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Independent Bank Group Reports Second Quarter Financial Results

MCKINNEY, Texas, July 27, 2015 (GLOBE NEWSWIRE) -- Independent Bank Group, Inc. (NASDAQ:IBTX), the holding company for Independent Bank, today announced net income available to common shareholders of $10.5 million, or $0.61 per diluted share, for the quarter ended June 30, 2015 compared to $5.1 million, or $0.32 per diluted share, for the quarter ended June 30, 2014 and $9.4 million, or $0.55 per diluted share, for the quarter ended March 31, 2015.

Highlights

  • Core earnings were $10.5 million, or $0.61 per diluted share, for the quarter ended June 30, 2015 compared to $9.0 million, or $0.57 per diluted share, for the quarter ended June 30, 2014 and to $10.2 million, or $0.60 per diluted share, for the quarter ended March 31, 2015.
  • Loan growth was 8.8% annualized for the quarter and 11.0% year to date.
  • Asset quality remains strong, as reflected by a nonperforming assets to total assets ratio of 0.37% and a nonperforming loans to total loans ratio of 0.40% at June 30, 2015. Net charge offs were 0.01% annualized for the quarter.
  • Announced the acquisition of Grand Bank on July 23, 2015, a commercial bank located in Dallas with total assets of $609 million as of June 30, 2015.
  • Increased our senior unsecured credit facility in July 2015 to $50 million.

Independent Bank Group Chairman and Chief Executive Officer, David Brooks said, "This has been an active quarter for us. M&A discussions have resumed and we are very pleased to have announced the Grand Bank acquisition. It is a great strategic fit for us and really improves our funding for future loan growth. This quarter we also officially opened our Woodlands branch, marking our 40th location. Core earnings remained solid as we executed on our key strategies and maintained a stable net interest margin. Although our loan growth moderated in the second quarter, our pipeline continues to be sound."

Second Quarter 2015 Operating Results

Net Interest Income

  • Net interest income was $37.8 million for second quarter 2015 compared to $31.4 million for second quarter 2014 and $36.1 million for first quarter 2015. The increase in net interest income from the previous year was primarily due to increased average loan balances resulting from organic loan growth as well as loans acquired in the BOH Holdings and Houston City Bancshares acquisitions in 2014. The increase from the linked quarter is primarily due to higher average loan balances and an increase in accretion income compared to the first quarter.
  • The net interest margin was 4.10% for second quarter 2015 compared to 4.26% for second quarter 2014 and 4.07% for first quarter 2015. The decrease from the prior year is due primarily to decreases in loan yields related to the extended low rate environment and the increase in the cost of liabilities primarily due to the $65 million subordinated debt offering completed in July 2014. The increase from the linked quarter is primarily due to increased accretion from acquired loans (4 basis points).
  • The yield on interest-earning assets was 4.64% for the second quarter 2015 compared to 4.76% for second quarter 2014 and 4.59% for the first quarter 2015. The decrease from the prior year is primarily as a result of competitive pricing on loans in our markets over the entire year. The increase from the linked quarter is related primarily to the increase in acquired loan accretion income.
  • The cost of interest bearing liabilities, including borrowings, was 0.69% for second quarter 2015 compared to 0.64% for second quarter 2014 and 0.68% for first quarter 2015. The increase from the prior year is due to the interest expense associated with the $65 million in subordinated debt issued in July 2014. The increase from the linked quarter is due to a slight increase in cost of deposits.
  • The average balance of total interest-earning assets grew by $739.5 million and totaled $3.695 billion compared to $2.956 billion at June 30, 2014 and compared to $3.599 billion at March 31, 2015. This increase from second quarter 2014 is due to organic loan growth and the Houston City Bancshares transaction completed October 1, 2014. The increase from first quarter 2015 is due to organic loan growth and higher interest-bearing cash balances resulting from an increase in deposits during second quarter 2015.

Noninterest Income

  • Total noninterest income increased $990 thousand compared to second quarter 2014 and increased $143 thousand compared to first quarter 2015.
  • The increase from the prior year reflects a $455 thousand increase in deposit service charges, a $462 thousand increase in mortgage fee income and gains on sale of other real estate and securities totaling $139 thousand that were recognized in the second quarter 2015. The increases were offset by a $74 thousand decrease in other noninterest income.
  • The increase from first quarter 2015 relates to an increase of $103 thousand in deposit service charges and $129 thousand increase in mortgage fee income offset by a decrease of $96 thousand in other noninterest income.

