Market Overview

Independent Bank Group Reports Fourth Quarter and Year-End Financial Results

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MCKINNEY, Texas, Jan. 25, 2017 (GLOBE NEWSWIRE) -- Independent Bank Group, Inc. (NASDAQ: IBTX), the holding company for Independent Bank, today announced net income available to common shareholders of $14.8 million, or $0.79 per diluted share, for the quarter ended December 31, 2016 compared to $10.5 million, or $0.58 per diluted share, for the quarter ended December 31, 2015 and $14.5 million, or $0.78 per diluted share, for the quarter ended September 30, 2016.

For the year ended December 31, 2016, the Company reported net income available to common shareholders of $53.5 million (or $2.88 per diluted share) compared to $38.5 million (or $2.21 per diluted share) for the year ended December 31, 2015.

Highlights

  • Core (non-GAAP) earnings were $15.5 million, or $0.83 per diluted share, compared to $14.8 million, or $0.80 per diluted share, for third quarter 2016, representing an increase in linked quarter core earnings of 4.9%
  • Strong organic loan growth of 19.3% for the quarter (annualized) and 14.6% for the year  
  • Return on assets above 1%
  • Increased the quarterly dividend paid to shareholders by 25% to $0.10 per share, up from $0.08 per share
  • Announced acquisition of Carlile Bancshares, Inc. and its subsidiary, Northstar Bank that is projected to be accretive to earnings per share, tangible book value and capital ratios 

"2016 was a great year for Independent Bank Group," said Independent Bank Group Chairman, Chief Executive Officer and President David Brooks.  "We reported record earnings for the year and the quarter which were driven by organic loan growth and continued focus on improving overall efficiency."  Brooks continued, "The Carlile Bancshares acquisition is another big step forward for our Company, expanding our presence in North and Central Texas and providing entry into the Colorado banking market.  We look forward to closing this acquisition and to a successful 2017."

Fourth Quarter 2016 Operating Results

Net Interest Income

  • Net interest income was $46.5 million for fourth quarter 2016 compared to $42.2 million for fourth quarter 2015 and $45.7 million for third quarter 2016.  Net interest income increased compared to the linked quarter primarily due to organic loan growth.  The increase in net interest income from the previous year was primarily due to increased average earning asset balances resulting from organic growth as well as loans and investments acquired in the Grand Bank acquisition in November 2015.
  • The yield on interest-earning assets was 4.16% for fourth quarter 2016 compared to 4.46% for fourth quarter 2015 and 4.22% for third quarter 2016.  The decreases from the prior periods are reflective of lower loan yields compared to previous periods resulting from an increase in variable rate loan fundings during the second half of 2016.
  • The cost of interest bearing liabilities, including borrowings, was 0.75% for fourth quarter 2016 compared to 0.66% for fourth quarter 2015 and 0.74% for third quarter 2016.  The increase from the prior year is primarily due to the issuance of subordinated debt in 2016 and higher rates offered on public fund certificates of deposit.  The increase from the linked quarter is primarily due to the higher public fund rates.
  • The net interest margin was 3.59% for fourth quarter 2016 compared to 3.96% for fourth quarter 2015 and 3.66% for third quarter 2016.  The core margin, which excludes purchased loan accretion, was 3.58% for fourth quarter 2016 compared to 3.91% for fourth quarter 2015 and 3.65% for third quarter 2016.  The decrease from the prior year and linked quarters is primarily due to lower loan yields and a lower yielding earning asset mix due to increased liquidity throughout most of the quarter.
  • The average balance of total interest-earning assets grew by $935.1 million and totaled $5.2 billion at December 31, 2016 compared to $4.2 billion at December 31, 2015 and grew by $188.3 million compared to $5.0 billion at September 30, 2016.  This increase from prior year and the linked quarter is due to organic growth while the change from prior year is also due in part to assets acquired in the Grand Bank acquisition in fourth quarter 2015.

