Market Overview

Independent Bank Group, Inc. Reports Fourth Quarter Financial Results

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McKINNEY, TX / ACCESSWIRE / January 27, 2020 / Independent Bank Group, Inc. (NASDAQ:IBTX), the holding company for Independent Bank, today announced net income of $50.2 million, or $1.17 per diluted share, for the quarter ended December 31, 2019 compared to $34.0 million, or $1.11 per diluted share, for the quarter ended December 31, 2018 and $55.6 million, or $1.30 per diluted share, for the quarter ended September 30, 2019.

For the year ended December 31, 2019, the Company reported net income of $192.7 million, or $4.46 per diluted share, compared to $128.3 million, or $4.33 per diluted share, for the year ended December 31, 2018, a 50.3% dollar increase.

Highlights

  • Continued solid financial performance in the fourth quarter:
    • Earnings of $50.2 million, or $1.17 per diluted share and adjusted (non-GAAP) net income of $56.8 million, or $1.32 per diluted share
    • Return on average assets of 1.32% and adjusted (non-GAAP) return on average assets of 1.49%
    • Return on average equity of 8.57%, (non-GAAP) return on tangible equity of 16.20% and adjusted (non-GAAP) return on tangible equity of 18.32%
  • Strong organic deposit growth of 10.4% and disciplined organic loan growth of 4.8% in 2019
  • Continued strong credit quality with metrics remaining at low levels
  • Announced an all-stock merger of equals with Texas Capital Bancshares, Inc. to create a premier Texas-based bank

Independent Bank Group Chairman and CEO David R. Brooks said, "This was another great year for our company with record earnings, disciplined growth, and an emphasis on maintaining our superior credit quality metrics. Our continued strong financial performance allowed us to enhance value for shareholders last year through reporting strong ROA and ROE, strategic share repurchases, and an increased dividend." Brooks continued, "We were pleased to announce our merger of equals with Texas Capital, and we look forward to embarking on the next phase of our company's growth with enhanced capabilities to serve our customers and communities. We believe that this complementary merger of equals and our continued focus on execution in our core markets position us for a successful 2020."

Fourth Quarter 2019 Operating Results

Net Interest Income

  • Net interest income was $128.1 million for fourth quarter 2019 compared to $87.1 million for fourth quarter 2018 and $125.4 million for third 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 increase from the linked quarter is primarily due to decreased interest expense as a result of a declining interest rate environment.
  • The average balance of total interest-earning assets grew by $4.6 billion and totaled $13.3 billion for the quarter ended December 31, 2019 compared to $8.7 billion for the quarter ended December 31, 2018 and increased $355.8 million from $13.0 billion for the quarter ended September 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 4.90% for fourth quarter 2019 compared to 5.15% for fourth quarter 2018 and 5.06% for third quarter 2019. The decrease from the prior year was due primarily to lower rates on interest-earning assets due to decreases in the Fed Funds rate during the last half of 2019, off-set by increased acquired loan accretion due to the Guaranty acquisition. The decrease from the linked quarter is primarily due to lower loan yields, which decreased 15 basis points excluding accretion, offset by a slight increase in loan accretion from the linked quarter.
  • The cost of interest-bearing liabilities, including borrowings, was 1.54% for fourth quarter 2019 compared to 1.64% for fourth quarter 2018 and 1.72% for third quarter 2019. The decrease from the prior year and linked quarter is primarily due to lower rates offered on our deposits, primarily commercial money market accounts, resulting from decreases in interest rates on deposit products tied to Fed Funds rates, as well as rate decreases on short-term FHLB advances and our other debt.
  • The net interest margin was 3.81% for fourth quarter 2019 compared to 3.98% for fourth quarter 2018 and 3.84% for third quarter 2019. The adjusted (non-GAAP) net interest margin, which excludes unexpected accretion on loans acquired with deteriorated credit quality, was 3.79% for fourth quarter 2019 compared to 3.93% for fourth quarter 2018 and 3.82% for third quarter 2019. The decrease in net interest margin from the prior year and linked quarter was primarily due to the three decreases in the Fed funds rate during the last half of the 2019. In addition, the quarter ended December 31, 2019 includes $10.8 million of loan accretion versus $9.9 million in third quarter 2019. The net interest margin excluding all loan accretion decreased five basis points to 3.49% for fourth quarter 2019 compared to 3.54% in third quarter 2019 primarily as a result of lower loan yields.

