Independent Bank Group, Inc. Reports Second Quarter Financial Results, Provides COVID-19 Update

McKINNEY, TX / ACCESSWIRE / July 27, 2020 / Independent Bank Group, Inc. (NASDAQ:IBTX), the holding company for Independent Bank, today provided an update on its business and operations in light of the ongoing COVID-19 pandemic along with its financial results for the quarter ended June 30, 2020. Independent Bank Group remains focused on supporting the health and welfare of its employees, customers and communities and delivering consistent returns for shareholders during this difficult time.

Second Quarter 2020 Summary

  • For the quarter ended June 30, 2020, the Company reported:
  • Net income of $38.7 million, or $0.90 per diluted share and adjusted (non-GAAP) net income of $49.1 million, or $1.14 per diluted share
    • Significant deposit growth of 28.3%, annualized, excluding PPP deposits
    • Nonperforming assets continue to be minimal at 0.17% of total assets
    • Added an additional $23.1 million to the allowance for loan losses to provide for economic risk

COVID-19 Update – Employees, Customers and Communities

  • The Company remains committed to support the health and safety of its employees and customers through responsible operations.
    • All branches are currently open and operating under reduced hours. Branch lobbies have been adjusted to encourage social distancing, surfaces are regularly sanitized and employees are required to wear face coverings when interacting with customers.
    • The Company increased customer education regarding mobile banking applications and developed a COVID-19 Resource Center accessible on the Company’s website.
    • The Company has implemented work-from-home measures and provides special circumstances pay to employees impacted by COVID-19.
    • To help facilitate economic recovery, the Company is participating in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Paycheck Protection Program (PPP) by originating these Small Business Administration (SBA) loans for its existing customers. During the second quarter 2020, the Company processed and funded 6,236 loans totaling $823.3 million at June 30, 2020. In addition, of the total PPP loans funded, 80% were less than $150 thousand and only 5% were greater than $500 thousand, with the average loan size funded of $132 thousand. Substantially all PPP loans were made to existing customers and structured to satisfy the forgiveness requirements of the program.
  • Since the beginning of the COVID-19 pandemic, the Company has worked with its borrowers on an individual, one-on-one basis to assess and understand the impact of pandemic-related economic hardship on the borrowers and provide prudent modifications allowing for payment deferrals or payment relief where appropriate. Deferral requests have substantially decreased since the beginning of the pandemic, and many borrowers have resumed full or partial payments. The Company will continue to work with its relationship borrowers to grant additional relief where necessary.
    • Cumulative 9% of total loans received a modification during the pandemic.
      • 80% full payment deferral, 20% interest only
      • 56% of full deferral loans have made at least one payment since the deferral was granted
      • Average deferral length was 90 days
    • 6% of total loans are still on deferral or have not resumed payment.
    • Deferral requests peaked in April and substantially decreased in May and June

COVID-19 Update – Capital, Liquidity & Credit

  • Capital was enhanced in the quarter, with ratios well above the standards to be considered well-capitalized under regulatory requirements, with an estimated total capital ratio of 12.44%, leverage ratio of 8.94%, common equity Tier 1 capital (CET1) ratio of 10.17% and Tier 1 ratio of 10.60% as of June 30, 2020.
  • Liquidity remains strong, with cash and securities representing approximately 15.7% of assets as of June 30, 2020. The Company maintains the ability to access considerable sources of contingent liquidity at the Federal Home Loan Bank and the Federal Reserve.
  • As permitted under the CARES Act, the Company elected to defer the adoption of the current expected credit loss (CECL) accounting standard and has continued its consistent application of the incurred loss method for estimating the allowance for loan losses and applicable provision. Due to the macroeconomic environment brought on by the pandemic and energy price volatility, the Company recorded $23.1 million in provision for loan losses during second quarter 2020, increasing the allowance for loan losses to $80.1 million at June 30, 2020. Management believes that the allowance adequately supports inherent credit losses within the loan portfolio.
  • Asset quality remains solid, reflecting the Company’s disciplined underwriting and conservative lending philosophy which has supported strong credit performance during prior financial crises.