Noninterest Income

  • Total noninterest income increased $970 thousand compared to fourth quarter 2015 and increased $292 thousand compared to third quarter 2016.
  • The increase from the prior year reflects an increase of $532 thousand in mortgage fee income, a $140 thousand increase in cash surrender value of BOLI and a $350 thousand increase in other noninterest income.  The increase in mortgage fee income is due to the addition of mortgage loan officers and increased home purchase activity in the Dallas and Austin markets.  The increase in BOLI income is a result of $15 million in policies purchased at the end of second quarter 2016. The increase in other noninterest income from the prior year is primarily related to $282 thousand of recognized income related to a change in bank card vendors.
  • The increase from the linked quarter reflects increased service charges of $95 thousand and an increase in other noninterest income of $343 thousand offset by decreased mortgage fee income of $203 thousand.  The increase in service charges is due to a new deposit fee schedule implemented in third quarter.  The increase in other noninterest income is primarily due to the income recognized for switching bank card vendors during the quarter as discussed above.  The decrease in mortgage fee income is due to seasonality.

Noninterest Expense

  • Total noninterest expense decreased $1.2 million compared to fourth quarter 2015 and increased $474 thousand compared to third quarter 2016.
  • The decrease in noninterest expense compared to fourth quarter 2015 is due primarily to a decrease of $1.4 million in salaries and benefits expense in addition to a decrease of $325 thousand in professional fees and offset by increases of $465 thousand in FDIC assessment, $206 thousand in advertising and public relations and $158 thousand in acquisition expenses.  The decrease in salaries and benefits over the prior year is due to elevated salaries and benefits in fourth quarter 2015 due to retention of Grand Bank employees until operational conversion as well as higher bonus accruals in the fourth quarter 2015.  Professional fees were also higher in fourth quarter 2015 due to increased legal fees related to energy loan workouts and to a lawsuit inherited in the Bank of Houston transaction.  The increase in FDIC assessment in fourth quarter 2016 is primarily due to increased accounts acquired in the Grand Bank transaction.  The increase in advertising and public relations in fourth quarter 2016 is due to an increase in Company donations.  Acquisition expenses increased in fourth quarter 2016 due to legal fees and fairness opinion related to the Carlile Bancshares acquisition.
  • The net increase from the linked quarter is primarily related to an increase of $782 thousand in acquisition expenses relating to the Carlile Bancshares acquisition discussed above offset by small decreases in salaries and benefits, communications and other real estate owned expenses.

Provision for Loan Losses

  • Provision for loan loss expense was $2.2 million for the fourth quarter 2016, an increase of $227 thousand compared to $2.0 million for fourth quarter 2015, and up slightly from $2.1 million for the third quarter 2016.  Provision expense is primarily reflective of organic loan growth during the respective period.
  • The allowance for loan losses was $31.6 million, or 0.69% of total loans, at December 31, 2016, compared to $27.0 million, or 0.68% of total loans at December 31, 2015, and compared to $29.6 million, or 0.68% of total loans, at September 30, 2016.  The increases from prior periods are primarily due to additional general reserves for organic loan growth offset by the $3 million partial chargeoff of an energy loan in the third quarter 2016, which had been fully reserved in the prior year.

Fourth Quarter 2016 Balance Sheet Highlights:

Loans

  • Total loans held for investment were $4.573 billion at December 31, 2016 compared to $4.361 billion at September 30, 2016 and to $3.989 billion at December 31, 2015.  This represented total loan growth of $212.1 million for the quarter, or 19.3% on an annualized basis.  Loans have grown 14.6% from December 31, 2015.
  • Energy outstandings at the end of fourth quarter were $125.3 million (2.7% of total loans) versus $126.5 million at third quarter 2016.  As of December 31, 2016, there were three nonperforming classified energy credits with balances totaling $7.7 million and nine performing classified energy credits with a balance of $19.1 million.  All energy related credits continue to be closely monitored.  As of December 31, 2016, the total energy related allowance was 4.6% of the total energy portfolio.

