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

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

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

Highlights

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

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

Fourth Quarter 2016 Operating Results

Net Interest Income

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

Noninterest Income

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

Noninterest Expense

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

Provision for Loan Losses

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

Fourth Quarter 2016 Balance Sheet Highlights:

Loans

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

Asset Quality

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

Deposits and Borrowings

  • Total deposits were $4.577 billion at December 31, 2016 compared to $4.416 billion at September 30, 2016 and compared to $4.028 billion at December 31, 2015.
  • Total borrowings (other than junior subordinated debentures) were $568.0 million at December 31, 2016, a decrease of $10 million from September 30, 2016 and an increase of $197 million from December 31, 2015. These changes reflect the issuance of $43.4 million, net of discount and costs, of 5.875% subordinated debentures issued in second quarter 2016 with the remainder resulting from the use of short term FHLB advances during the applicable periods.

Capital

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

Subsequent Events

The Company is required, under general accepted accounting principles, to evaluate subsequent events through the filing of its consolidated financial statements for the year ended December 31, 2016 on Form 10-K. As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of December 31, 2016 and will adjust amounts preliminarily reported, if necessary.

About Independent Bank Group

Independent Bank Group, through its wholly owned subsidiary, Independent Bank, provides a wide range of relationship-driven commercial banking products and services tailored to meet the needs of businesses, professionals and individuals. Independent Bank Group operates 41 banking offices in three market regions located in the Dallas/Fort Worth, Austin and Houston, Texas areas.

Conference Call

A conference call covering Independent Bank Group’s fourth quarter earnings announcement will be held on Thursday, January 26, 2017 at 8:30 a.m. (EST) and can be accessed by calling 1-877-303-7611 and by identifying the conference ID number 46615431. The conference materials will be available by accessing the Investor Relations page of our website, www.ibtx.com. A recording of the conference call and the conference materials will be available from January 26, 2017 through February 2, 2017 on our website.

Forward-Looking Statements

The numbers as of and for the quarter and/or year ended December 31, 2016 are unaudited. From time to time, our comments and releases may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements can be identified by words such as “believes,” “anticipates,” “expects,” “forecast,” “guidance,” “intends,” “targeted,” “continue,” “remain,” “should,” “may,” “plans,” “estimates,” “will,” “will continue,” “will remain,” variations on such words or phrases, or similar references to future occurrences or events in future periods; however, such words are not the exclusive means of identifying such statements. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, and other financial items; (ii) statements of plans, objectives, and expectations of Independent Bank Group or its management or Board of Directors; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Forward-looking statements are based on Independent Bank Group’s current expectations and assumptions regarding its business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Independent Bank Group’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: (1) local, regional, national, and international economic conditions and the impact they may have on us and our customers and our assessment of that impact; (2) volatility and disruption in national and international financial markets; (3) government intervention in the U.S. financial system, whether through changes in the discount rate or money supply or otherwise; (4) changes in the level of nonperforming assets and charge-offs; (5) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (6) adverse conditions in the securities markets that lead to impairment in the value of securities in our investment portfolio; (7) inflation, deflation, changes in market interest rates, developments in the securities market, and monetary fluctuations; (8) the timely development and acceptance of new products and services and perceived overall value of these products and services by customers; (9) changes in consumer spending, borrowings, and savings habits; (10) technological changes; (11) the ability to increase market share and control expenses; (12) changes in the competitive environment among banks, bank holding companies, and other financial service providers; (13) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we and our subsidiaries must comply; (14) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters; (15) the costs and effects of legal and regulatory developments including the resolution of legal proceedings; and (16) our success at managing the risks involved in the foregoing items and (17) the other factors that are described in the Company’s Quarterly Report on Form 10-Q for the quarters ended September 30, 2016, June 30, 2016 and March 31, 2016, the Annual Report on Form 10-K filed on February 25, 2016, under the heading “Risk Factors”, and other reports and statements filed by the Company with the SEC. Any forward-looking statement made by the Company in this release speaks only as of the date on which it is made. Factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this press release contains certain non-GAAP financial measures. These measures and ratios include “core earnings”, “tangible book value”, “tangible book value per common share”, “core efficiency ratio”, “Tier 1 capital to average assets”, “Tier 1 capital to risk weighted assets”, “tangible common equity to tangible assets”, “net interest margin excluding purchase accounting accretion”, "return on tangible equity", “adjusted return on average assets” and “adjusted return on average equity” and are supplemental measures that are not required by, or are not presented in accordance with, accounting principles generally accepted in the United States. We consider the use of select non-GAAP financial measures and ratios to be useful for financial operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results. We believe that management and investors benefit from referring to these non- GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.

