouse purchase loans  660,650   453,492   251,258   170,290   150,267 
Allowance for loan losses  50,447   51,075   46,505   44,802   42,166 
Goodwill and other intangible assets  1,100,876   1,104,187   1,105,705   766,839   768,317 
Other real estate owned  6,392   10,972   6,018   4,200   4,610 
Noninterest-bearing deposits  3,218,055   3,153,001   3,089,794   2,145,930   2,235,377 
Interest-bearing deposits  8,509,830   8,377,586   8,149,632   5,591,864   5,547,475 
Borrowings (other than junior subordinated debentures)  767,642   792,534   538,425   427,316   482,207 
Junior subordinated debentures  53,775   53,725   53,676   27,852   27,803 
Total stockholders' equity  2,298,932   2,249,342   2,234,202   1,606,433   1,567,184 
                     

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

  As of and for the Quarter Ended 
  September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
 
Selected Performance Metrics               
Return on average assets  1.50%  1.39%  1.08%  1.34%  1.41%
Return on average equity  9.68   8.90   6.78   8.51   9.11 
Return on tangible equity (4)  18.74   17.52   13.55   16.52   18.01 
Adjusted return on average assets (1)  1.56   1.47   1.51   1.35   1.45 
Adjusted return on average equity (1)  10.06   9.47   9.51   8.55   9.34 
Adjusted return on tangible equity (1) (4)  19.48   18.65   18.98   16.60   18.47 
Net interest margin  3.84   4.11   4.05   3.98   3.94 
Adjusted net interest margin (2)  3.82   4.03   4.01   3.93   3.89 
Efficiency ratio  48.27   51.25   60.37   51.91   51.64 
Adjusted efficiency ratio (1)  42.98   47.39   47.05   51.26   49.77 
                     
Credit Quality Ratios (5)                    
Nonperforming assets to total assets  0.12%  0.19%  0.12%  0.17%  0.16%
Nonperforming loans to total loans held for investment (6)  0.11   0.16   0.10   0.16   0.14 
Nonperforming assets to total loans held for investment and other real estate (6)  0.17   0.26   0.16   0.22   0.20 
Allowance for loan losses to nonperforming loans  424.17   302.15   433.82   354.73   395.37 
Allowance for loan losses to total loans held for investment (6)  0.46   0.47   0.43   0.58   0.56 
Net charge-offs to average loans outstanding (annualized)  0.21   0.01   0.06   0.01   0.14 
                     
Capital Ratios                    
Estimated common equity Tier 1 capital to risk-weighted assets  9.42%  9.22%  9.60%  10.05%  9.83%
Estimated tier 1 capital to average assets  9.21   9.06   9.33   9.57   9.20 
Estimated tier 1 capital to risk-weighted assets  9.85   9.66   10.07   10.41   10.20 
Estimated total capital to risk-weighted assets  11.49   11.51   11.96   12.58   12.38 
Total stockholders' equity to total assets  15.37   15.29   15.79   16.31   15.84 
Tangible common equity to tangible assets (1)  8.65   8.42   8.65   9.24   8.76 

(1) Non-GAAP financial measure. See reconciliation.
(2) Non-GAAP financial measure. Excludes unexpected income recognized on credit impaired acquired loans of $618, $2,695, $1,016, $967 and $1,051, 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 Nine Months Ended September 30, 2019 and 2018
(Dollars in thousands)
(Unaudited)