Noninterest Income

  • Total noninterest income increased $8.3 million compared to fourth quarter 2018 and decreased $9.1 million compared to third quarter 2019.
  • The increase from the prior year primarily reflects increases of $2.3 million in service charges, $2.1 million in investment advisory and trust services, $548 thousand in earnings on bank owned life insurance and $1.4 million in other noninterest income all resulting primarily from the additional accounts acquired in the Guaranty transaction. Additionally, the increase reflects a $1.3 million gain on sale of the trust business, which was sold in October 2019.
  • The decrease from the linked quarter primarily reflects decreases of $982 thousand in mortgage banking and $8.3 million in gains from the sales of two loan pools and a branch recorded in third quarter offset by the trust sale in fourth quarter noted above. The decrease in mortgage revenue is primarily a result of seasonality in the market demand.

Noninterest Expense

  • Total noninterest expense increased $28.5 million compared to fourth quarter 2018 and increased $3.4 million compared to third quarter 2019.
  • The increase in noninterest expense compared to fourth quarter 2018 is due primarily to increases of $12.5 million in salaries and benefits, $3.2 million in occupancy expenses, $1.5 million in data processing, $1.7 million in amortization of other intangibles, $2.0 million in professional fees, $4.8 million in acquisition expense, and $2.0 million in other noninterest expense. 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. Salaries and benefits also includes a $3.0 million expense related to the separation arrangement with a former executive officer. Professional fees increased due to higher legal expenses related to ongoing acquired litigation, and increased consulting expenses related to various projects and new system implementations. The increase in acquisition expense is primarily a result of investment banker and due diligence-related costs totaling $5.0 million related to the announced merger of equals with Texas Capital Bancshares, Inc.
  • The increase from the linked quarter is primarily related to increases of $4.5 million in salaries and benefits, $3.1 million in FDIC assessment, $1.1 million in professional fees offset by decreases of $4.2 million in acquisition expense and $1.7 million in other noninterest expense. The increase in salaries and benefits expense is primarily a result of the executive separation arrangement discussed above as well as increases in contract labor and incentives for deposit growth. The increase in FDIC assessment is related to a $3.2 million Small Bank Assessment Credit recorded in third quarter 2019. The increase in professional fees is due to higher legal and consulting expenses discussed above. Acquisition expense was elevated in the third quarter due to contract terminations and other expense related to the Guaranty deal. The decrease in other noninterest expense is primarily due to $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 recognized in third quarter 2019.

Provision for Loan Losses

  • Provision for loan loss was $1.6 million for fourth quarter 2019, a decrease of $1.3 million compared to $2.9 million for fourth quarter 2018 and a decrease of $3.6 million compared to $5.2 million for third quarter 2019. Provision expense is primarily reflective of organic loan growth as well as charge-offs or specific reserves taken during the respective period. The decrease from prior year and the linked quarter was mainly due to a decline in loan growth during fourth quarter 2019. In addition, provision expense was 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.
  • The allowance for loan losses was $51.5 million, or 0.47% of total loans held for investment, net of mortgage warehouse purchase loans, at December 31, 2019, compared to $44.8 million, or 0.58% at December 31, 2018, and compared to $50.4 million, or 0.46% at September 30, 2019. The dollar increase from prior year is primarily due to additional general reserves for organic loan growth. 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 $14.1 million was recorded for the quarter ended December 31, 2019, an effective rate of 21.9% compared to tax expense of $8.3 million and an effective rate of 19.6% for the quarter ended December 31, 2018 and tax expense of $14.9 million and an effective rate of 21.1% for the quarter ended September 30, 2019. The increase in the effective tax rate compared to prior year is a result of increased state income tax expense.