Asset Quality

  • Total nonperforming assets increased to $19.8 million, or 0.34% of total assets at December 31, 2016 from $13.3 million, or 0.23% of total assets at September 30, 2016 and from $18.1 million, or 0.36% of total assets at December 31, 2015.
  • Total nonperforming loans increased to $17.8 million, or 0.39% of total loans at December 31, 2016 compared to $11.2 million, or 0.26% of total loans at September 30, 2016 and from $14.9 million, or 0.37% of total loans at December 31, 2015.
  • The increase in nonperforming assets and nonperforming loans from the linked quarter is primarily due to the addition of two commercial real estate loans totaling $5.8 million that were placed on nonaccrual status in fourth quarter 2016.
  • The net increase in nonperforming assets and nonperforming loans from the prior year is due to $10.8 million in loans being placed on nonaccrual during the year, including the above mentioned loans placed on nonaccrual in fourth quarter 2016 offset by a $3 million partial chargeoff on an energy loan in the third quarter and other reductions in other real estate and repossessed assets during the period.
  • Charge-offs were 0.02% annualized in the fourth quarter 2016 compared to 0.32% annualized in the linked quarter and none in the prior year quarter.  Third quarter 2016 charge-offs were elevated due to the charge-off discussed above related to an impaired energy loan.

Deposits and Borrowings

  • Total deposits were $4.577 billion at December 31, 2016 compared to $4.416 billion at September 30, 2016 and compared to $4.028 billion at December 31, 2015.
  • Total borrowings (other than junior subordinated debentures) were $568.0 million at December 31, 2016, a decrease of $10 million from September 30, 2016 and an increase of $197 million from December 31, 2015.  These changes reflect the issuance of $43.4 million, net of discount and costs, of 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

  • In November 2016, the Company sold 400,000 shares of common stock in a private placement, raising approximately $20 million, net of offering expenses, in new equity capital.  The additional capital had a positive effect on capital ratios, including an increase in our tangible common equity to tangible assets ratio to 7.17% as of December 31, 2016, up from 6.86% at September 30, 2016 and 6.87% at December 31, 2015.
  • Book value and tangible book value per common share also increased to $35.63 and $21.19, respectively, at December 31, 2016 compared to $34.79 and $20.03, respectively, at September 30, 2016 and $32.79 and $17.85 respectively, at December 31, 2015 due to the retention of earnings and the additional capital from the sale of common stock.

Subsequent Events

The Company is required, under general accepted accounting principles, to evaluate subsequent events through the filing of its consolidated financial statements for the year ended December 31, 2016 on Form 10-K.  As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of December 31, 2016 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 41 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 fourth quarter earnings announcement will be held on Thursday, January 26, 2017 at 8:30 a.m. (EST) and can be accessed by calling 1-877-303-7611 and by identifying the conference ID number 46615431.  The conference materials will 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 January 26, 2017 through February 2, 2017 on our website.

Forward-Looking Statements

The numbers as of and for the quarter and/or year ended December 31, 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 quarters ended September 30, 2016, June 30, 2016 and March 31, 2016, the Annual Report on Form 10-K filed on February 25, 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 December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016 and December 31, 2015
(Dollars in thousands, except for share data)
(Unaudited)

  As of and for the quarter ended
  December 31, 2016   September 30, 2016   June 30, 2016   March 31, 2016   December 31, 2015
Selected Income Statement Data                  
Interest income $ 53,904     $ 52,740     $ 51,941     $ 51,464     $ 47,414  
Interest expense 7,378     7,003     6,058     5,804     5,263  
Net interest income 46,526     45,737     45,883     45,660     42,151  
Provision for loan losses 2,197     2,123     2,123     2,997     1,970  
Net interest income after provision for loan losses 44,329     43,614     43,760     42,663     40,181  
Noninterest income 5,224     4,932     4,929     4,470     4,254  
Noninterest expense 27,361     26,887     31,023     28,519     28,527  
Income tax expense 7,417     7,155     5,857     6,162     5,347  
Net income 14,775     14,504     11,809     12,452     10,561  
Preferred stock dividends               8       60  
Net income available to common shareholders 14,775     14,504     11,809     12,444     10,501  
Core net interest income (1) 46,475     45,621     45,618     44,327     41,635  
Core Pre-Tax Pre-Provision Earnings (1) 25,540     24,253     22,713     21,590     18,875  
Core net income(1) 15,541     14,819     13,764     12,438     11,377  
                   