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2019  2018  2019  2018 
Interest income:            
Interest and fees on loans $154,664  $103,104  $457,626  $277,993 
Interest on taxable securities  5,374   3,840   16,101   10,244 
Interest on nontaxable securities  2,074   1,103   6,426   3,475 
Interest on interest-bearing deposits and other  3,195   1,242   8,393   2,773 
Total interest income  165,307   109,289   488,546   294,485 
Interest expense:                
Interest on deposits  33,386   17,380   92,550   40,006 
Interest on FHLB advances  2,730   3,121   8,324   7,854 
Interest on other borrowings and repurchase agreements  3,036   2,100   8,674   6,299 
Interest on junior subordinated debentures  762   420   2,310   1,182 
Total interest expense  39,914   23,021   111,858   55,341 
Net interest income  125,393   86,268   376,688   239,144 
Provision for loan losses  5,233   1,525   13,196   6,950 
Net interest income after provision for loan losses  120,160   84,743   363,492   232,194 
Noninterest income:                
Service charges on deposit accounts  6,100   3,589   18,609   10,607 
Investment management and trust  2,497   -   7,238   - 
Mortgage banking revenue  4,824   5,111   11,619   12,134 
Gain on sale of loans  6,779   -   6,779   - 
Gain on sale of branch  1,549   -   1,549   - 
Gain on sale of other real estate  539   95   851   213 
(Loss) gain on sale of securities available for sale  -   (115)  265   (349)
(Loss) gain on sale and disposal of premises and equipment  (315)  220   (585)  123 
Increase in cash surrender value of BOLI  1,402   831   4,135   2,328 
Other  3,949   3,018   9,487   7,281 
Total noninterest income  27,324   12,749   59,947   32,337 
Noninterest expense:                
Salaries and employee benefits  37,645   30,114   120,557   82,072 
Occupancy  9,402   6,613   27,978   18,295 
Data processing  4,470   2,989   12,688   7,861 
FDIC assessment (credit)  (2,139)  760   71   2,213 
Advertising and public relations  467   583   1,942   1,300 
Communications  1,288   810   3,910   2,544 
Other real estate owned expenses, net  152   62   302   271 
Impairment of other real estate  -   -   1,424   85 
Amortization of other intangible assets  3,235   1,519   9,705   4,243 
Professional fees  2,057   1,175   4,771   3,427 
Acquisition expense, including legal  9,465   1,682   28,175   5,671 
Other  10,906   6,348   29,998   18,789 
Total noninterest expense  76,948   52,655   241,521   146,771 
Income before taxes  70,536   44,837   181,918   117,760 
Income tax expense  14,903   9,141   39,418   23,465 
Net income $55,633  $35,696  $142,500  $94,295 
                 

Independent Bank Group, Inc. and Subsidiaries
Consolidated Balance Sheets
As of September 30, 2019 and December 31, 2018
(Dollars in thousands)
(Unaudited)

  September 30,  December 31, 
Assets 2019  2018 
Cash and due from banks $163,213  $102,024 
Interest-bearing deposits in other banks  406,888   28,755 
Cash and cash equivalents  570,101   130,779 
Certificates of deposit held in other banks  5,715   1,225 
Securities available for sale, at fair value  1,083,816   685,350 
Loans held for sale  32,929   32,727 
Loans, net  11,544,582   7,839,695 
Premises and equipment, net  240,991   167,866 
Other real estate owned  6,392   4,200 
Federal Home Loan Bank (FHLB) of Dallas stock and other restricted stock  29,918   26,870 
Bank-owned life insurance (BOLI)  214,106   129,521 
Deferred tax asset  9,259   13,180 
Goodwill  994,021   721,797 
Other intangible assets, net  106,855   45,042 
Other assets  120,442   51,713 
Total assets $14,959,127  $9,849,965 
         
Liabilities and Stockholders' Equity        
Deposits:        
Noninterest-bearing $3,218,055  $2,145,930 
Interest-bearing  8,509,830   5,591,864 
Total deposits  11,727,885   7,737,794 
FHLB advances  555,000   290,000 
Other borrowings  212,642   137,316 
Junior subordinated debentures  53,775   27,852 
Other liabilities  110,893   50,570 
Total liabilities  12,660,195   8,243,532 
Commitments and contingencies        
Stockholders' equity:        
Preferred stock  -   - 
Common stock  430   306 
Additional paid-in capital  1,924,385   1,317,616 
Retained earnings  354,177   296,816 
Accumulated other comprehensive income (loss)  19,940   (8,305)
Total stockholders' equity  2,298,932   1,606,433 
Total liabilities and stockholders' equity $14,959,127  $9,849,965 
         

Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
Three Months Ended September 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 September 30, 
  2019  2018 
  AverageOutstandingBalance  Interest  Yield/Rate (4)  AverageOutstandingBalance  Interest  Yield/Rate (4) 
Interest-earning assets:                  
Loans (1) $11,341,768  $154,664   5.41% $7,667,237  $103,104   5.34%
Taxable securities  777,494   5,374   2.74   628,873   3,840   2.42 
Nontaxable securities  329,989   2,074   2.49   172,556   1,103   2.54 
Interest-bearing deposits and other  513,524   3,195   2.47   218,104   1,242   2.26 
Total interest-earning assets  12,962,775   165,307   5.06   8,686,770   109,289   4.99 
Noninterest-earning assets  1,779,843           1,341,454         
Total assets $14,742,618          $10,028,224         
Interest-bearing liabilities:                        
Checking accounts $3,950,978  $12,088   1.21% $2,986,694  $7,380   0.98%
Savings accounts  564,480   348   0.24   296,941   212   0.28 
Money market accounts  2,101,064   10,923   2.06   1,069,013   5,226   1.94 
Certificates of deposit  1,863,935   10,027   2.13   1,128,540   4,562   1.60 
Total deposits  8,480,457   33,386   1.56   5,481,188   17,380   1.26 
FHLB advances  453,370   2,730   2.39   587,537   3,121   2.11 
Other borrowings and repurchase agreements  212,824   3,036   5.66   137,286   2,100   6.07 
Junior subordinated debentures  53,757   762   5.62   27,786   420   6.00 
Total interest-bearing liabilities  9,200,408   39,914   1.72   6,233,797   23,021   1.47 
Noninterest-bearing checking accounts  3,160,832           2,206,612         
Noninterest-bearing liabilities  101,500           33,313         
Stockholders' equity  2,279,878           1,554,502         
Total liabilities and equity $14,742,618          $10,028,224         
Net interest income     $125,393          $86,268     
Interest rate spread          3.34%          3.53%
Net interest margin (2)          3.84           3.94 
Net interest income and margin (tax equivalent basis) (3)     $126,308   3.87      $86,732   3.96 
Average interest-earning assets to interest-bearing liabilities          140.89           139.35 

(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 September 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
Nine Months Ended September 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.

  Nine Months Ended September 30, 
  2019  2018 
  Average Outstanding Balance  Interest  Yield/ Rate (4)  Average Outstanding Balance  Interest  Yield/ Rate (4) 
Interest-earning assets:                  
Loans (1) $11,048,706  $457,626   5.54% $7,083,329  $277,993   5.25%
Taxable securities  775,732   16,101   2.78   607,591   10,244   2.25 
Nontaxable securities  332,487   6,426   2.58   181,614   3,475   2.56 
Interest-bearing deposits and other  447,041   8,393   2.51   181,234   2,773   2.05 
Total interest-earning assets  12,603,966   488,546   5.18   8,053,768   294,485   4.89 
Noninterest-earning assets  1,770,708           1,240,761         
Total assets $14,374,674          $9,294,529         
Interest-bearing liabilities:                        
Checking accounts $3,902,517  $32,839   1.13% $2,962,162  $18,555   0.84%
Savings accounts  531,552   1,004   0.25   287,176   462   0.22 
Money market accounts  2,025,704   31,575   2.08   898,260   11,737   1.75 
Certificates of deposit  1,768,956   27,132   2.05   966,769   9,252   1.28 
Total deposits  8,228,729   92,550   1.50   5,114,367   40,006   1.05 
FHLB advances  466,603   8,324   2.39   545,420   7,854   1.93 
Other borrowings and repurchase agreements  200,115   8,674   5.80   137,641   6,299   6.12 
Junior subordinated debentures  53,708   2,310   5.75   27,736   1,182   5.70 
Total interest-bearing liabilities  8,949,155   111,858   1.67   5,825,164   55,341   1.27 
Noninterest-bearing checking accounts  3,093,390           2,004,763         
Noninterest-bearing liabilities  84,933           23,694         
Stockholders' equity  2,247,196           1,440,908         
Total liabilities and equity $14,374,674          $9,294,529         
Net interest income     $376,688          $239,144     
Interest rate spread          3.51%          3.62%
Net interest margin (2)          4.00           3.97 
Net interest income and margin (tax equivalent basis) (3)     $379,440   4.03      $240,477   3.99 
Average interest-earning assets to interest-bearing liabilities          140.84           138.26 

(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 nine months ended September 30, 2019 and 2018, respectively.
(4) Yield and rates for the nine month periods are annualized.

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

Totals loans by category

  September 30,
2019
  December 31,
2018
 
  Amount  % of Total  Amount  % of Total 
Commercial (1) $2,452,769   21.1% $1,361,104   17.2%
Real estate:                
Commercial real estate  5,933,498   51.0   4,141,356   52.3 
Commercial construction, land and land development  1,181,675   10.2   905,421   11.4 
Residential real estate (2)  1,544,165   13.3   1,082,248   13.7 
Single-family interim construction  376,596   3.2   331,748   4.2 
Agricultural  104,139   0.9   66,638   0.8 
Consumer  36,237   0.3   31,759   0.4 
Other  636   -   253   - 
Total loans  11,629,715   100.0%  7,920,527   100.0%
Deferred loan fees  (1,757)      (3,303)    
Allowance for loan losses  (50,447)      (44,802)    
Total loans, net $11,577,511      $7,872,422     
                 

(1) Includes mortgage warehouse purchase loans of $660,650 and $170,290 at September 30, 2019 and December 31, 2018, respectively.
(2) Includes loans held for sale at September 30, 2019 and December 31, 2018 of $32,929 and $32,727, respectively.