We believe that these measures provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however we acknowledge that our financial measures have a number of limitations relative to GAAP financial measures. Certain non-GAAP financial measures exclude items of income, expenditures, expenses, assets, or liabilities, including provisions for loan losses and the effect of goodwill, core deposit intangibles and income from accretion on acquired loans arising from purchase accounting adjustments, that we believe cause certain aspects of our results of operations or financial condition to be not indicative of our primary operating results. All of these items significantly impact our financial statements. Additionally, the items that we exclude in our adjustments are not necessarily consistent with the items that our peers may exclude from their results of operations and key financial measures and therefore may limit the comparability of similarly named financial measures and ratios. We compensate for these limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non- GAAP financial measure so that both measures and the individual components may be considered when analyzing our performance.

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

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

As of and for the quarter ended
December 31, 2016 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015
Selected Income Statement Data
Interest income$53,904 $52,740 $51,941 $51,464 $47,414
Interest expense7,378 7,003 6,058 5,804 5,263
Net interest income46,526 45,737 45,883 45,660 42,151
Provision for loan losses2,197 2,123 2,123 2,997 1,970
Net interest income after provision for loan losses44,329 43,614 43,760 42,663 40,181
Noninterest income5,224 4,932 4,929 4,470 4,254
Noninterest expense27,361 26,887 31,023 28,519 28,527
Income tax expense7,417 7,155 5,857 6,162 5,347
Net income14,775 14,504 11,809 12,452 10,561
Preferred stock dividends 8 60
Net income available to common shareholders14,775 14,504 11,809 12,444 10,501
Core net interest income (1)46,475 45,621 45,618 44,327 41,635
Core Pre-Tax Pre-Provision Earnings (1)25,540 24,253 22,713 21,590 18,875
Core net income(1)15,541 14,819 13,764 12,438 11,377
Per Share Data (Common Stock)
Earnings:
Basic$0.79 $0.78 $0.64 $0.67 $0.58
Diluted0.79 0.78 0.64 0.67 0.58
Core earnings:
Basic (1)0.83 0.80 0.75 0.67 0.63
Diluted (1)0.83 0.80 0.74 0.67 0.63
Dividends0.10 0.08 0.08 0.08 0.08
Book value35.63 34.79 34.08 33.38 32.79
Tangible book value (1)21.19 20.03 19.28 18.54 17.85
Common shares outstanding18,870,312 18,488,628 18,475,978 18,461,480 18,399,194
Weighted average basic shares outstanding (4)18,613,975 18,478,289 18,469,182 18,444,284 17,965,055
Weighted average diluted shares outstanding (4)18,716,614 18,568,622 18,547,074 18,528,031 18,047,960
Selected Period End Balance Sheet Data
Total assets$5,852,801 $5,667,195 $5,446,797 $5,261,967 $5,055,000
Cash and cash equivalents505,027 589,600 436,605 356,526 293,279
Securities available for sale316,435 267,860 287,976 302,650 273,463
Loans, held for sale9,795 7,097 13,942 8,515 12,299
Loans, held for investment4,572,771 4,360,690 4,251,457 4,130,496 3,989,405
Allowance for loan losses31,591 29,575 30,916 29,984 27,043
Goodwill and core deposit intangible272,496 272,988 273,480 273,972 275,000
Other real estate owned1,972 2,083 1,567 1,745 2,168
Noninterest-bearing deposits1,117,927 1,143,479 1,107,620 1,070,611 1,071,656
Interest-bearing deposits3,459,182 3,273,014 3,100,785 3,101,341 2,956,623
Borrowings (other than junior subordinated debentures)568,045 577,974 578,169 444,745 371,283
Junior subordinated debentures18,147 18,147 18,147 18,147 18,147
Series A Preferred Stock 23,938
Total stockholders' equity672,365 643,253 629,628 616,258 603,371