Noninterest Expense

  • Total noninterest expense decreased $888 thousand compared to second quarter 2014 and increased $69 thousand compared to first quarter 2015.
  • The decrease in noninterest expense compared to second quarter 2014 is due primarily to a decrease of $1.5 million in salaries and benefits and $1.5 million in acquisition expenses offset by increases of $800 thousand in occupancy expenses, $214 thousand in data processing expenses, $152 thousand in communications expenses and $699 thousand in other noninterest expense. The decrease to salary expense from the prior year is due to non-recurring compensation expenses of approximately $4.0 million paid in connection with the acquisition of BOH Holdings in second quarter 2014 with no such bonuses being paid in the current year. The increases in the other expenses relate to increased branch and account activity due to the acquisitions completed in 2014.
  • The increase from the linked quarter is primarily related to increases of $226 thousand in salaries and benefits, $117 thousand in occupancy expenses, $187 thousand in professional fees and $111 thousand in other noninterest expense and were offset by decreases of $93 thousand in advertising and public relations expenses and $444 thousand in acquisition expenses.

Provision for Loan Losses

  • Provision for loan loss expense was $1.7 million for the second quarter 2015, an increase of $280 thousand compared to $1.4 million for second quarter 2014 and a decrease of $11 thousand compared to $1.7 million during first quarter 2015. Provision expense is directly related to organic loan growth in the respective period. In addition, during the quarters ended June 30, 2015 and March 31, 2015, specific allocations of $593 thousand and $719 thousand were recorded for a non-performing energy loan.
  • The allowance for loan losses was $21.8 million, or 0.64% of total loans, at June 30, 2015, compared to $16.2 million, or 0.57% of total loans at June 30, 2014, and compared to $20.2 million, or 0.61% of total loans at March 31, 2015. The increase from prior year is primarily due to the provision made for organic loan growth but also due to an increase of $1.5 million in specific reserves on impaired loans during that period. The increase from the linked quarter is also due to organic loan growth and an increase of $593 thousand in specific reserves on an impaired loan in the energy portfolio.

Income Taxes

  • Federal income tax expense of $5.2 million was recorded for the quarter ended June 30, 2015, an effective rate of 33.0% compared to tax expense of $2.7 million and an effective rate of 34.4% for the quarter ended June 30, 2014 and tax expense of $4.5 million and an effective rate of 32.4% for the quarter ended March 31, 2015. The higher historical effective tax rate during the second quarter of 2014 is primarily related to legal and professional fees associated with facilitating acquisitions that are not deductible for federal income tax purposes.

Second Quarter 2015 Balance Sheet Highlights:

Loans

  • Total loans held for investment were $3.376 billion at June 30, 2015 compared to $3.303 billion at March 31, 2015 and to $2.845 billion at June 30, 2014. This represented organic loan growth of $72 million, or a 2.2% increase from March 31, 2015 and an 18.7% increase from June 30, 2014 (approximately 11.8% of which was organic growth with the remainder coming from the Houston City Bancshares acquisition).
  • Since December 31, 2014, loan growth has been centered in commercial real estate loans ($204 million).
  • The C&I portfolio as of June 30, 2015 was $685.9 million (20.3% of total loans) versus $672.1 million (21% of total loans) at December 31, 2014. The energy portfolio was $226.6 million (6.7% of total loans) at June 30, 2015 made up of 29 credits and 28 relationships. This represented a $12.4 million reduction from the previous quarter. There was one classified energy credit with a balance of $4.2 million as of June 30, 2015. No energy loans were classified as of December 31, 2014. Oil field service related loans, which were obtained through acquisitions, represented an additional $23.3 million (<1% of loans) at June 30, 2015. All energy related credits are being closely monitored and the Company is in close contact with energy borrowers to maintain a real time understanding of these borrowers' financial condition and ability to positively respond to changing market conditions.

Asset Quality

  • Total nonperforming assets decreased to $16.3 million, or 0.37% of total assets at June 30, 2015 from $18.2 million, or 0.43% of total assets at March 31, 2015 and increased from $12.9 million, or 0.35% of total assets at June 30, 2014.
  • Total nonperforming loans decreased slightly to $13.3 million, or 0.40% of total loans at June 30, 2015 compared to $13.7 million, or 0.41% of total loans at March 31, 2015 and increased from $9.1 million, or 0.32% of total loans at June 30, 2014.
  • The increase in both ratios from the prior year is primarily related to the addition of a $4.2 million energy loan that was added to nonaccrual in the first quarter of 2015. The decrease in both ratios from the linked quarter is related to the disposition of $1.3 million in other real estate properties.