Independent Bank Group Chairman, CEO and President David R. Brooks said, “Our teams across Texas and Colorado are continuing their tireless work to help our customers and communities through the current environment. This collective commitment of our almost 1,500 employees is reflected not only in our solid financial performance in the second quarter, but also in the resilient credit quality that has been the foundation of our company for over three decades.” Brooks continued, “As the pandemic endures, our company will remain steadfast in its commitment to safe operations that prioritize the health and well-being of our customers and employees. Though much uncertainty remains, we believe our company is well-positioned to continue to build sustainable long term value for our stakeholders and to help facilitate the economic recovery across our footprint.”

Second Quarter 2020 Balance Sheet Highlights

Loans

  • Total loans held for investment, net of mortgage warehouse purchase loans, were $11.7 billion at June 30, 2020 compared to $11.0 billion at March 31, 2020 and $10.8 billion at June 30, 2019. Loan growth totaled $669.4 million or 6.1% from the linked quarter and includes PPP loans of $823.3 million. Loans held for investment increased $761.7 million from December 31, 2019, of which $823.3 million was PPP loans. Loans excluding PPP loans were down $61.6 million year to date primarily due to the economic dislocation caused by the pandemic.
  • Average mortgage warehouse purchase loans were $665.8 million for the quarter ended June 30, 2020 compared to $547.3 million for the quarter ended March 31, 2020, representing an increase of $118.5 million, or 21.6% for the quarter, and compared to $295.9 million for the quarter ended June 30, 2019, an increase of $369.9 million, or 125.0% year over year. The volumes continue to be higher than anticipated due to the sustained low mortgage rate environment. The change from the prior year is reflective of the rate environment and the Company’s focused attention to grow the warehouse line of business.
  • Commercial real estate (CRE) loans were $5.8 billion at June 30, 2020 and June 30, 2019, and $5.9 billion at March 31, 2020, or 45.9%, 51.4% and 49.5% of total loans, respectively. At June 30, 2020, the average loan size in the CRE portfolio is $1.2 million.
  • Construction and Development (C&D) loans were $1.7 billion at June 30, 2020. The average loan size in the C&D portfolio was $690.7 thousand and the average loan-to-value for loans in the C&D portfolio was 58.6% at June 30, 2020. Construction activity continues across Texas and Colorado, and 98.3% of the Company’s C&D loans are located in either Texas or Colorado. Of the Company’s C&D loans, 41.4% are for owner-occupied properties.
  • The Company has approximately $441.5 million of loans secured by hotel and motel properties at June 30, 2020, with the average loan size of $5.5 million. The mix of the portfolio consists of 64.3% of loans secured by limited service properties, 14.3% secured by full-service properties, 13.1% secured by extended stay properties, and 8.3% secured by boutique/independent properties.
  • Energy loans were $207.4 million, or 1.8% of total loans held for investment, excluding mortgage warehouse purchase loans, at June 30, 2020. Energy loans are secured 89.9% by exploration and production of oil and gas, and 10.1% by energy services companies. Energy allowance for loan losses represents 6.8% of the total energy loan portfolio.

Asset Quality

  • Total nonperforming assets decreased to $28.4 million, or 0.17% of total assets at June 30, 2020, compared to $31.6 million or 0.20% of total assets at March 31, 2020, and slightly increased from $28.0 million, or 0.19% of total assets at June 30, 2019.
  • Total nonperforming loans decreased to $26.6 million, or 0.23% of total loans at June 30, 2020, from $28.5 million, or 0.26% of total loans at March 31, 2020, and increased from $16.9 million, or 0.16% of total loans at June 30, 2019.
  • The decrease in nonperforming loans and nonperforming assets from the linked quarter is primarily due to a $1.1 million commercial loan charge-off, a $633 thousand paydown on a commercial energy loan, and $946 thousand reduction of loans ninety days past due and still accruing, offset by a $789 thousand agricultural loan placed on nonaccrual status. The net change in nonperforming assets from the linked quarter was also offset from sales and write-downs of $1.3 million in other real estate owned.
  • The increase in nonperforming loans and nonperforming assets from the prior year is primarily due to the activity noted above as well as a $14.5 million commercial energy loan and a $1.7 million commercial loan placed on nonaccrual status, and a $1.5 million commercial real estate loan modified as troubled debt, offset by a $4.0 million energy credit paydown and partial charge-off and a $2.9 million commercial loan charge-off during the year over year period. In addition, nonperforming assets was reduced by net dispositions of $9.3 million in other real estate owned properties.
  • Charge-offs were 0.05% annualized in the second quarter 2020 compared to 0.05% annualized in the linked quarter and 0.01% annualized in the prior year quarter. Charge-offs were elevated in second quarter 2020 due to the $1.1 million charge-off noted above. Charge-offs were elevated in first quarter 2020 due to charge-offs totaling $1.3 million related to a commercial real estate credit and an energy credit.