Fourth Quarter 2019 Balance Sheet Highlights

Loans

  • Total loans held for investment, net of mortgage warehouse purchase loans, were $10.9 billion at December 31, 2019 and September 30, 2019 and $7.7 billion at December 31, 2018. Despite flat balances in fourth quarter 2019, loans held for investment increased $3.2 billion from December 31, 2018, or 41.6%, $2.8 billion of which was acquired in the Guaranty acquisition, and $505.3 million of which was organic growth, or 4.8% for the year over year period, offset by $792 thousand of loans transferred with the branch sale.
  • Average mortgage warehouse purchase loans were $575.0 million for the quarter ended December 31, 2019 compared to $434.1 million for the quarter ended September 30, 2019, representing an increase of $140.8 million, or 32.4% for the quarter, and compared to $120.9 million for the quarter ended December 31, 2018, an increase of $454.0 million, or 375.5% 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 during the respective periods.
  • Commercial real estate (CRE) loans were $5.9 billion at December 31, 2019 and September 30, 2019, and $4.1 billion at December 31, 2018, or 50.4%, 51.0% and 52.3% of total loans, respectively.

Asset Quality

  • Total nonperforming assets increased to $31.5 million, or 0.21% of total assets at December 31, 2019, compared to $18.4 million or 0.12% of total assets at September 30, 2019, and increased from $16.9 million, or 0.17% of total assets at December 31, 2018.
  • Total nonperforming loans increased to $26.6 million, or 0.24% of total loans at December 31, 2019, from $11.9 million, or 0.11% of total loans at September 30, 2019, and increased from $12.6 million, or 0.16% of total loans at December 31, 2018.
  • The increase in nonperforming loans and nonperforming assets from the linked quarter and prior year is primarily due to a $14.5 million commercial energy loan that has matured and is pending workout at the end of fourth quarter 2019. The net increase in nonperforming assets from the linked quarter was also offset from a partial write down and subsequent sale of a $1.5 million other real estate owned property.
  • Charge-offs were 0.02% annualized in the fourth quarter 2019 compared to 0.21% annualized in the linked quarter and 0.01% annualized in the prior year quarter. Charge-offs were elevated in third quarter 2019 due to charge-offs totaling $5.6 million on two commercial credits.

Deposits and Borrowings

  • Total deposits were $11.9 billion at December 31, 2019 compared to $11.7 billion at September 30, 2019 and compared to $7.7 billion at December 31, 2018. The increase in deposits from the linked quarter is primarily due to $213.5 million of organic growth, or 7.2% for the quarter, annualized. The increase in deposits from the prior year is due to $3.1 billion of deposits acquired in the Guaranty acquisition, as well as organic growth of $1.1 billion, or 10.4%, 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 $527.3 million at December 31, 2019, a decrease of $240.4 million from September 30, 2019 and an increase of $99.9 million from December 31, 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 $24.5 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 December 31, 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 9.76%, 9.32%, 10.19% and 11.83%, respectively, compared to 9.42%, 9.21%, 9.85%, and 11.49%, respectively, at September 30, 2019.

Subsequent Events

The Company is required, under generally accepted accounting principles, to evaluate subsequent events through the filing of its consolidated financial statements for the quarter ended December 31, 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 December 31, 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 fourth quarter earnings announcement will be held on Tuesday, January 28, 2020 at 8:30 a.m. (EDT) and can be accessed by the webcast link, https://webcasts.eqs.com/indepbankgroup20200128 or by calling 1-877-407-0989 and by identifying the meeting number 13697820 or by identifying "Independent Bank Group Fourth 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 January 28, 2020 through February 4, 2020 on our website.

Forward-Looking Statements

The numbers as of and for the quarter ended December 31, 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) the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between the Company and Texas Capital Bancshares, Inc. ("TCBI"); (33) the outcome of any legal proceedings that may be instituted against the Company or TCBI, delays in completing the transaction; (34) the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction) and shareholder approvals or to satisfy any of the other conditions to the transaction on a timely basis or at all; (35) the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where the Company and TCBI do business; (36) the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, diversion of management's attention from ongoing business operations and opportunities, potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction; (37) the ability to complete the transaction and integration of the Company and TCBI successfully; (38) the dilution caused by the Company's issuance of additional shares of its capital stock in connection with the transaction; (39) technology-related changes are harder to make or are more expensive than expected; (40) 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; (41) the potential impact of technology and "FinTech" entities on the banking industry generally; (42) our success at managing the risks involved in the foregoing items; and (43) 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 TCBI's Annual Report on Form 10-K filed on February 14, 2019, and other reports and statements filed by TCBI 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.