Deposits and Borrowings

  • Total deposits were $3.467 billion at June 30, 2015 compared to $3.387 billion at March 31, 2015 and compared to $2.853 billion at June 30, 2014.
  • The average cost of interest bearing deposits decreased to 0.47% for the second quarter 2015 compared to 0.49% for the second quarter 2014 and increased from 0.45% for the first quarter 2015.
  • Total borrowings (other than junior subordinated debentures) were $271.5 million at June 30, 2015, a decrease of $25.8 million from March 31, 2015 and $9.6 million from June 30, 2014. The decrease from the linked quarter is primarily related to maturities of FHLB advances. The net decrease from same quarter in 2014 reflects the maturity of $75 million in short term FHLB advances offset by the issuance of $65 million in subordinated debt in July 2014.

Capital

  • The tangible common equity to tangible assets and the Tier 1 capital to average assets ratios were 7.11% and 8.40% (estimated), respectively, at June 30, 2015 compared to 7.10% and 7.78%, respectively, at March 31, 2015 and 7.25% and 9.07%, respectively, at June 30, 2014. The total stockholders' equity to total assets ratio was 12.79%, 12.93% and 13.44% at June 30, 2015, March 31, 2015 and June 30, 2014, respectively.
  • Total capital to risk weighted assets was 12.03% at June 30, 2015 (estimated) compared to 11.88% at March 31, 2015 and 11.00% at June 30, 2014.
  • The Tier 1 capital to average assets ratio and the total capital to risk weighted assets ratios both increased from March 31, 2015 due to a reclassification of risk weighted assets under Basel III.
  • Book value and tangible book value per common share were $31.30 and $17.18, respectively, at June 30, 2015 compared to $30.77 and $16.65, respectively, at March 31, 2015 and $28.54 and $15.22, respectively, at June 30, 2014.
  • Return on tangible equity (on an annualized basis) was 14.48% for the second quarter 2015 compared to 8.27% and 13.64% for the second quarter 2014 and first quarter 2015, respectively. These returns are impacted by stock issued in the acquisitions.
  • Return on average assets and return on average equity (on an annualized basis) were 0.99% and 7.91%, respectively, for second quarter 2015 compared to 0.60% and 4.68%, respectively, for second quarter 2014 and 0.92% and 7.31%, respectively, for first quarter 2015. The lower ratios for second quarter 2014 are due to increased acquisition costs for the BOH Holdings transaction completed that quarter.

Other Matters

On July 22, 2015, the Company renewed its unsecured committed credit facility with two unrelated commercial banks and increased the facility to $50 million, up from $35 million. The facility matures on July 19, 2016.

On July 23, 2015, the Company announced that it has entered into a definitive agreement to acquire Grand Bank in Dallas, Texas. Under the terms of the definitive agreement, Independent Bank Group will pay aggregate merger consideration valued at $80.1 million. The merger consideration will consist of $24.1 million cash and 1,279,532 shares of Independent Bank Group common stock determined by the average of Independent Bank Group's daily 10-day volume weighted average stock price of $43.77 as of July 20, 2015. The shares issued will be adjusted if the volume weighted average share price of Independent Bank Group common stock for the ten trading day period ending on the third day prior to closing is 10% less or 10% more than $43.77. The amount of cash to be paid will be reduced on a dollar for dollar basis if the tangible book value of Grand Bank is less than $40 million at closing. The merger has been approved by the Boards of Directors of both companies and is expected to close during the fourth quarter of 2015, although delays may occur. The transaction is subject to certain conditions, including the approval by Grand Bank shareholders and customary regulatory approvals.

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 40 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 first quarter earnings announcement will be held tomorrow, Tuesday, July 28, at 8:30 a.m. (EDT) and can be accessed by calling 1-877-303-7611 and by identifying the conference ID number 81211803. A recording of the conference call will be available from July 28, 2015 through August 4, 2015 by accessing our website, www.ibtx.com.