Deposits, Borrowings and Liquidity

  • Total deposits were $13.3 billion at June 30, 2020 compared to $11.9 billion at March 31, 2020 and compared to $11.5 billion at June 30, 2019. The increase in deposits from the linked quarter is primarily due to organic growth of approximately $836.2 million or 28.3% annualized for the quarter. In addition, the Company estimates as of June 30, 2020, it had approximately $580.0 million of commercial deposits related to PPP loans funded by the Company. Deposits increased from prior year due to organic growth of $1.2 billion, or 10.6%, for the year over year period, net of the PPP deposits discussed above and offset by $27.7 million of deposits transferred in a July 2019 branch sale.
  • Total borrowings (other than junior subordinated debentures) were $1.1 billion at June 30, 2020, a decrease of $36.4 million from March 31, 2020 and an increase of $323.9 million from June 30, 2019. The change in the linked quarter and prior year reflects the use of short-term FHLB advances as needed for liquidity, warehouse and other loan fundings, as well as a $7.5 million increase in borrowings related to participation in the Federal Reserve’s PPP Liquidity Facility during second quarter 2020. In addition, the change from the linked quarter and prior year reflects an increase of $6.0 million and a reduction of $29.0 million, respectively, 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 June 30, 2020, 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 10.17%, 8.94%, 10.60% and 12.44%, respectively, compared to 9.95%, 9.67%, 10.38%, and 12.05%, respectively, at March 31, 2020.

Second Quarter 2020 Operating Results

Net Interest Income

  • Net interest income was $128.4 million for second quarter 2020 compared to $129.6 million for second quarter 2019 and $123.2 million for first quarter 2020. The change in net interest income from the linked quarter was primarily due to decreased funding costs. The slight decrease from the prior year is due to a $9.1 million decrease in purchase accounting accretion and reduction in loan yields offset by decreased costs of interest bearing liabilities. The quarter ended June 30, 2020 includes $7.2 million of acquired loan accretion compared to $16.3 million in second quarter 2019 and $9.1 million in first quarter 2020.
  • The average balance of total interest-earning assets grew by $2.0 billion and totaled $14.7 billion for the quarter ended June 30, 2020 compared to $12.6 billion for the quarter ended June 30, 2019 and increased $1.5 billion from $13.2 billion for the quarter ended March 31, 2020. The increase from the prior year and the linked quarter was primarily related to increased average loan balances including PPP loans and mortgage warehouse loans, as well an increases in average interest-bearing deposits with correspondent banks due to significant deposit growth in second quarter 2020.
  • The yield on interest-earning assets was 4.14% for second quarter 2020 compared to 5.32% for second quarter 2019 and 4.78% for first quarter 2020. The decrease from the prior year and the linked quarter was due primarily to lower rates on interest-earning assets due to decreases in the Fed Funds rate over the periods coupled with increased volume of average interest-bearing deposits, in addition to decreased loan yields as a result of decreased loan accretion and the addition of lower yielding PPP loans to the portfolio. Such rate declines and changes to the interest-earning asset mix resulted in lower loan and interest-bearing deposit yields from the linked quarter of 44 and 129 basis points, respectively. Average loan yield, net of all accretion, decreased 35 basis points from the linked quarter, with six (6) basis points of the decrease related to PPP loans.
  • The cost of interest-bearing liabilities, including borrowings, was 0.90% for second quarter 2020 compared to 1.70% for second quarter 2019 and 1.42% for first quarter 2020. The decrease from the prior year and linked quarter is primarily due to lower rates offered on our deposit products, primarily promotional certificate of deposit products and money market accounts, tied to Fed Funds rates, as well as rate decreases on short-term FHLB advances and our other debt. In response to the unprecedented Fed Funds rate decrease to combat the effects of COVID-19 on the economy during first quarter 2020, the Company strategically lowered rates on certain deposit products and purchased lower rate advances to compensate for higher priced advances rolling off early second quarter 2020.
  • The net interest margin was 3.51% for second quarter 2020 compared to 4.11% for second quarter 2019 and 3.76% for first quarter 2020. The adjusted (non-GAAP) net interest margin, which excludes unexpected accretion on loans acquired with deteriorated credit quality, was 3.50% for second quarter 2020 compared to 4.03% for second quarter 2019 and 3.73% for first quarter 2020. The net interest margin excluding all loan accretion was 3.32% for second quarter 2020 compared to 3.60% in second quarter 2019 and 3.48% in first quarter 2020. The decrease in net interest margin from the prior year was primarily due to the lower asset yields and increased liquidity as well as a decrease of $9.1 million in accretion. The 25 basis point decrease in the net interest margin from the linked quarter is a result of lower loan accretion for second quarter in addition to excess liquidity which negatively impacted the net interest margin by 20 basis points.