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

As of and for the quarter ended
December 31, 2016 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015
Selected Performance Metrics
Return on average assets1.03% 1.04% 0.88% 0.95% 0.86%
Return on average equity (2)8.93 9.04 7.60 8.10 7.28
Return on tangible equity (2) (5)15.24 15.80 13.52 14.57 13.37
Adjusted return on average assets (1)1.08 1.07 1.03 0.95 0.93
Adjusted return on average equity (1) (2)9.39 9.24 8.86 8.09 7.89
Adjusted return on tangible equity (1) (2) (5)16.03 16.15 15.76 14.57 14.49
Net interest margin3.59 3.66 3.96 4.08 3.96
Core net interest margin (3)3.58 3.65 3.94 3.96 3.91
Efficiency ratio52.87 53.06 61.05 56.89 61.47
Core efficiency ratio (1)50.60 52.07 55.05 55.68 58.75
Credit Quality Ratios
Nonperforming assets to total assets0.34% 0.23% 0.34% 0.62% 0.36%
Nonperforming loans to total loans0.39 0.26 0.40 0.72 0.37
Nonperforming assets to total loans and other real estate0.43 0.30 0.44 0.79 0.45
Allowance for loan losses to non-performing loans177.06 264.42 179.97 100.35 181.99
Allowance for loan losses to total loans0.69 0.68 0.73 0.73 0.68
Net charge-offs to average loans outstanding (annualized)0.02 0.32 0.11 0.01
Capital Ratios
Estimated common equity tier 1 capital to risk-weighted assets (1)8.20% 7.92% 7.89% 7.92% 7.94%
Estimated tier 1 capital to average assets7.82 7.46 7.42 7.36 8.28
Estimated tier 1 capital to risk-weighted assets (1)8.55 8.29 8.27 8.32 8.92
Estimated total capital to risk-weighted assets11.38 11.24 11.35 10.47 11.14
Total stockholders' equity to total assets11.49 11.35 11.56 11.71 11.94
Tangible common equity to tangible assets (1)7.17 6.86 6.88 6.86 6.87
(1) Non-GAAP financial measures. See reconciliation.
(2) Excludes average balance of Series A preferred stock.
(3) Excludes income recognized on acquired loans of $51, $116, $265, $1,333 and $516, respectively.
(4) Total number of shares includes participating shares (those with dividend rights).
(5) Excludes average balance of goodwill and net core deposit intangibles.

Independent Bank Group, Inc. and Subsidiaries
Annual Selected Financial Information
Years Ended December 31, 2016 and 2015
(Unaudited)

Years Ended December 31,
2016 2015
Per Share Data
Net income - basic$2.89 $2.23
Net income - diluted2.88 2.21
Cash dividends0.34 0.32
Book value35.63 32.79
Outstanding Shares
Period-end shares18,870,312 18,399,194
Weighted average shares - basic18,501,663 17,321,513
Weighted average shares - diluted18,588,309 17,406,108
Selected Annual Ratios
Return on average assets0.98% 0.88%
Return on average equity8.42 7.13
Net interest margin3.81 4.05

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

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

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

December 31,
Assets2016 2015
Cash and due from banks$158,686 $129,096
Interest-bearing deposits in other banks336,341 164,183
Federal funds sold10,000
Cash and cash equivalents505,027 293,279
Certificates of deposit held in other banks2,707 61,746
Securities available for sale316,435 273,463
Loans held for sale9,795 12,299
Loans, net of allowance for loan losses4,539,063 3,960,809
Premises and equipment, net89,898 93,015
Other real estate owned1,972 2,168
Federal Home Loan Bank (FHLB) of Dallas stock and other restricted stock26,536 14,256
Bank-owned life insurance (BOLI)57,209 40,861
Deferred tax asset9,631 5,892
Goodwill258,319 258,643
Core deposit intangible, net14,177 16,357
Other assets22,032 22,212
Total assets$5,852,801 $5,055,000
Liabilities, Temporary Equity and Stockholders’ Equity
Deposits:
Noninterest-bearing$1,117,927 $1,071,656
Interest-bearing3,459,182 2,956,623
Total deposits4,577,109 4,028,279
FHLB advances460,746 288,325
Repurchase agreements 12,160
Other borrowings107,249 68,295
Other borrowings, related parties50 2,503
Junior subordinated debentures18,147 18,147
Other liabilities17,135 9,982
Total liabilities5,180,436 4,427,691
Commitments and contingencies
Temporary equity: Series A preferred stock 23,938
Stockholders’ equity:
Common stock189 184
Additional paid-in capital555,325 530,107
Retained earnings117,951 70,698
Accumulated other comprehensive income (loss)(1,100) 2,382
Total stockholders’ equity672,365 603,371
Total liabilities, temporary equity and stockholders’ equity$5,852,801 $5,055,000

Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
Three Months Ended December 31, 2016 and 2015
(Dollars in thousands)
(Unaudited)

The analysis below shows average interest earning assets and interest bearing liabilities together with the average yield on the interest earning assets and the average cost of the interest bearing liabilities for the periods presented.