Forward-Looking Statements

The numbers as of and for the quarter ended June 30, 2015 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 non-performing assets and charge-offs; (5) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (6) adverse conditions in the securities markets that lead to impairment in the value of securities in our investment portfolio; (7) inflation, deflation, changes in market interest rates, developments in the securities market, and monetary fluctuations; (8) the timely development and acceptance of new products and services and perceived overall value of these products and services by customers; (9) changes in consumer spending, borrowings, and savings habits; (10) technological changes; (11) the ability to increase market share and control expenses; (12) changes in the competitive environment among banks, bank holding companies, and other financial service providers; (13) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we and our subsidiaries must comply; (14) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters; (15) the costs and effects of legal and regulatory developments including the resolution of legal proceedings; and (16) our success at managing the risks involved in the foregoing items and (17) the other factors that are described in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 or the Annual Report on Form 10-K filed on February 27, 2015 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 non-GAAP financial measures have a number of limitations relative to GAAP financial measures. Certain non-GAAP financial measures exclude items of income, expenditures, expenses, assets, or liabilities, including provisions for loan losses and the effect of goodwill, core deposit intangibles and income from accretion on acquired loans arising from purchase accounting adjustments, that we believe cause certain aspects of our results of operations or financial condition to be not indicative of our primary operating results. All of these items significantly impact our financial statements. Additionally, the items that we exclude in our adjustments are not necessarily consistent with the items that our peers may exclude from their results of operations and key financial measures and therefore may limit the comparability of similarly named financial measures and ratios. We compensate for these limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so that both measures and the individual components may be considered when analyzing our performance.