Noninterest Income

  • Total noninterest income increased $9.2 million compared to second quarter 2019 and increased $10.9 million compared to first quarter 2020.
  • The increase from the prior year primarily reflects increases of $6.8 million in mortgage banking revenue and $3.6 million in other noninterest income offset by decreases of $1.3 million in service charges and $876 thousand in investment management and trust revenue. The increase in other noninterest income is primarily due to the recovery of a $3.5 million contingency reserve on an acquired SBA loan participation sold, which was settled with the SBA during the quarter. Service charge income related to transaction volumes such as non-sufficient funds and debit card fees have been impacted by the pandemic. The decrease in investment management and trust revenue in second quarter 2020 is due to a decline in assets under management, resulting from the market decline since the beginning of the year in addition to the sale of the trust business in fourth quarter 2019.
  • The increase from the linked quarter primarily reflects increases of $8.0 million in mortgage banking revenue and $3.2 million in other noninterest income. The increase in other noninterest income is due to the recovery of the SBA contingency reserve discussed above.
  • Mortgage banking revenue was higher in second quarter 2020 due to increased mortgage origination and refinance activity resulting from the low interest rate environment. It was also positively impacted by the market improvement during the quarter, which resulted in fair value gains on our derivative hedging instruments of $3.3 million compared to second quarter 2019 loss of $256 thousand and first quarter 2020 loss of $1.6 million.

Noninterest Expense

  • Total noninterest expense increased $5.1 million compared to second quarter 2019 and increased $8.7 million compared to first quarter 2020.
  • The increase in noninterest expense compared to second quarter 2019 is due primarily to an increase of $11.9 million in acquisition expenses and $1.0 million in FDIC assessment offset by decreases of $6.1 million in salaries and benefits and $2.1 million in other noninterest expense. The higher FDIC assessment is directly related to the bank becoming a large institution under regulatory guidelines, effective January 1, 2020, which resulted in higher assessment costs. The decrease in other noninterest expense from the prior year is primarily due to an operations loss recognized in second quarter 2019 which was partially recovered in second quarter 2020, resulting in a net total loss of $974 thousand. In addition, deposit-related expenses and auto and travel expenses were significantly lower in second quarter 2020.
  • The increase from the linked quarter is primarily related to an increase of $15.1 million in acquisition expenses offset by decreases of $4.2 million in salaries and benefits and $2.0 million in professional fees. Professional fees were higher in the linked quarter due to higher legal expenses related to ongoing acquired litigation, and increased consulting expenses related to a compliance project and new system implementations.
  • Acquisition expense was elevated in the second quarter 2020 compared to the linked quarter and prior year quarter due to costs related to the previously announced merger, including $8.8 million in integration costs and $6.0 million in legal and advisory fees. The increase relative to the prior year was lower due to contract termination fees and conversion-related costs incurred related to the Guaranty system conversion in second quarter 2019.
  • Salaries and benefits expense was lower in second quarter 2020 primarily due to deferred salaries costs of $7.2 million and $3.1 million related to the origination of the PPP loans and other COVID-related loan modifications/deferrals, respectively. Offsetting the deferred salaries costs in second quarter 2020 was $2.8 million in severance expense and accelerated stock grant amortization related to departmental and business line restructurings. Second quarter 2020 changes relative to both the linked quarter and prior year are also reflective of higher salaries and accrued bonus expense due to higher headcount, while commission expense was also elevated due to increased mortgage production during the quarter. In addition, second quarter 2020 includes $1.4 million of bonuses and overtime related to PPP loan activity as well as $996 thousand for pandemic related premium pay.