CONTACTS:

Analysts/Investors:

Paul Langdale
Senior Vice President, Director of Corporate Development
(972) 562-9004
plangdale@ibtx.com

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

Media:

James Tippit
Executive Vice President, Head of Corporate Responsibility
(972) 562-9004
jtippit@ibtx.com

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

As of and for the Quarter Ended
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
Selected Income Statement Data
Interest income
$ 164,386 $ 165,307 $ 167,663 $ 155,576 $ 112,805
Interest expense
36,317 39,914 38,020 33,924 25,697
Net interest income
128,069 125,393 129,643 121,652 87,108
Provision for loan losses
1,609 5,233 4,739 3,224 2,910
Net interest income after provision for loan losses
126,460 120,160 124,904 118,428 84,198
Noninterest income
18,229 27,324 16,199 16,424 9,887
Noninterest expense
80,343 76,948 77,978 86,595 51,848
Income tax expense
14,110 14,903 13,389 11,126 8,273
Net income
50,236 55,633 49,736 37,131 33,964
Adjusted net income (1)
56,799 57,827 52,928 52,028 34,120
Per Share Data (Common Stock)
Earnings:
Basic
$ 1.17 $ 1.30 $ 1.15 $ 0.85 $ 1.11
Diluted
1.17 1.30 1.15 0.85 1.11
Adjusted earnings:
Basic (1)
1.32 1.35 1.22 1.19 1.12
Diluted (1)
1.32 1.35 1.22 1.19 1.12
Dividends
0.25 0.25 0.25 0.25 0.14
Book value
54.48 53.52 52.37 51.17 52.50
Tangible book value (1)
28.99 27.89 26.66 25.84 27.44
Common shares outstanding
42,950,228 42,952,642 42,953,818 43,665,793 30,600,582
Weighted average basic shares outstanding (3)
42,951,701 42,950,749 43,331,988 43,759,348 30,503,062
Weighted average diluted shares outstanding (3)
42,951,701 42,950,749 43,331,988 43,759,348 30,503,062
Selected Period End Balance Sheet Data
Total assets
$ 14,958,207 $ 14,959,127 $ 14,708,922 $ 14,145,383 $ 9,849,965
Cash and cash equivalents
565,170 570,101 579,447 431,799 130,779
Securities available for sale
1,085,936 1,083,816 1,104,520 1,074,310 685,350
Loans, held for sale
35,645 32,929 106,489 22,598 32,727
Loans, held for investment, excluding mortgage warehouse purchase loans
10,928,653 10,936,136 10,784,041 10,692,183 7,717,510
Mortgage warehouse purchase loans
687,317 660,650 453,492 251,258 170,290
Allowance for loan losses
51,461 50,447 51,075 46,505 44,802
Goodwill and other intangible assets
1,094,762 1,100,876 1,104,187 1,105,705 766,839
Other real estate owned
4,819 6,392 10,972 6,018 4,200
Noninterest-bearing deposits
3,240,185 3,218,055 3,153,001 3,089,794 2,145,930
Interest-bearing deposits
8,701,151 8,509,830 8,377,586 8,149,632 5,591,864
Borrowings (other than junior subordinated debentures)
527,251 767,642 792,534 538,425 427,316
Junior subordinated debentures
53,824 53,775 53,725 53,676 27,852
Total stockholders' equity
2,339,773 2,298,932 2,249,342 2,234,202 1,606,433