Per Share Data (Common Stock)                  
Earnings:                  
Basic $ 0.79     $ 0.78     $ 0.64     $ 0.67     $ 0.58  
Diluted 0.79     0.78     0.64     0.67     0.58  
Core earnings:                  
Basic (1) 0.83     0.80     0.75     0.67     0.63  
Diluted (1) 0.83     0.80     0.74     0.67     0.63  
Dividends 0.10     0.08     0.08     0.08     0.08  
Book value 35.63     34.79     34.08     33.38     32.79  
Tangible book value  (1) 21.19     20.03     19.28     18.54     17.85  
Common shares outstanding 18,870,312     18,488,628     18,475,978     18,461,480     18,399,194  
Weighted average basic shares outstanding (4) 18,613,975     18,478,289     18,469,182     18,444,284     17,965,055  
Weighted average diluted shares outstanding (4) 18,716,614     18,568,622     18,547,074     18,528,031     18,047,960  
                   
Selected Period End Balance Sheet Data                  
Total assets $ 5,852,801     $ 5,667,195     $ 5,446,797     $ 5,261,967     $ 5,055,000  
Cash and cash equivalents 505,027     589,600     436,605     356,526     293,279  
Securities available for sale 316,435     267,860     287,976     302,650     273,463  
Loans, held for sale 9,795     7,097     13,942     8,515     12,299  
Loans, held for investment 4,572,771     4,360,690     4,251,457     4,130,496     3,989,405  
Allowance for loan losses 31,591     29,575     30,916     29,984     27,043  
Goodwill and core deposit intangible 272,496     272,988     273,480     273,972     275,000  
Other real estate owned 1,972     2,083     1,567     1,745     2,168  
Noninterest-bearing deposits 1,117,927     1,143,479     1,107,620     1,070,611     1,071,656  
Interest-bearing deposits 3,459,182     3,273,014     3,100,785     3,101,341     2,956,623  
Borrowings (other than junior subordinated debentures) 568,045     577,974     578,169     444,745     371,283  
Junior subordinated debentures 18,147     18,147     18,147     18,147     18,147  
Series A Preferred Stock                 23,938  
Total stockholders' equity 672,365     643,253     629,628     616,258     603,371  
                             

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

  As of and for the quarter ended
  December 31, 2016   September 30, 2016   June 30, 2016   March 31, 2016   December 31, 2015
Selected Performance Metrics                  
Return on average assets 1.03 %   1.04 %   0.88 %   0.95 %   0.86 %
Return on average equity (2) 8.93     9.04     7.60     8.10     7.28  
Return on tangible equity (2) (5) 15.24     15.80     13.52     14.57     13.37  
Adjusted return on average assets (1) 1.08     1.07     1.03     0.95     0.93  
Adjusted return on average equity (1) (2) 9.39     9.24     8.86     8.09     7.89  
Adjusted return on tangible equity (1) (2) (5) 16.03     16.15     15.76     14.57     14.49  
Net interest margin 3.59     3.66     3.96     4.08     3.96  
Core net interest margin (3) 3.58     3.65     3.94     3.96     3.91  
Efficiency ratio 52.87     53.06     61.05     56.89     61.47  
Core efficiency ratio (1) 50.60     52.07     55.05     55.68     58.75  
                             
Credit Quality Ratios                            
Nonperforming assets to total assets 0.34 %   0.23 %   0.34 %   0.62 %   0.36 %
Nonperforming loans to total loans 0.39     0.26     0.40     0.72     0.37  
Nonperforming assets to total loans and other real estate 0.43     0.30     0.44     0.79     0.45  
Allowance for loan losses to non-performing loans 177.06     264.42     179.97     100.35     181.99  
Allowance for loan losses to total loans 0.69     0.68     0.73     0.73     0.68  
Net charge-offs to average loans outstanding (annualized) 0.02     0.32     0.11     0.01      
                             