Provision for Loan Loss

  • Provision for loan loss was $23.1 million for second quarter 2020, an increase of $18.4 million compared to $4.7 million for second quarter 2019 and an increase of $14.7 million compared to $8.4 million for first quarter 2020. The increase from prior year and the linked quarter was primarily due to general provision expense for economic factors related to COVID-19 and energy prices as well as a $1.1 million charge-off on a commercial loan and a $4.1 million increase to a specific reserve placed on an energy credit.
  • The allowance for loan losses was $80.1 million, or 0.68% of total loans held for investment, net of mortgage warehouse purchase loans, at June 30, 2020, compared to $51.1 million, or 0.47% at June 30, 2019, and compared to $58.4 million, or 0.53% at March 31, 2020. The dollar and percentage increase from the prior year and the linked quarter is primarily due to added reserves for economic concerns related to the pandemic, as well as the specific reserve mentioned above.

Income Taxes

  • Federal income tax expense of $8.9 million was recorded for the quarter ended June 30, 2020, an effective rate of 18.7% compared to tax expense of $13.4 million and an effective rate of 21.2% for the quarter ended June 30, 2019 and tax expense of $10.8 million and an effective rate of 19.7% for the quarter ended March 31, 2020. The decrease in the effective tax rate compared to the linked and prior year quarter is primarily a result of the 2019 provision to return adjustment related to state income tax and an adjustment to the Company’s estimated 2020 state income tax rates.

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 June 30, 2020 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 June 30, 2020 and will adjust amounts preliminarily reported, if necessary.

Termination of the Merger with Texas Capital Bancshares, Inc.

As previously disclosed, the Company entered into a merger agreement with Texas Capital Bancshares, Inc. (TCBI) on December 9, 2019, providing for a merger of equals of the Company and TCBI. However, as also previously disclosed, on May 22, 2020, the Company and TCBI entered into a Mutual Termination Agreement to terminate the merger agreement. Neither party paid a termination fee in connection with the termination of the merger agreement.

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 second quarter earnings announcement will be held on Tuesday, July 28, 2020 at 8:30 a.m. (EDT) and can be accessed by the webcast link, https://webcasts.eqs.com/indepbankgroup20200728/en or by calling 1-877-407-0989 and by identifying the meeting number 13706219 or by identifying “Independent Bank Group Second Quarter 2020 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 July 29, 2020 through August 13, 2020 on our website.