Independent Bank Group, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
Three Months Ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018
(Dollars in thousands, except for share data)
(Unaudited)

        For the Three Months Ended 
        September 30, 2019    June 30, 2019    March 31, 2019    December 31, 2018    September 30, 2018 
ADJUSTED NET INCOME                             
Net Interest Income - Reported    (a)    125,393    129,643    121,652    87,108    86,268 
Unexpected income recognized on credit impaired acquired loans            (618)    (2,695)    (1,016)    (967)    (1,051)
Adjusted Net Interest Income (b)     124,775      126,948      120,636      86,141      85,217 
Provision Expense - Reported (c)     5,233      4,739      3,224      2,910      1,525 
Noninterest Income - Reported (d)     27,324      16,199      16,424      9,887      12,749 
Gain on sale of acquired loan pools            (6,779)    -      -      -      - 
Gain on sale of branch            (1,549)    -      -      -      - 
Gain on sale of OREO and repossessed assets            (539)    (312)    -      (56)    (95)
(Gain) loss on sale of securities available for sale            -      (20)    (245)    232      115 
Loss (gain) on sale and disposal of premises and equipment            315      279      (9)    -      (220)
Recoveries on loans charged off prior to acquisition            (107)    (258)    (1,311)    (109)    (230)
Adjusted Noninterest Income (e)     18,665      15,888      14,859      9,954      12,319 
Noninterest Expense - Reported (f)     76,948      77,978      86,595      51,848      52,655 
OREO impairment            -      (988)    (436)    -      - 
Impairment of assets            (1,173)    -      -      -      - 
Acquisition expense (4)            (10,885)    (6,069)    (19,171)    (1,094)    (2,594)
Adjusted Noninterest Expense (g)     64,890      70,921      66,988      50,754      50,061 
Adjusted Net Income (1) (b)-(c)+(e)-(g)   57,827    52,928    52,028    34,120    36,593 
                                                
ADJUSTED PROFITABILITY                                               
Adjusted Return on Average Assets (2)            1.56      1.47      1.51      1.35      1.45 
Adjusted Return on Average Equity (2)            10.06      9.47      9.51      8.55      9.34 
Adjusted Return on Tangible Equity (2)            19.48      18.65      18.98      16.60      18.47 
Total Average Assets          14,742,618    14,397,852    13,975,192    10,026,151    10,028,224 
Total Average Stockholders' Equity          2,279,878    2,241,512    2,219,533    1,582,860    1,554,502 
Total Average Tangible Stockholders' Equity (3)          1,177,851    1,138,340    1,111,668    815,533    786,126 
                                                
EFFICIENCY RATIO                                               
Amortization of other intangible assets (b)   3,235    3,235    3,235    1,496    1,519 
Reported Efficiency Ratio    (f - h) / (a + d)      48.27      51.25      60.37      51.91      51.64 
Adjusted Efficiency Ratio    (g - h) / (b + e)      42.98      47.39      47.05      51.26      49.77 

(1) Assumes an adjusted effective tax rate of 21.1%, 21.2%, 20.3%, 19.6%, and 20.4% for the quarters ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018, respectively.
(2) Calculated using adjusted net income.
(3) Excludes average balance of goodwill and net other intangible assets.
(4) Acquisition expenses include $1,420, $2,346, $4,184, $608 and $912, of compensation related expenses in addition to $9,465, $3,723, $14,987, $486 and $1,682 of merger-related expenses for the quarters ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018, respectively.

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

Tangible Book Value & Tangible Common Equity To Tangible Asset Ratio

   September 30,    December 31, 
   2019    2018 
Tangible Common Equity         
Total common stockholders' equity  2,298,932    1,606,433 
Adjustments:               
Goodwill    (994,021)    (721,797)
Other intangible assets, net    (106,855)    (45,042)
Tangible common equity  1,198,056    839,594 
                
Tangible Assets               
Total assets  14,959,127    9,849,965 
Adjustments:               
Goodwill    (994,021)    (721,797)
Other intangible assets, net    (106,855)    (45,042)
Tangible assets  13,858,251    9,083,126 
Common shares outstanding    42,952,642      30,600,582 
Tangible common equity to tangible assets    8.65%    9.24%
Book value per common share  53.52    52.50 
Tangible book value per common share    27.89      27.44 

SOURCE: Independent Bank Group, Inc.



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