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

Independent Bank Group, Inc. and Subsidiaries
Consolidated Financial Data
Three Months Ended June 30, 2015, March 31, 2015, December 31, 2014, September 30, 2014 and June 30, 2014
(Dollars in thousands, except for share data)
(Unaudited)
As of and for the quarter ended
June 30, 2015 March 31, 2015 December 31, 2014 September 30, 2014 June 30, 2014
Selected Income Statement Data
Interest income $ 42,747 $ 40,736 $ 42,952 $ 36,940 $ 35,078
Interest expense 4,967 4,658 4,777 4,509 3,674
Net interest income 37,780 36,078 38,175 32,431 31,404
Provision for loan losses 1,659 1,670 1,751 976 1,379
Net interest income after provision for loan losses 36,121 34,408 36,424 31,455 30,025
Noninterest income 4,109 3,966 3,961 4,210 3,119
Noninterest expense 24,455 24,386 24,931 22,162 25,343
Income tax expense 5,204 4,536 5,356 4,543 2,682
Net income 10,571 9,452 10,098 8,960 5,119
Preferred stock dividends 60 60 60 60 49
Net income available to common shareholders 10,511 9,392 10,038 8,900 5,070
Core net interest income (1) 37,225 35,965 37,187 32,259 30,967
Core Pre-Tax Pre-Provision Earnings (1) 17,379 16,810 18,003 15,266 14,683
Core Earnings (1) 10,532 10,230 10,889 9,546 9,020
Per Share Data (Common Stock)
Earnings:
Basic $ 0.61 $ 0.55 $ 0.59 $ 0.54 $ 0.32
Diluted 0.61 0.55 0.59 0.54 0.32
Core earnings:
Basic (1) 0.62 0.60 0.64 0.58 0.57
Diluted (1) 0.61 0.60 0.64 0.58 0.57
Dividends 0.08 0.08 0.06 0.06 0.06
Book value 31.30 30.77 30.35 29.10 28.54
Tangible book value (1) 17.18 16.65 16.15 15.78 15.22
Common shares outstanding 17,108,394 17,119,793 17,032,669 16,370,313 16,370,707
Weighted average basic shares outstanding (4) 17,111,958 17,091,663 17,032,452 16,370,506 15,788,927
Weighted average diluted shares outstanding (4) 17,198,981 17,169,596 17,123,423 16,469,231 15,890,310
Selected Period End Balance Sheet Data
Total assets $ 4,375,727 $ 4,258,364 $ 4,132,639 $ 3,746,682 $ 3,654,311
Cash and cash equivalents 424,196 358,798 324,047 249,769 192,528
Securities available for sale 180,465 198,149 206,062 235,844 249,856
Loans, held for sale 7,237 7,034 4,453 1,811 5,500
Loans, held for investment 3,375,553 3,303,248 3,201,084 2,890,924 2,844,543
Allowance for loan losses 21,764 20,227 18,552 16,840 16,219
Goodwill and core deposit intangible 241,534 241,722 241,912 218,025 217,954
Other real estate owned 2,958 4,587 4,763 4,084 3,788
Noninterest-bearing deposits 886,087 806,912 818,022 715,843 711,475
Interest-bearing deposits 2,581,397 2,579,766 2,431,576 2,097,817 2,141,943
Borrowings (other than junior subordinated debentures) 271,504 297,274 306,147 402,389 281,105
Junior subordinated debentures 18,147 18,147 18,147 18,147 18,147
Series A Preferred Stock 23,938 23,938 23,938 23,938 23,938
Total stockholders' equity 559,447 550,728 540,851 500,311 491,091
Selected Performance Metrics
Return on average assets 0.99% 0.92% 0.97% 0.95% 0.60%
Return on average equity (2) 7.91 7.31 7.65 7.60 4.68
Return on tangible equity (2) (6) 14.48 13.64 14.08 14.32 8.27
Adjusted return on average assets (1) 0.99 1.00 1.05 1.02 1.06
Adjusted return on average equity (1) (2) 7.93 7.96 8.30 8.15 8.25
Adjusted return on tangible equity (1) (2) (6) 14.51 14.86 15.27 15.36 14.72
Net interest margin 4.10 4.07 4.28 4.04 4.26
Adjusted net interest margin (3) 4.04 4.05 4.17 4.02 4.20
Efficiency ratio 58.38 60.90 59.17 60.48 73.41
Core efficiency ratio (1) 57.81 57.76 55.85 56.87 56.92
Credit Quality Ratios
Nonperforming assets to total assets 0.37% 0.43% 0.36% 0.33% 0.35%
Nonperforming loans to total loans 0.40 0.41 0.32 0.29 0.32
Nonperforming assets to total loans and other real estate 0.48 0.55 0.46 0.43 0.45
Allowance for loan losses to non-performing loans 163.12 148.06 183.43 200.83 177.86
Allowance for loan losses to total loans 0.64 0.61 0.58 0.58 0.57
Net charge-offs to average loans outstanding (annualized) 0.01 0.01 0.05
Capital Ratios
Estimated common equity tier 1 capital to risk-weighted assets (5) 8.31% 8.62% n/a n/a n/a
Estimated tier 1 capital to average assets 8.40% 7.78% 8.15% 8.50% 9.07%
Estimated tier 1 capital to risk-weighted assets (1) (5) 9.48 9.31 9.83 10.34 10.21
Estimated total capital to risk-weighted assets (5) 12.03 11.88 12.59 13.36 11.00
Total stockholders' equity to total assets 12.79 12.93 13.09 13.35 13.44
Tangible common equity to tangible assets (1) 7.11 7.10 7.07 7.32 7.25