Forward-Looking Statements

From time to time the Company’s comments and releases may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and other related federal security laws. Forward-looking statements include information about the Company’s possible or assumed future results of operations, including its future revenues, income, expenses, provision for taxes, effective tax rate, earnings per share and cash flows, its future capital expenditures and dividends, its future financial condition and changes therein, including changes in the Company’s loan portfolio and allowance for loan losses, the Company’s future capital structure or changes therein, the plan and objectives of management for future operations, the Company’s future or proposed acquisitions, the future or expected effect of acquisitions on the Company’s operations, results of operations and financial condition, the Company’s future economic performance and the statements of the assumptions underlying any such statement. Such statements are typically, but not exclusively, identified by the use in the statements of words or phrases such as “aim,” “anticipate,” “estimate,” “expect,” “goal,” “guidance,” “intend,” “is anticipated,” “is estimated,” “is expected,” “is intended,” “objective,” “plan,” “projected,” “projection,” “will affect,” “will be,” “will continue,” “will decrease,” “will grow,” “will impact,” “will increase,” “will incur,” “will reduce,” “will remain,” “will result,” “would be,” variations of such words or phrases (including where the word “could,” “may” or “would” is used rather than the word “will” in a phrase) and similar words and phrases indicating that the statement addresses some future result, occurrence, plan or objective. The forward-looking statements that the Company makes are based on its current expectations and assumptions regarding its business, the economy, and other future conditions. Because forward-looking statements relate to future results and occurrences, 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 those results or performance to differ materially from those expressed in the forward-looking statements. These possible events or factors include, but are not limited to: 1) the disruption to local, regional, national and global economic activity caused by infectious disease outbreaks, including the recent outbreak of coronavirus, or COVID-19, and the significant impact that such outbreak has had and may have on the Company’s growth, operations, earnings and asset quality; 2) the Company’s ability to sustain its current internal growth rate and total growth rate; 3) 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; 4) 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; 5) the Company’s dependence on its management team and its ability to attract, motivate and retain qualified personnel; 6) the concentration of the Company’s business within its geographic areas of operation in Texas and Colorado; 7) changes in asset quality, including increases in default rates on loans and higher levels of nonperforming loans and loan charge-offs generally, and specifically resulting from the economic dislocation caused by the COVID-19 pandemic; 8) 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; 9) 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; 10) inaccuracy of the assumptions and estimates that the managements of the Company and the financial institutions that the Company acquires make in establishing reserves for probable loan losses and other estimates generally, and specifically as a result of the effect of the COVID-19 pandemic; 11) lack of liquidity, including as a result of a reduction in the amount of sources of liquidity the Company currently has; 12) 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; 13) the Company’s access to the debt and equity markets and the overall cost of funding its operations; 14) regulatory requirements to maintain minimum capital levels or maintenance of capital at levels sufficient to support the Company’s anticipated growth; 15) 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 that affect the net interest income, other future cash flows, or the market value of the assets of each of Independent Bank and the financial institutions that the Company acquires, including investment securities; 16) 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; 17) effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services; 18) changes in economic and market conditions, including the economic dislocation resulting from the COVID-19 pandemic, that affect the amount and value of the assets of Independent Bank and of financial institutions that the Company acquires; 19) 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; 20) the occurrence of market conditions adversely affecting the financial industry generally, including the economic dislocation resulting from the COVID-19 pandemic; 21) the impact of recent and future legislative 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 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; 22) changes in accounting policies, practices, principles and guidelines, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC and the Public Company Accounting Oversight Board, as the case may be; 23) governmental monetary and fiscal policies, including changes resulting from the implementation of the new Current Expected Credit Loss accounting standard; 24) changes in the scope and cost of FDIC insurance and other coverage; 25) the effects of war or other conflicts, acts of terrorism (including cyber attacks) or other catastrophic events, including natural disasters such as storms, droughts, tornadoes, hurricanes and flooding, that may affect general economic conditions; 26) the Company’s actual cost savings resulting from previous or future acquisitions are less than expected, the Company is unable to realize those cost savings as soon as expected, or the Company incurs additional or unexpected costs; 27) the Company’s revenues after previous or future acquisitions are less than expected; 28) 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; 29) deposit attrition, operating costs, customer loss and business disruption before and after the Company completed acquisitions, including, without limitation, difficulties in maintaining relationships with employees, may be greater than the Company expected; 30) the effects of the combination of the operations of financial institutions that the Company has 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 the Company expects; 31) 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; 32) 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 it 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; 33) 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 the Company’s markets and to enter new markets; 34) general business and economic conditions in the Company’s markets change or are less favorable than expected generally, and specifically as a result of the COVID-19 pandemic; 35) changes occur in business conditions and inflation generally, and specifically as a result of the COVID-19 pandemic; 36) an increase in the rate of personal or commercial customers’ bankruptcies generally, and specifically as a result of the COVID-19 pandemic; 37) technology-related changes are harder to make or are more expensive than expected; 38) attacks on the security of, and breaches of, the Company’s and 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; 39) the potential impact of technology and “FinTech” entities on the banking industry generally; 40) the other factors that are described or referenced in Part I, Item 1A, of the Company’s Annual Report on Form 10-K filed with the SEC on March 2, 2020, as amended by the Company’s Annual Report on Form 10-K/A filed with the SEC on March 6, 2020, the Company’s Quarterly Reports on Form 10-Q, in each case under the caption “Risk Factors”; and 41) other economic, competitive, governmental, regulatory, technological and geopolitical factors affecting the Company’s operations, pricing and services. The Company urges you to consider all of these risks, uncertainties and other factors carefully in evaluating all such forward-looking statements made by the Company. As a result of these and other matters, including changes in facts, assumptions not being realized or other factors, the actual results relating to the subject matter of any forward-looking statement may differ materially from the anticipated results expressed or implied in that forward-looking statement. Any forward-looking statement made in this prospectus or made by the Company in any report, filing, document or information incorporated by reference in this prospectus, speaks only as of the date on which it is made. The Company undertakes no obligation to update any such forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. The Company believes that these assumptions or bases have been chosen in good faith and that they are reasonable. However, the Company caution you that assumptions as to future occurrences or results almost always vary from actual future occurrences or results, and the differences between assumptions and actual occurrences and results can be material. Therefore, the Company cautions you not to place undue reliance on the forward-looking statements contained in this prospectus or incorporated by reference herein.