Capital Ratios                            
Estimated common equity tier 1 capital to risk-weighted assets (1) 8.20 %   7.92 %   7.89 %   7.92 %   7.94 %
Estimated tier 1 capital to average assets 7.82     7.46     7.42     7.36     8.28  
Estimated tier 1 capital to risk-weighted assets (1) 8.55     8.29     8.27     8.32     8.92  
Estimated total capital to risk-weighted assets 11.38     11.24     11.35     10.47     11.14  
Total stockholders' equity to total assets 11.49     11.35     11.56     11.71     11.94  
Tangible common equity to tangible assets (1) 7.17     6.86     6.88     6.86     6.87  
                   
(1) Non-GAAP financial measures.  See reconciliation.
(2) Excludes average balance of Series A preferred stock.
(3) Excludes income recognized on acquired loans of $51, $116, $265, $1,333 and $516, 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
Annual Selected Financial Information
Years Ended December 31, 2016 and 2015
(Unaudited)

  Years Ended December 31,
  2016   2015
Per Share Data      
Net income - basic $ 2.89     $ 2.23  
Net income - diluted 2.88     2.21  
Cash dividends 0.34     0.32  
Book value 35.63     32.79  
       
Outstanding Shares      
Period-end shares 18,870,312     18,399,194  
Weighted average shares - basic 18,501,663     17,321,513  
Weighted average shares - diluted 18,588,309     17,406,108  
       
Selected Annual Ratios      
Return on average assets 0.98 %   0.88 %
Return on average equity 8.42     7.13  
Net interest margin 3.81     4.05  
           

Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Income
Three Months and Years Ended December 31, 2016 and 2015
(Dollars in thousands)
(Unaudited)

    Three months ended December 31,   Years ended December 31,
    2016   2015   2016   2015
Interest income:                
Interest and fees on loans   $ 52,055     $ 46,154     $ 203,577     $ 169,504  
Interest on taxable securities   614     615     2,681     2,168  
Interest on nontaxable securities   479     459     1,768     1,783  
Interest on interest-bearing deposits and other   756     186     2,023     572  
Total interest income   53,904     47,414     210,049     174,027  
Interest expense:                
Interest on deposits   4,452     3,230     16,075     12,024  
Interest on FHLB advances   1,057     834     4,119     3,077  
Interest on repurchase agreements and other borrowings   1,705     1,060     5,428     4,289  
Interest on junior subordinated debentures   164     139     621     539  
Total interest expense   7,378     5,263     26,243     19,929  
Net interest income   46,526     42,151     183,806     154,098  
Provision for loan losses   2,197     1,970     9,440     9,231  
Net interest income after provision for loan losses   44,329     40,181     174,366     144,867  
Noninterest income:                
Service charges on deposit accounts   1,935     1,857     7,222     6,898  
Mortgage fee income   1,719     1,187     7,038     5,269  
Gain on sale of loans               116  
Loss on sale of branch           (43 )    
Gain on sale of other real estate       70     57     290  
Gain on sale of securities available for sale       44     4     134  
Gain (loss) on sale of premises and equipment       16     32     (358 )
Increase in cash surrender value of BOLI   411     271     1,348     1,077  
Other   1,159     809     3,897     2,702  
Total noninterest income   5,224     4,254     19,555     16,128  
Noninterest expense:                
Salaries and employee benefits   15,118     16,549     66,762     60,541  
Occupancy   3,982     4,004     16,101     16,058  
Data processing   1,177     1,244     4,752     3,384  
FDIC assessment   1,171     706     3,889     2,259  
Advertising and public relations   332     126     1,107     1,038  
Communications   468     576     2,116     2,219  
Net other real estate owned expenses (including taxes)   25     (15 )   205     169  
Other real estate impairment           106     35  
Core deposit intangible amortization   492     453     1,964     1,555  
Professional fees   858     1,183     3,212     3,191  
Acquisition expense, including legal   785     627     1,517     1,420  
Other   2,953     3,074     12,059     11,329  
Total noninterest expense   27,361     28,527     113,790     103,198  
Income before taxes   22,192     15,908     80,131     57,797  
Income tax expense   7,417     5,347     26,591     19,011  
Net income   $ 14,775     $ 10,561     $ 53,540     $ 38,786  
                                 