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

As of and for the Quarter Ended
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
Selected Performance Metrics
Return on average assets
1.32 % 1.50 % 1.39 % 1.08 % 1.34 %
Return on average equity
8.57 9.68 8.90 6.78 8.51
Return on tangible equity (4)
16.20 18.74 17.52 13.55 16.52
Adjusted return on average assets (1)
1.49 1.56 1.47 1.51 1.35
Adjusted return on average equity (1)
9.69 10.06 9.47 9.51 8.55
Adjusted return on tangible equity (1) (4)
18.32 19.48 18.65 18.98 16.60
Net interest margin
3.81 3.84 4.11 4.05 3.98
Adjusted net interest margin (2)
3.79 3.82 4.03 4.01 3.93
Efficiency ratio
52.75 48.27 51.25 60.37 51.91
Adjusted efficiency ratio (1)
46.44 42.98 47.39 47.05 51.26
Credit Quality Ratios (5)
Nonperforming assets to total assets
0.21 % 0.12 % 0.19 % 0.12 % 0.17 %
Nonperforming loans to total loans held for investment (6)
0.24 0.11 0.16 0.10 0.16
Nonperforming assets to total loans held for investment and other real estate (6)
0.29 0.17 0.26 0.16 0.22
Allowance for loan losses to nonperforming loans
193.35 424.17 302.15 433.82 354.73
Allowance for loan losses to total loans held for investment (6)
0.47 0.46 0.47 0.43 0.58
Net charge-offs to average loans outstanding (annualized)
0.02 0.21 0.01 0.06 0.01
Capital Ratios
Estimated common equity Tier 1 capital to risk-weighted assets
9.76 % 9.42 % 9.22 % 9.60 % 10.05 %
Estimated tier 1 capital to average assets
9.32 9.21 9.06 9.33 9.57
Estimated tier 1 capital to risk-weighted assets
10.19 9.85 9.66 10.07 10.41
Estimated total capital to risk-weighted assets
11.83 11.49 11.51 11.96 12.58
Total stockholders' equity to total assets
15.64 15.37 15.29 15.79 16.31
Tangible common equity to tangible assets (1)
8.98 8.65 8.42 8.65 9.24

(1) Non-GAAP financial measure. See reconciliation.
(2) Non-GAAP financial measure. Excludes unexpected income recognized on credit impaired acquired loans of $791, $618, $2,695, $1,016 and $967, 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
Annual Selected Financial Information
Years Ended December 31, 2019 and 2018
(Unaudited)

Years Ended
December 31,
2019 2018
Per Share Data
Net income - basic
$ 4.46 $ 4.33
Net income - diluted
4.46 4.33
Cash dividends
1.00 0.54
Book value
54.48 52.50
Outstanding Shares
Period-end shares
42,950,228 30,600,582
Weighted average shares - basic(1)
43,245,418 29,599,119
Weighted average shares - diluted(1)
43,245,418 29,599,119
Selected Annual Ratios
Return on average assets
1.32 % 1.35 %
Return on average equity
8.50 8.69
Net interest margin
3.95 3.97

(1) Total number of shares includes participating shares (those with dividend rights).

Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Income
Three Months and Years Ended December 31, 2019 and 2018
(Dollars in thousands)
(Unaudited)

Three Months Ended
December 31,
Years Ended
December 31,
2019 2018 2019 2018
Interest income:
Interest and fees on loans
$ 153,963 $ 106,798 $ 611,589 $ 384,791
Interest on taxable securities
5,223 3,763 21,324 14,007
Interest on nontaxable securities
2,056 1,105 8,482 4,580
Interest on interest-bearing deposits and other
3,144 1,139 11,537 3,912
Total interest income
164,386 112,805 652,932 407,290
Interest expense:
Interest on deposits
30,834 20,761 123,384 60,767
Interest on FHLB advances
1,849 2,410 10,173 10,264
Interest on other borrowings and repurchase agreements
2,916 2,099 11,590 8,398
Interest on junior subordinated debentures
718 427 3,028 1,609
Total interest expense
36,317 25,697 148,175 81,038
Net interest income
128,069 87,108 504,757 326,252
Provision for loan losses
1,609 2,910 14,805 9,860
Net interest income after provision for loan losses
126,460 84,198 489,952 316,392
Noninterest income:
Service charges on deposit accounts
5,891 3,617 24,500 14,224
Investment management and trust
2,092 - 9,330 -
Mortgage banking revenue
3,842 3,378 15,461 15,512
Gain on sale of loans
- - 6,779 -
Gain on sale of branch
- - 1,549 -
Gain on sale of trust business
1,319 - 1,319 -
Gain on sale of other real estate
24 56 875 269
Gain (loss) on sale of securities available for sale
10 (232 ) 275 (581 )
(Loss) gain on sale and disposal of premises and equipment
- - (585 ) 123
Increase in cash surrender value of BOLI
1,390 842 5,525 3,170
Other
3,661 2,226 13,148 9,507
Total noninterest income
18,229 9,887 78,176 42,224
Noninterest expense:
Salaries and employee benefits
42,126 29,625 162,683 111,697
Occupancy
9,676 6,491 37,654 24,786
Data processing
4,415 2,893 17,103 10,754
FDIC assessment
994 1,093 1,065 3,306
Advertising and public relations
585 607 2,527 1,907
Communications
1,235 809 5,145 3,353
Other real estate owned expenses, net
116 47 418 318
Impairment of other real estate
377 - 1,801 85
Amortization of other intangible assets
3,175 1,496 12,880 5,739
Professional fees
3,165 1,129 7,936 4,556
Acquisition expense, including legal
5,270 486 33,445 6,157
Other
9,209 7,172 39,207 25,961
Total noninterest expense
80,343 51,848 321,864 198,619
Income before taxes
64,346 42,237 246,264 159,997
Income tax expense
14,110 8,273 53,528 31,738
Net income
$ 50,236 $ 33,964 $ 192,736 $ 128,259