Non-GAAP Financial Measures

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

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

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

CONTACTS:

Analysts/Investors:

Paul Langdale
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 June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019 and June 30, 2019
(Dollars in thousands, except for share data)
(Unaudited)

 
  As of and for the Quarter Ended  
 
  June 30, 2020     March 31, 2020     March 31, 2020     September 30, 2019     June 30, 2019  
Selected Income Statement Data
                             
Interest income
  $ 151,241     $ 156,405     $ 164,386     $ 165,307     $ 167,663  
Interest expense
    22,869       33,164       36,317       39,914       38,020  
Net interest income
    128,372       123,241       128,069       125,393       129,643  
Provision for loan losses
    23,121       8,381       1,609       5,233       4,739  
Net interest income after provision for loan losses
    105,251       114,860       126,460       120,160       124,904  
Noninterest income
    25,375       14,511       18,229       27,324       16,199  
Noninterest expense
    83,030       74,368       80,343       76,948       77,978  
Income tax expense
    8,903       10,836       14,110       14,903       13,389  
Net income
    38,693       44,167       50,236       55,633       49,736  
Adjusted net income (1)
    49,076       43,354       56,799       57,827       52,928  
 
                                       
Per Share Data (Common Stock)
                                       
Earnings:
                                       
Basic
  $ 0.90     $ 1.03     $ 1.17     $ 1.30     $ 1.15  
Diluted
    0.90       1.03       1.17       1.30       1.15  
Adjusted earnings:
                                       
Basic (1)
    1.14       1.01       1.32       1.35       1.22  
Diluted (1)
    1.14       1.01       1.32       1.35       1.22  
Dividends
    0.25       0.25       0.25       0.25       0.25  
Book value
    56.34       55.44       54.48       53.52       52.37  
Tangible book value (1)
    31.05       30.08       28.99       27.89       26.66  
Common shares outstanding
    43,041,119       43,041,776       42,950,228       42,952,642       42,953,818  
Weighted average basic shares outstanding (2)
    43,041,660       43,011,496       42,951,701       42,950,749       43,331,988  
Weighted average diluted shares outstanding (2)
    43,177,986       43,020,055       42,951,701       42,950,749       43,331,988  
 