(1) Non-GAAP financial measures. See reconciliation.
(2) Excludes average balance of Series A preferred stock.
(3) Excludes income recognized on acquired loans of $555, $113, $988, $172 and $437, respectively.
(4) Total number of shares includes participating shares (those with dividend rights).
(5) June 30, 2015 and March 31, 2015 ratios calculated under Basel III rules, which became effective January 1, 2015.
(6) Excludes average balance of goodwill and net core deposit intangibles.
Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Income
Three and Six Months Ended June 30, 2015 and 2014
(Dollars in thousands)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2015 2014 2015 2014
Interest income:
Interest and fees on loans $ 41,625 $ 33,881 $ 81,205 $ 58,004
Interest on taxable securities 551 777 1,160 1,476
Interest on nontaxable securities 449 367 863 624
Interest on federal funds sold and other 122 53 255 136
Total interest income 42,747 35,078 83,483 60,240
Interest expense:
Interest on deposits 3,018 2,437 5,727 4,344
Interest on FHLB advances 718 965 1,470 1,817
Interest on repurchase agreements and other borrowings 1,096 136 2,165 271
Interest on junior subordinated debentures 135 136 263 269
Total interest expense 4,967 3,674 9,625 6,701
Net interest income 37,780 31,404 73,858 53,539
Provision for loan losses 1,659 1,379 3,329 2,632
Net interest income after provision for loan losses 36,121 30,025 70,529 50,907
Noninterest income:
Service charges on deposit accounts 1,908 1,453 3,713 2,664
Mortgage fee income 1,429 967 2,729 1,697
Gain on sale of other real estate 49 179 39
Gain on sale of securities available for sale 90 90
Increase in cash surrender value of BOLI 268 260 538 409
Other 365 439 826 644
Total noninterest income 4,109 3,119 8,075 5,453
Noninterest expense:
Salaries and employee benefits 14,650 16,112 29,074 25,246
Occupancy 4,027 3,227 7,937 5,765
Data processing 666 452 1,354 948
FDIC assessment 493 516 1,012 820
Advertising and public relations 253 180 599 414
Communications 554 402 1,093 722
Net other real estate owned expenses (including taxes) 37 57 96 136
Operations of IBG Adriatica, net 23
Other real estate impairment 25 25
Core deposit intangible amortization 367 299 739 498
Professional fees 677 596 1,167 964
Acquisition expense, including legal 28 1,523 500 1,999
Other 2,678 1,979 5,245 3,884
Total noninterest expense 24,455 25,343 48,841 41,419
Income before taxes 15,775 7,801 29,763 14,941
Income tax expense 5,204 2,682 9,740 5,021
Net income $ 10,571 $ 5,119 $ 20,023 $ 9,920
Consolidated Balance Sheets
As of June 30, 2015 and December 31, 2014
(Dollars in thousands, except share information)
(Unaudited)
June 30, December 31,
Assets 2015 2014
Cash and due from banks $ 117,398 $ 153,158
Interest-bearing deposits in other banks 306,798 170,889
Cash and cash equivalents 424,196 324,047
Securities available for sale 180,465 206,062
Loans held for sale 7,237 4,453
Loans, net of allowance for loan losses 3,352,846 3,182,045
Premises and equipment, net 88,118 88,902
Other real estate owned 2,958 4,763
Federal Home Loan Bank (FHLB) of Dallas stock and other restricted stock 11,941 12,321
Bank-owned life insurance (BOLI) 40,322 39,784
Deferred tax asset 2,482 2,235
Goodwill 229,818 229,457
Core deposit intangible, net 11,716 12,455
Other assets 23,628 26,115
Total assets $ 4,375,727 $ 4,132,639
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing 886,087 818,022
Interest-bearing 2,581,397 2,431,576
Total deposits 3,467,484 3,249,598
FHLB advances 194,366 229,405
Repurchase agreements 5,374 4,012
Other borrowings 68,853 69,410
Other borrowings, related parties 2,911 3,320
Junior subordinated debentures 18,147 18,147
Other liabilities 59,145 17,896
Total liabilities 3,816,280 3,591,788
Commitments and contingencies
Stockholders' equity:
Series A Preferred Stock 23,938 23,938
Common stock 171 170
Additional paid-in capital 478,497 476,609
Retained earnings 54,896 37,731
Accumulated other comprehensive income 1,945 2,403
Total stockholders' equity 559,447 540,851
Total liabilities and stockholders' equity $ 4,375,727 $ 4,132,639
Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
Three Months Ended June 30, 2015 and 2014
(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 Three Months Ended June 30,
2015 2014
Average
Outstanding
Balance