Three Months Ended December 31,
2016 2015
Average
Outstanding
Balance
Interest Yield/
Rate
Average
Outstanding
Balance
Interest Yield/
Rate
Interest-earning assets:
Loans$4,423,306 $52,055 4.68% $3,812,493 $46,154 4.80%
Taxable securities227,053 614 1.08 177,535 615 1.37
Nontaxable securities75,613 479 2.52 73,590 459 2.47
Interest-bearing deposits and other428,772 756 0.70 156,073 186 0.47
Total interest-earning assets5,154,744 $53,904 4.16 4,219,691 $47,414 4.46
Noninterest-earning assets574,416 627,684
Total assets$5,729,160 $4,847,375
Interest-bearing liabilities:
Checking accounts$1,889,725 $2,081 0.44% $1,328,031 $1,443 0.43%
Savings accounts153,630 64 0.17 143,289 65 0.18
Money market accounts416,653 526 0.50 495,690 339 0.27
Certificates of deposit870,489 1,781 0.81 850,789 1,383 0.64
Total deposits3,330,497 4,452 0.53 2,817,799 3,230 0.45
FHLB advances468,579 1,057 0.90 267,266 834 1.24
Other borrowings107,267 1,705 6.32 81,852 1,060 5.14
Junior subordinated debentures18,147 164 3.60 18,147 139 3.04
Total interest-bearing liabilities3,924,490 7,378 0.75 3,185,064 5,263 0.66
Noninterest-bearing checking accounts1,127,379 1,050,728
Noninterest-bearing liabilities18,922 15,485
Stockholders’ equity658,369 596,098
Total liabilities and equity$5,729,160 $4,847,375
Net interest income $46,526 $42,151
Interest rate spread 3.41% 3.80%
Net interest margin 3.59 3.96
Average interest earning assets to interest bearing liabilities 131.35 132.48

Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
Years Ended December 31, 2016 and 2015
(Dollars in thousands)
(Unaudited)

The analysis below shows average interest earning assets and interest bearing liabilities together with the average yield on the interest earning assets and the average cost of the interest bearing liabilities for the periods presented.

For The Years Ended December 31,
2016 2015
Average
Outstanding
Balance
Interest Yield/
Rate
Average
Outstanding
Balance
Interest Yield/
Rate
Interest-earning assets:
Loans$4,234,368 $203,577 4.81% $3,456,128 $169,504 4.90%
Taxable securities221,905 2,681 1.21 139,924 2,168 1.55
Nontaxable securities74,227 1,768 2.38 69,112 1,783 2.58
Federal funds sold and other290,316 2,023 0.70 141,374 572 0.40
Total interest-earning assets4,820,816 $210,049 4.36 3,806,538 $174,027 4.57
Noninterest-earning assets648,726 589,014
Total assets$5,469,542 $4,395,552
Interest-bearing liabilities:
Checking accounts$1,761,509 $7,770 0.44% $1,297,948 $5,649 0.44%
Savings accounts150,223 260 0.17 143,476 263 0.18
Money market accounts429,647 1,911 0.44 319,982 829 0.26
Certificates of deposit830,964 6,134 0.74 842,087 5,283 0.63
Total deposits3,172,343 16,075 0.51 2,603,493 12,024 0.46
FHLB advances465,010 4,119 0.89 225,934 3,077 1.36
Other borrowings87,943 5,428 6.17 78,074 4,289 5.49
Junior subordinated debentures18,147 621 3.42 18,147 539 2.97
Total interest-bearing liabilities3,743,443 26,243 0.70 2,925,648 19,929 0.68
Noninterest-bearing checking accounts1,076,340 895,789
Noninterest-bearing liabilities13,895 9,688
Stockholders’ equity635,864 564,427
Total liabilities and equity$5,469,542 $4,395,552
Net interest income $183,806 $154,098
Interest rate spread 3.66% 3.89%
Net interest margin 3.81 4.05
Average interest earning assets to interest bearing liabilities 128.78 130.11