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

December 31,
Assets
2019 2018
Cash and due from banks
$ 186,299 $ 102,024
Interest-bearing deposits in other banks
378,871 28,755
Cash and cash equivalents
565,170 130,779
Certificates of deposit held in other banks
5,719 1,225
Securities available for sale, at fair value
1,085,936 685,350
Loans held for sale
35,645 32,727
Loans, net
11,562,814 7,839,695
Premises and equipment, net
242,874 167,866
Other real estate owned
4,819 4,200
Federal Home Loan Bank (FHLB) of Dallas stock and other restricted stock
30,052 26,870
Bank-owned life insurance (BOLI)
215,081 129,521
Deferred tax asset
6,943 13,180
Goodwill
994,021 721,797
Other intangible assets, net
100,741 45,042
Other assets
108,392 51,713
Total assets
$ 14,958,207 $ 9,849,965
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing
$ 3,240,185 $ 2,145,930
Interest-bearing
8,701,151 5,591,864
Total deposits
11,941,336 7,737,794
FHLB advances
325,000 290,000
Other borrowings
202,251 137,316
Junior subordinated debentures
53,824 27,852
Other liabilities
96,023 50,570
Total liabilities
12,618,434 8,243,532
Commitments and contingencies
Stockholders' equity:
Preferred stock
- -
Common stock
430 306
Additional paid-in capital
1,926,359 1,317,616
Retained earnings
393,674 296,816
Accumulated other comprehensive income (loss)
19,310 (8,305 )
Total stockholders' equity
2,339,773 1,606,433
Total liabilities and stockholders' equity
$ 14,958,207 $ 9,849,965

Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
Three Months Ended December 31, 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 December 31,
2019 2018
Average Outstanding Balance Interest Yield/Rate (4) Average Outstanding Balance Interest Yield/Rate (4)
Interest-earning assets:
Loans (1)
$ 11,566,271 $ 153,963 5.28 % $ 7,762,950 $ 106,798 5.46 %
Taxable securities
756,669 5,223 2.74 591,259 3,763 2.53
Nontaxable securities
321,377 2,056 2.54 164,687 1,105 2.66
Interest-bearing deposits and other
674,247 3,144 1.85 173,999 1,139 2.60
Total interest-earning assets
13,318,564 164,386 4.90 8,692,895 112,805 5.15
Noninterest-earning assets
1,772,818 1,333,256
Total assets
$ 15,091,382 $ 10,026,151
Interest-bearing liabilities:
Checking accounts
$ 4,106,716 $ 11,332 1.09 % $ 2,888,198 $ 8,039 1.10 %
Savings accounts
568,007 331 0.23 299,670 241 0.32
Money market accounts
2,112,390 9,262 1.74 1,297,603 7,305 2.23
Certificates of deposit
1,873,835 9,909 2.10 1,136,868 5,176 1.81
Total deposits
8,660,948 30,834 1.41 5,622,339 20,761 1.46
FHLB advances
457,880 1,849 1.60 426,630 2,410 2.24
Other borrowings and repurchase agreements
203,888 2,916 5.67 137,278 2,099 6.07
Junior subordinated debentures
53,807 718 5.29 27,835 427 6.09
Total interest-bearing liabilities
9,376,523 36,317 1.54 6,214,082 25,697 1.64
Noninterest-bearing checking accounts
3,277,539 2,194,848
Noninterest-bearing liabilities
111,144 34,361
Stockholders' equity
2,326,176 1,582,860
Total liabilities and equity
$ 15,091,382 $ 10,026,151
Net interest income
$ 128,069 $ 87,108
Interest rate spread
3.36 % 3.51 %
Net interest margin (2)
3.81 3.98
Net interest income and margin (tax equivalent basis) (3)
$ 129,057 3.84 $ 87,613 4.00
Average interest-earning assets to interest-bearing liabilities
142.04 139.89

(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%.
(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
For The Years Ended December 31, 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.