Interest

Yield/
Rate
Average
Outstanding
Balance


Interest

Yield/
Rate
Interest-earning assets:
Loans $3,340,796 $ 41,625 5.00% $2,646,446 $ 33,881 5.14%
Taxable securities 127,891 551 1.73 187,242 777 1.66
Nontaxable securities 68,166 449 2.64 64,307 367 2.29
Federal funds sold and other 158,626 122 0.31 57,936 53 0.37
Total interest-earning assets 3,695,479 $ 42,747 4.64 2,955,931 $ 35,078 4.76
Noninterest-earning assets 563,855 447,688
Total assets $4,259,334 $3,403,619
Interest-bearing liabilities:
Checking accounts $1,316,477 $1,432 0.44% $866,629 $1,051 0.49%
Savings accounts 142,948 67 0.19 124,550 93 0.30
Money market accounts 255,235 179 0.28 326,844 267 0.33
Certificates of deposit 857,438 1,340 0.63 694,111 1,026 0.59
Total deposits 2,572,098 3,018 0.47 2,012,134 2,437 0.49
FHLB advances 203,989 718 1.41 259,003 965 1.49
Repurchase agreements and other borrowings 76,416 1,096 5.75 12,075 136 4.52
Junior subordinated debentures 18,147 135 2.98 18,147 136 3.01
Total interest-bearing liabilities 2,870,650 4,967 0.69 2,301,359 3,674 0.64
Noninterest-bearing checking accounts 825,075 621,111
Noninterest-bearing liabilities 6,956 22,443
Stockholders' equity 556,653 458,706
Total liabilities and equity $4,259,334 $3,403,619
Net interest income $ 37,780 $ 31,404
Interest rate spread 3.95% 4.12%
Net interest margin 4.10 4.26
Average interest earning assets to interest bearing liabilities 128.73 128.44
Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
Six Months Ended June 30, 2015 and 2014
(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 Six Months Ended June 30,
2015 2014
Average
Outstanding
Balance