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

  December 31,
Assets 2016   2015
Cash and due from banks $ 158,686     $ 129,096  
Interest-bearing deposits in other banks 336,341     164,183  
Federal funds sold 10,000      
Cash and cash equivalents 505,027     293,279  
Certificates of deposit held in other banks 2,707     61,746  
Securities available for sale 316,435     273,463  
Loans held for sale 9,795     12,299  
Loans, net of allowance for loan losses 4,539,063     3,960,809  
Premises and equipment, net 89,898     93,015  
Other real estate owned 1,972     2,168  
Federal Home Loan Bank (FHLB) of Dallas stock and other restricted stock 26,536     14,256  
Bank-owned life insurance (BOLI) 57,209     40,861  
Deferred tax asset 9,631     5,892  
Goodwill 258,319     258,643  
Core deposit intangible, net 14,177     16,357  
Other assets 22,032     22,212  
Total assets $ 5,852,801     $ 5,055,000  
       
Liabilities, Temporary Equity and Stockholders' Equity      
Deposits:      
  Noninterest-bearing $ 1,117,927     $ 1,071,656  
  Interest-bearing 3,459,182     2,956,623  
    Total deposits 4,577,109     4,028,279  
FHLB advances 460,746     288,325  
Repurchase agreements     12,160  
Other borrowings 107,249     68,295  
Other borrowings, related parties 50     2,503  
Junior subordinated debentures 18,147     18,147  
Other liabilities 17,135     9,982  
    Total liabilities 5,180,436     4,427,691  
Commitments and contingencies      
       
Temporary equity:  Series A preferred stock     23,938  
Stockholders' equity:      
Common stock 189     184  
Additional paid-in capital 555,325     530,107  
Retained earnings 117,951     70,698  
Accumulated other comprehensive income (loss) (1,100 )   2,382  
Total stockholders' equity 672,365     603,371  
Total liabilities, temporary equity and stockholders' equity $ 5,852,801     $ 5,055,000  
               

Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
Three Months Ended December 31, 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 December 31,
  2016   2015
  Average
Outstanding
Balance
  Interest   Yield/
Rate
  Average
Outstanding
Balance
  Interest   Yield/
Rate
Interest-earning assets:                      
Loans $ 4,423,306     $ 52,055     4.68 %   $ 3,812,493     $ 46,154     4.80 %
Taxable securities 227,053     614     1.08     177,535     615     1.37  
Nontaxable securities 75,613     479     2.52     73,590     459     2.47  
Interest-bearing deposits and other 428,772     756     0.70     156,073     186     0.47  
Total interest-earning assets 5,154,744     $ 53,904     4.16     4,219,691     $ 47,414     4.46  
Noninterest-earning assets 574,416             627,684          
Total assets $ 5,729,160             $ 4,847,375          
Interest-bearing liabilities:                      
Checking accounts $ 1,889,725     $ 2,081     0.44 %   $ 1,328,031     $ 1,443     0.43 %
Savings accounts 153,630     64     0.17     143,289     65     0.18  
Money market accounts 416,653     526     0.50     495,690     339     0.27  
Certificates of deposit 870,489     1,781     0.81     850,789     1,383     0.64  
Total deposits 3,330,497     4,452     0.53     2,817,799     3,230     0.45  
FHLB advances 468,579     1,057     0.90     267,266     834     1.24  
Other borrowings 107,267     1,705     6.32     81,852     1,060     5.14  
Junior subordinated debentures 18,147     164     3.60     18,147     139     3.04  
Total interest-bearing liabilities 3,924,490     7,378     0.75     3,185,064     5,263     0.66  
Noninterest-bearing checking accounts 1,127,379             1,050,728          
Noninterest-bearing liabilities 18,922             15,485          
Stockholders' equity 658,369             596,098          
Total liabilities and equity $ 5,729,160             $ 4,847,375          
Net interest income     $ 46,526             $ 42,151      
Interest rate spread         3.41 %           3.80 %
Net interest margin         3.59             3.96  
Average interest earning assets to interest bearing liabilities         131.35             132.48  
                           

Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
Years Ended December 31, 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.