For The Years Ended December 31,
2019 2018
Average Outstanding Balance Interest Yield/Rate Average Outstanding Balance Interest Yield/Rate
Interest-earning assets:
Loans (1)
$ 11,179,161 $ 611,589 5.47 % $ 7,254,635 $ 384,791 5.30 %
Taxable securities
770,927 21,324 2.77 603,474 14,007 2.32
Nontaxable securities
329,687 8,482 2.57 177,348 4,580 2.58
Interest-bearing deposits and other
504,309 11,537 2.29 179,411 3,912 2.18
Total interest-earning assets
12,784,084 652,932 5.11 8,214,868 407,290 4.96
Noninterest-earning assets
1,771,231 1,264,066
Total assets
$ 14,555,315 $ 9,478,934
Interest-bearing liabilities:
Checking accounts
$ 3,953,986 $ 44,171 1.12 % $ 2,943,519 $ 26,593 0.90 %
Savings accounts
540,741 1,335 0.25 290,325 703 0.24
Money market accounts
2,047,554 40,837 1.99 998,916 19,043 1.91
Certificates of deposit
1,795,391 37,041 2.06 1,009,644 14,428 1.43
Total deposits
8,337,672 123,384 1.48 5,242,404 60,767 1.16
FHLB advances
464,404 10,173 2.19 515,479 10,264 1.99
Other borrowings and repurchase agreements
201,066 11,590 5.76 137,549 8,398 6.11
Junior subordinated debentures
53,733 3,028 5.64 27,761 1,609 5.80
Total interest-bearing liabilities
9,056,875 148,175 1.64 5,923,193 81,038 1.37
Noninterest-bearing checking accounts
3,139,805 2,052,675
Noninterest-bearing liabilities
91,532 26,378
Stockholders' equity
2,267,103 1,476,688
Total liabilities and equity
$ 14,555,315 $ 9,478,934
Net interest income
$ 504,757 $ 326,252
Interest rate spread
3.47 % 3.59 %
Net interest margin (2)
3.95 3.97
Net interest income and margin (tax equivalent basis) (3)
$ 508,498 3.98 $ 328,090 3.99
Average interest-earning assets to interest-bearing liabilities
141.15 138.69

(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%.

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

Totals loans by category

December 31,
2019
December 31,
2018
Amount % of Total Amount % of Total
Commercial (1)
$ 2,482,356 21.3 % $ 1,361,104 17.2 %
Real estate:
Commercial real estate
5,872,653 50.4 4,141,356 52.3
Commercial construction, land and land development
1,236,623 10.6 905,421 11.4
Residential real estate (2)
1,550,872 13.3 1,082,248 13.7
Single-family interim construction
378,120 3.2 331,748 4.2
Agricultural
97,767 0.9 66,638 0.8
Consumer
32,603 0.3 31,759 0.4
Other
621 - 253 -
Total loans
11,651,615 100.0 % 7,920,527 100.0 %
Deferred loan fees
(1,695 ) (3,303 )
Allowance for loan losses
(51,461 ) (44,802 )
Total loans, net
$ 11,598,459 $ 7,872,422

(1) Includes mortgage warehouse purchase loans of $687,317 and $170,290 at December 31, 2019 and December 31, 2018, respectively.
(2) Includes loans held for sale of $35,645 and $32,727 at December 31, 2019 and December 31, 2018, respectively.