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

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

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

For the Three Months Ended
December 31, 2016September 30, 2016June 30, 2016March 31, 2016December 31, 2015
Net Interest Income - Reported(a)$46,526 $45,737 $45,883 $45,660 $42,151
Income recognized on acquired loans (51)(116)(265)(1,333)(516)
Adjusted Net Interest Income(b)46,475 45,621 45,618 44,327 41,635
Provision Expense - Reported(c)2,197 2,123 2,123 2,997 1,970
Noninterest Income - Reported(d)5,224 4,932 4,929 4,470 4,254
Loss on sale of branch 43
Gain on sale of OREO and repossessed assets (4)(10)(48)(70)
Gain on sale of securities (4) (44)
(Gain) loss on sale of premises and equipment 9 (3)(38)(16)
Adjusted Noninterest Income(e)5,224 4,980 4,912 4,384 4,124
Noninterest Expense - Reported(f)27,361 26,887 31,023 28,519 28,527
Senior leadership restructure (6) (2,575)
OREO Impairment (51) (55)
IPO related stock grant (127)(104)(156)(156)(156)
Acquisition Expense (5) (1,075)(384)(475)(1,187)(1,487)
Adjusted Noninterest Expense(g)26,159 26,348 27,817 27,121 26,884
Pre-Tax Pre-Provision Income(a) + (d) - (f)$24,389 $23,782 $19,789 $21,611 $17,878
Core Pre-Tax Pre-Provision Income(b) + (e) - (g)$25,540 $24,253 $22,713 $21,590 $18,875
Core Net Income (2)(b) - (c) + (e) - (g)$15,541 $14,819 $13,764 $12,438 $11,377
Reported Efficiency Ratio(f) / (a + d)52.87%53.06%61.05%56.89%61.47%
Core Efficiency Ratio(g) / (b + e)50.60%52.07%55.05%55.68%58.75%
Adjusted Return on Average Assets (1) 1.08%1.07%1.03%0.95%0.93%
Adjusted Return on Average Equity (1) 9.39%9.24%8.86%8.09%7.89%
Adjusted Return on Tangible Equity (1) 16.03%16.15%15.76%14.57%14.49%
Total Average Assets $5,729,160 $5,535,203 $5,367,935 $5,242,289 $4,847,375
Total Average Stockholders' Equity (3) $658,369 $638,355 $624,981 $618,059 $572,160
Total Average Tangible Stockholders' Equity (3) (4) $385,635 $365,127 $351,263 $343,418 $311,549
(1) Calculated using core net income
(2) Assumes actual effective tax rate of 33.4%, 33.0%, 33.2%, 33.1% and 32.7%, respectively. December 31, 2015 tax rate adjusted for effect of non-deductible acquisition expenses.
(3) Excludes average balance of Series A preferred stock.
(4) Excludes average balance of goodwill and net core deposit intangibles.
(5) Acquisition expenses include $290 thousand, $381 thousand, $385 thousand, $548 thousand, and $860 thousand of compensation and bonus expenses in addition to $785 thousand, $3 thousand, $90 thousand, $639 thousand, and $627 thousand of merger-related expenses for the quarters ended December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016, and December 31, 2015, respectively.
(6) Includes $1,952 related to the former Houston Region CEO's Separation Agreement.

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

Tangible Book Value Per Common Share
December 31,
2016 2015
Tangible Common Equity
Total common stockholders' equity$672,365 $603,371
Adjustments:
Goodwill(258,319) (258,643)
Core deposit intangibles, net(14,177) (16,357)
Tangible common equity$399,869 $328,371
Tangible assets$5,580,305 $4,780,000
Common shares outstanding18,870,312 18,399,194
Tangible common equity to tangible assets7.17% 6.87%
Book value per common share$35.63 $32.79
Tangible book value per common share21.19 17.85


Tier 1 Common and Tier 1 Capital to Risk-Weighted Assets Ratio
December 31,
2016 2015
Tier 1 Common Equity
Total common stockholders' equity - GAAP$672,365 $603,371
Adjustments:
Unrealized loss (gain) on available-for-sale securities1,100 (2,382)
Goodwill(258,319) (258,643)
Qualifying core deposit intangibles, net(5,529) (4,253)
Tier 1 common equity$409,617 $338,093
Qualifying restricted core capital elements (junior subordinated debentures)17,600 17,600
Series A preferred stock 23,938
Tier 1 Equity$427,217 $379,631
Total Risk-Weighted Assets$4,996,229 $4,256,662
Estimated tier 1 equity to risk-weighted assets ratio8.55% 8.92%
Estimated tier 1 common equity to risk-weighted assets ratio8.20 7.94


Contacts: Analysts/Investors: Michelle Hickox Executive Vice President and Chief Financial Officer (972) 562-9004 mhickox@ibtx.com Media: Peggy Smolen Marketing & Communications Director (972) 562-9004 psmolen@ibtx.com

Source:Independent Bank Group, Inc.