  For The Years Ended December 31,
  2016   2015
  Average
Outstanding
Balance
  Interest   Yield/
Rate
  Average
Outstanding
Balance
  Interest   Yield/
Rate
Interest-earning assets:                      
Loans $ 4,234,368     $ 203,577     4.81 %   $ 3,456,128     $ 169,504     4.90 %
Taxable securities 221,905     2,681     1.21     139,924     2,168     1.55  
Nontaxable securities 74,227     1,768     2.38     69,112     1,783     2.58  
Federal funds sold and other 290,316     2,023     0.70     141,374     572     0.40  
Total interest-earning assets 4,820,816     $ 210,049     4.36     3,806,538     $ 174,027     4.57  
Noninterest-earning assets 648,726             589,014          
Total assets $ 5,469,542             $ 4,395,552          
Interest-bearing liabilities:                      
Checking accounts $ 1,761,509     $ 7,770     0.44 %   $ 1,297,948     $ 5,649     0.44 %
Savings accounts 150,223     260     0.17     143,476     263     0.18  
Money market accounts 429,647     1,911     0.44     319,982     829     0.26  
Certificates of deposit 830,964     6,134     0.74     842,087     5,283     0.63  
Total deposits 3,172,343     16,075     0.51     2,603,493     12,024     0.46  
FHLB advances 465,010     4,119     0.89     225,934     3,077     1.36  
Other borrowings 87,943     5,428     6.17     78,074     4,289     5.49  
Junior subordinated debentures 18,147     621     3.42     18,147     539     2.97  
Total interest-bearing liabilities 3,743,443     26,243     0.70     2,925,648     19,929     0.68  
Noninterest-bearing checking accounts 1,076,340             895,789          
Noninterest-bearing liabilities 13,895             9,688          
Stockholders' equity 635,864             564,427          
Total liabilities and equity $ 5,469,542             $ 4,395,552          
Net interest income     $ 183,806             $ 154,098      
Interest rate spread         3.66 %           3.89 %
Net interest margin         3.81             4.05  
Average interest earning assets to interest bearing liabilities         128.78             130.11  
                           

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

The following table sets forth loan totals by category as of the dates presented:        
         
    December 31, 2016   December 31, 2015
    Amount   % of Total   Amount   % of Total
Commercial   $ 630,805     13.7 %   $ 731,818     18.3 %
Real estate:                            
Commercial real estate   2,459,221     53.7     1,949,734     48.7  
Commercial construction, land and land development   531,481     11.6     419,611     10.5  
Residential real estate (1)   644,340     14.1     620,289     15.5  
Single-family interim construction   235,475     5.1     187,984     4.7  
Agricultural   53,548     1.2     50,178     1.3  
Consumer   27,530     0.6     41,966     1.0  
Other   166         124      
Total loans   4,582,566     100.0 %   4,001,704     100.0 %
Deferred loan fees   (2,117 )       (1,553 )    
Allowance for losses   (31,591 )       (27,043 )    
Total loans, net   $ 4,548,858         $ 3,973,108      
 
(1) Includes loans held for sale at December 31, 2016 and 2015 of $9,795 and $12,299, respectively.
 