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

For the Three Months Ended
December 31, 2019 September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
ADJUSTED NET INCOME
Net Interest Income - Reported
(a)
$ 128,069 $ 125,393 $ 129,643 $ 121,652 $ 87,108
Unexpected income recognized on credit impaired acquired loans
(791 ) (618 ) (2,695 ) (1,016 ) (967 )
Adjusted Net Interest Income
(b)
127,278 124,775 126,948 120,636 86,141
Provision Expense - Reported
(c)
1,609 5,233 4,739 3,224 2,910
Noninterest Income - Reported
(d)
18,229 27,324 16,199 16,424 9,887
Gain on sale of acquired loan pools
- (6,779 ) - - -
Gain on sale of branch
- (1,549 ) - - -
Gain on sale of trust business
(1,319 ) - - - -
Gain on sale of other real estate
(24 ) (539 ) (312 ) - (56 )
(Gain) loss on sale of securities available for sale
(10 ) - (20 ) (245 ) 232
Loss (gain) on sale and disposal of premises and equipment
- 315 279 (9 ) -
Recoveries on loans charged off prior to acquisition
(425 ) (107 ) (258 ) (1,311 ) (109 )
Adjusted Noninterest Income
(e)
16,451 18,665 15,888 14,859 9,954
Noninterest Expense - Reported
(f)
80,343 76,948 77,978 86,595 51,848
Separation expense
(3,421 ) - - - -
OREO impairment
(377 ) - (988 ) (436 ) -
Impairment of assets
- (1,173 ) - - -
Acquisition expense (4)
(6,619 ) (10,885 ) (6,069 ) (19,171 ) (1,094 )
Adjusted Noninterest Expense
(g)
69,926 64,890 70,921 66,988 50,754
Adjusted Net Income (1)
(b) - (c) + (e) - (g)
$ 56,799 $ 57,827 $ 52,928 $ 52,028 $ 34,120
ADJUSTED PROFITABILITY
Adjusted Return on Average Assets (2)
1.49 % 1.56 % 1.47 % 1.51 % 1.35 %
Adjusted Return on Average Equity (2)
9.69 % 10.06 % 9.47 % 9.51 % 8.5 %
Adjusted Return on Tangible Equity (2)
18.32 % 19.48 % 18.65 % 18.98 % 16.60 %
Total Average Assets
$ 15,091,382 $ 14,742,618 $ 14,397,852 $ 13,975,192 $ 10,026,151
Total Average Stockholders' Equity
$ 2,326,176 $ 2,279,878 $ 2,241,512 $ 2,219,533 $ 1,582,860
Total Average Tangible Stockholders' Equity (3)
$ 1,230,344 $ 1,177,851 $ 1,138,340 $ 1,111,668 $ 815,533
EFFICIENCY RATIO
Amortization of other intangible assets
(h)
$ 3,175 $ 3,235 $ 3,235 $ 3,235 $ 1,496
Reported Efficiency Ratio
(f - h) / (a + d)
52.75 % 48.27 % 51.25 % 60.37 % 51.91 %
Adjusted Efficiency Ratio
(g - h) / (b + e)
46.44 % 42.98 % 47.39 % 47.05 % 51.26 %

(1) Assumes an adjusted effective tax rate of 21.3%, 21.1%, 21.2%, 20.3%, and 19.6% for the quarters ended December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively.
(2) Calculated using adjusted net income.
(3) Excludes average balance of goodwill and net other intangible assets.
(4) Acquisition expenses include $1,349, $1,420, $2,346, $4,184 and $608, of compensation related expenses in addition to $5,270, $9,465, $3,723, $14,987 and $486 of merger-related expenses for the quarters ended December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively.

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

Tangible Book Value & Tangible Common Equity To Tangible Asset Ratio
December 31,
2019 2018
Tangible Common Equity
Total common stockholders' equity
$ 2,339,773 $ 1,606,433
Adjustments:
Goodwill
(994,021 ) (721,797 )
Other intangible assets, net
(100,741 ) (45,042 )
Tangible common equity
$ 1,245,011 $ 839,594
Tangible Assets
Total assets
$ 14,958,207 $ 9,849,965
Adjustments:
Goodwill
(994,021 ) (721,797 )
Other intangible assets, net
(100,741 ) (45,042 )
Tangible assets
$ 13,863,445 $ 9,083,126
Common shares outstanding
42,950,228 30,600,582
Tangible common equity to tangible assets
8.98 % 9.24 %
Book value per common share
$ 54.48 $ 52.50
Tangible book value per common share
28.99 27.44

SOURCE: Independent Bank Group, Inc.

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