Interest

Yield/
Rate
Average
Outstanding
Balance


Interest

Yield/
Rate
Interest-earning assets:
Loans $3,297,657 $ 81,205 4.97% $2,236,503 $ 58,004 5.23%
Taxable securities 130,937 1,160 1.79 185,936 1,476 1.60
Nontaxable securities 68,702 863 2.53 47,674 624 2.64
Federal funds sold and other 150,343 255 0.34 82,884 136 0.33
Total interest-earning assets 3,647,639 $ 83,483 4.62 2,552,997 $ 60,240 4.76
Noninterest-earning assets 549,604 307,677
Total assets $4,197,243 $2,860,674
Interest-bearing liabilities:
Checking accounts $1,291,995 $ 2,790 0.44% $ 840,913 $ 2,049 0.49%
Savings accounts 143,349 132 0.19 123,428 181 0.30
Money market accounts 245,963 279 0.23 208,252 323 0.31
Certificates of deposit 838,212 2,526 0.61 589,328 1,791 0.61
Total deposits 2,519,519 5,727 0.46 1,761,921 4,344 0.50
FHLB advances 211,871 1,470 1.40 228,439 1,817 1.60
Repurchase agreements and other borrowings 76,683 2,165 5.69 10,526 271 5.19
Junior subordinated debentures 18,147 263 2.92 18,147 269 2.99
Total interest-bearing liabilities 2,826,220 9,625 0.69 2,019,033 6,701 0.67
Noninterest-bearing checking accounts 811,450 461,418
Noninterest-bearing liabilities 7,746 27,074
Stockholders' equity 551,827 353,149
Total liabilities and equity $4,197,243 $2,860,674
Net interest income $ 73,858 $ 53,539
Interest rate spread 3.93% 4.09%
Net interest margin 4.08 4.23
Average interest earning assets to interest bearing liabilities 129.06 126.45
Independent Bank Group, Inc. and Subsidiaries
Loan Portfolio Composition
As of June 30, 2015 and December 31, 2014
(Dollars in thousands)
(Unaudited)
The following table sets forth loan totals by category as of the dates presented:
June 30, 2015 December 31, 2014
Amount % of Total Amount % of Total
Commercial $ 685,944 20.3% $ 672,052 21.0%
Real estate:
Commercial real estate 1,654,277 48.9 1,450,434 45.2
Commercial construction, land and land development 286,656 8.5 334,964 10.5
Residential real estate (1) 534,997 15.8 518,478 16.2
Single-family interim construction 136,395 4.0 138,278 4.3
Agricultural 37,313 1.1 38,822 1.2
Consumer 47,031 1.4 52,267 1.6
Other 177 242
Total loans 3,382,790 100.0% 3,205,537 100.0%
Deferred loan fees (943) (487)
Allowance for losses (21,764) (18,552)
Total loans, net $ 3,360,083 $ 3,186,498
(1) Includes loans held for sale at June 30, 2015 and December 31, 2014 of $7,237 and $4,453, respectively.
Independent Bank Group, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
Three Months Ended June 30, 2015, March 31, 2015, December 31, 2014, September 30, 2014 and June 30, 2014
(Dollars in thousands, except for share data)
(Unaudited)
For the Three Months Ended
June 30, 2015 March 31, 2015 December 31, 2014 September 30, 2014 June 30, 2014
Net Interest Income - Reported (a) $ 37,780 $ 36,078 $ 38,175 $ 32,431 $ 31,404
Income recognized on acquired loans (555) (113) (988) (172) (437)
Adjusted Net Interest Income (b) 37,225 35,965 37,187 32,259 30,967
Provision Expense - Reported (c) 1,659 1,670 1,751 976 1,379
Noninterest Income - Reported (d) 4,109 3,966 3,961 4,210 3,119
Gain on sale of loans (1,078)
Gain on sale of OREO (49) (130) (12) (20)
Gain on sale of securities (90) (362)
Loss on sale of premises and equipment 22
Adjusted Noninterest Income (e) 3,970 3,836 3,587 3,134 3,119
Noninterest Expense - Reported (f) 24,455 24,386 24,931 22,162 25,343
OREO Impairment (25) (22)
IPO related stock grant and bonus expense (156) (156) (156) (156) (156)
Registration statements (163) (456)
Core system conversion implementation expenses (265)
Acquisition Expense (5) (458) (1,239) (1,841) (1,401) (5,519)
Adjusted Noninterest Expense (g) 23,816 22,991 22,771 20,127 19,403
Pre-Tax Pre-Provision Earnings (a) + (d) - (f) $ 17,434 $ 15,658 $ 17,205 $ 14,479 $ 9,180
Core Pre-Tax Pre-Provision Earnings (b) + (e) - (g) $ 17,379 $ 16,810 $ 18,003 $ 15,266 $ 14,683
Core Earnings (2) (b) - (c) + (e) - (g) $ 10,532 $ 10,230 $ 10,889 $ 9,546 $ 9,020
Reported Efficiency Ratio (f) / (a + d) 58.38% 60.90% 59.17% 60.48% 73.41%
Core Efficiency Ratio (g) / (b + e) 57.81% 57.76% 55.85% 56.87% 56.92%
Adjusted Return on Average Assets (1) 0.99% 1.00% 1.05% 1.02% 1.06%
Adjusted Return on Average Equity (1) 7.93% 7.96% 8.30% 8.15% 8.25%
Adjusted Return on Tangible Equity (1) 14.51% 14.86% 15.27% 15.36% 14.72%
Total Average Assets $ 4,259,334 $ 4,154,007 $ 4,098,671 $ 3,721,323 $ 3,403,619
Total Average Stockholders' Equity (3) $ 532,715 $ 520,899 $ 520,800 $ 464,528 $ 438,713
Total Average Tangible Stockholders' Equity (3) (4) $ 291,166 $ 279,149 $ 282,907 $ 246,500 $ 245,830
(1) Calculated using core earnings
(2) Assumes actual effective tax rate of 33.0%, 32.4%, 33.0%, 33.2% and 32.2%, respectively. December 31, 2014, September 30, 2014 and June 30, 2014 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 $430 thousand, $767 thousand, $843 thousand, $772 thousand and $3.996 million of compensation and bonus expenses in addition to $28 thousand, $472 thousand, $998 thousand, $629 thousand and $1.523 million of merger-related expenses for the quarters ended June 30, 2015, March 31, 2015, December 31, 2014, September 30, 2014 and June 30, 2014, respectively.
Independent Bank Group, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
As of June 30, 2015 and December 31, 2014
(Dollars in thousands, except per share information)
(Unaudited)
Tangible Book Value Per Common Share
June 30, December 31,
2015 2014
Tangible Common Equity
Total common stockholders' equity $ 535,509 $ 516,913
Adjustments:
Goodwill (229,818) (229,457)
Core deposit intangibles, net (11,716) (12,455)
Tangible common equity $ 293,975 $ 275,001
Tangible assets $ 4,134,193 $ 3,890,727
Common shares outstanding 17,108,394 17,032,669
Tangible common equity to tangible assets 7.11% 7.07%
Book value per common share $ 31.30 $ 30.35
Tangible book value per common share 17.18 16.15
Tier 1 Common and Tier 1 Capital to Risk-Weighted Assets Ratio
June 30, December 31,
2015 2014
Tier 1 Common Equity
Total common stockholders' equity - GAAP $ 535,509 $ 516,913
Adjustments:
Unrealized gain on available-for-sale securities (1,945) (2,403)
Goodwill (229,818) (229,457)
Core deposit intangibles, net (7,615) (12,455)
Tier 1 common equity $ 296,131 $ 272,598
Qualifying Restricted Core Capital Elements (junior subordinated debentures) 17,600 17,600
Preferred Stock 23,938 23,938
Tier 1 Equity $ 337,669 $ 314,136
Total Risk-Weighted Assets $ 3,561,629 $ 3,195,413
Estimated total common stockholders' equity to risk-weighted assets ratio 15.04% 16.18%
Estimated tier 1 equity to risk-weighted assets ratio 9.48 9.83
Estimated tier 1 common equity to risk-weighted assets ratio 8.31 9.08

CONTACT: Analysts/Investors: Torry Berntsen President and Chief Operating Officer (972) 562-9004 tberntsen@ibtx.com Michelle Hickox Executive Vice President and Chief Financial Officer (972) 562-9004 mhickox@ibtx.com Media: Robb Temple Executive Vice President and Chief Administrative Officer (972) 562-9004 rtemple@ibtx.comSource:Independent Bank Group, Inc.