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

    For the Three Months Ended
    December 31, 2016 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015
Net Interest Income - Reported (a) $ 46,526   $ 45,737   $ 45,883   $ 45,660   $ 42,151  
Income recognized on acquired loans   (51 ) (116 ) (265 ) (1,333 ) (516 )
Adjusted Net Interest Income (b) 46,475   45,621   45,618   44,327   41,635  
Provision Expense - Reported (c) 2,197   2,123   2,123   2,997   1,970  
Noninterest Income - Reported (d) 5,224   4,932   4,929   4,470   4,254  
Loss on sale of branch     43        
Gain on sale of OREO and repossessed assets     (4 ) (10 ) (48 ) (70 )
Gain on sale of securities       (4 )   (44 )
(Gain) loss on sale of premises and equipment     9   (3 ) (38 ) (16 )
Adjusted Noninterest Income (e) 5,224   4,980   4,912   4,384   4,124  
Noninterest Expense - Reported (f) 27,361   26,887   31,023   28,519   28,527  
Senior leadership restructure (6)       (2,575 )    
OREO Impairment     (51 )   (55 )  
IPO related stock grant   (127 ) (104 ) (156 ) (156 ) (156 )
Acquisition Expense (5)   (1,075 ) (384 ) (475 ) (1,187 ) (1,487 )
Adjusted Noninterest Expense (g) 26,159   26,348   27,817   27,121   26,884  
Pre-Tax Pre-Provision Income (a) + (d) - (f) $ 24,389   $ 23,782   $ 19,789   $ 21,611   $ 17,878  
Core Pre-Tax Pre-Provision Income (b) + (e) - (g) $ 25,540   $ 24,253   $ 22,713   $ 21,590   $ 18,875  
Core Net Income (2) (b) - (c) + (e) - (g) $ 15,541   $ 14,819   $ 13,764   $ 12,438   $ 11,377  
 Reported Efficiency Ratio (f) / (a + d) 52.87 % 53.06 % 61.05 % 56.89 % 61.47 %
 Core Efficiency Ratio (g) / (b + e) 50.60 % 52.07 % 55.05 % 55.68 % 58.75 %
Adjusted Return on Average Assets (1)   1.08 % 1.07 % 1.03 % 0.95 % 0.93 %
Adjusted Return on Average Equity (1)   9.39 % 9.24 % 8.86 % 8.09 % 7.89 %
Adjusted Return on Tangible Equity (1)   16.03 % 16.15 % 15.76 % 14.57 % 14.49 %
Total Average Assets   $ 5,729,160   $ 5,535,203   $ 5,367,935   $ 5,242,289   $ 4,847,375  
Total Average Stockholders' Equity (3)   $ 658,369   $ 638,355   $ 624,981   $ 618,059   $ 572,160  
Total Average Tangible Stockholders' Equity (3) (4)   $ 385,635   $ 365,127   $ 351,263   $ 343,418   $ 311,549  
(1) Calculated using core net income  
(2)  Assumes actual effective tax rate of 33.4%, 33.0%, 33.2%, 33.1% and 32.7%, 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 $290 thousand, $381 thousand, $385 thousand, $548 thousand, and $860 thousand of compensation and bonus expenses in addition to $785 thousand, $3 thousand, $90 thousand, $639 thousand, and $627 thousand of merger-related expenses for the quarters ended December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016, and December 31, 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 December 31, 2016 and 2015
(Dollars in thousands, except per share information)
(Unaudited)

Tangible Book Value Per Common Share      
  December 31,
  2016   2015
Tangible Common Equity      
Total common stockholders' equity $ 672,365     $ 603,371  
Adjustments:      
Goodwill (258,319 )   (258,643 )
Core deposit intangibles, net (14,177 )   (16,357 )
Tangible common equity $ 399,869     $ 328,371  
Tangible assets $ 5,580,305     $ 4,780,000  
Common shares outstanding 18,870,312     18,399,194  
Tangible common equity to tangible assets 7.17 %   6.87 %
Book value per common share $ 35.63     $ 32.79  
Tangible book value per common share 21.19     17.85  


Tier 1 Common and Tier 1 Capital to Risk-Weighted Assets Ratio      
  December 31,
  2016   2015
Tier 1 Common Equity      
Total common stockholders' equity - GAAP $ 672,365     $ 603,371  
Adjustments:      
Unrealized loss (gain) on available-for-sale securities 1,100     (2,382 )
Goodwill (258,319 )   (258,643 )
Qualifying core deposit intangibles, net (5,529 )   (4,253 )
Tier 1 common equity $ 409,617     $ 338,093  
Qualifying restricted core capital elements (junior subordinated debentures) 17,600     17,600  
Series A preferred stock     23,938  
Tier 1 Equity $ 427,217     $ 379,631  
       
Total Risk-Weighted Assets $ 4,996,229     $ 4,256,662  
Estimated tier 1 equity to risk-weighted assets ratio 8.55 %   8.92 %
Estimated tier 1 common equity to risk-weighted assets ratio 8.20     7.94  
       

 

Contacts:

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

Media:
Peggy Smolen
Marketing & Communications Director
(972) 562-9004
psmolen@ibtx.com

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