                                       
Selected Period End Balance Sheet Data
                                       
Total assets
  $ 16,986,025     $ 15,573,868     $ 14,958,207     $ 14,959,127     $ 14,708,922  
Cash and cash equivalents
    1,605,911       948,907       565,170       570,101       579,447  
Securities available for sale
    1,049,592       1,089,136       1,085,936       1,083,816       1,104,520  
Loans, held for sale
    72,865       39,427       35,645       32,929       106,489  
Loans, held for investment (3)(4)
    11,690,356       11,020,920       10,928,653       10,936,136       10,784,041  
Mortgage warehouse purchase loans
    903,630       796,609       687,317       660,650       453,492  
Allowance for loan losses
    80,055       58,403       51,461       50,447       51,075  
Goodwill and other intangible assets
    1,088,411       1,091,586       1,094,762       1,100,876       1,104,187  
Other real estate owned
    1,688       2,994       4,819       6,392       10,972  
Noninterest-bearing deposits
    3,984,404       3,156,270       3,240,185       3,218,055       3,153,001  
Interest-bearing deposits
    9,314,631       8,726,496       8,701,151       8,509,830       8,377,586  
Borrowings (other than junior subordinated debentures)
    1,116,462       1,152,860       527,251       767,642       792,534  
Junior subordinated debentures
    53,924       53,874       53,824       53,775       53,725  
Total stockholders’ equity
    2,424,960       2,386,285       2,339,773       2,298,932       2,249,342  
                                         

Independent Bank Group, Inc. and Subsidiaries
Consolidated Financial Data
Three Months Ended June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019 and June 30, 2019
(Dollars in thousands, except for share data)
(Unaudited)

    As of and for the Quarter Ended
 
  June 30,
2020
    March 31,
2020
    December 31, 2019     September 30, 2019     June 30, 2019  
Selected Performance Metrics
                             
Return on average assets
    0.94 %     1.19 %     1.32 %     1.50 %     1.39 %
Return on average equity
    6.44       7.50       8.57       9.68       8.90  
Return on tangible equity (5)
    11.71       13.92       16.20       18.74       17.52  
Adjusted return on average assets (1)
    1.20       1.17       1.49       1.56       1.47  
Adjusted return on average equity (1)
    8.16       7.36       9.69       10.06       9.47  
Adjusted return on tangible equity (1) (3)
    14.86       13.66       18.32       19.48       18.65  
Net interest margin
    3.51       3.76       3.81       3.84       4.11  
Adjusted net interest margin (6)
    3.50       3.73       3.79       3.82       4.03  
Efficiency ratio (7)
    51.94       51.68       52.75       48.27       51.25  
Adjusted efficiency ratio (1)
    41.71       51.17       46.44       42.98       47.39  
 
                                       
Credit Quality Ratios (3) (8)
                                       
Nonperforming assets to total assets
    0.17 %     0.20 %     0.21 %     0.12 %     0.19 %
Nonperforming loans to total loans held for investment
    0.23       0.26       0.24       0.11       0.16  
Nonperforming assets to total loans held for investment and other real estate
    0.24       0.29       0.29       0.17       0.26  
Allowance for loan losses to nonperforming loans
    300.95       204.97       193.35       424.17       302.15  
Allowance for loan losses to total loans held for investment
    0.68       0.53       0.47       0.46       0.47  
Net charge-offs to average loans outstanding (annualized)
    0.05       0.05       0.02       0.21       0.01  
 
                                       
Capital Ratios
                                       
Estimated common equity Tier 1 capital to risk-weighted assets
    10.17 %     9.95 %     9.76 %     9.42 %     9.22 %
Estimated tier 1 capital to average assets
    8.94       9.67       9.32       9.21       9.06  
Estimated tier 1 capital to risk-weighted assets
    10.60       10.38       10.19       9.85       9.66  
Estimated total capital to risk-weighted assets
    12.44       12.05       11.83       11.49       11.51  
Total stockholders’ equity to total assets
    14.28       15.32       15.64       15.37       15.29  
Tangible common equity to tangible assets (1)
    8.41       8.94       8.98       8.65       8.42  
                                         

(1) Non-GAAP financial measure. See reconciliation.
(2) Total number of shares includes participating shares (those with dividend rights).
(3) Loans held for investment excludes mortgage warehouse purchase loans.
(4) Loans held for investment includes SBA PPP loans of $823,289 at June 30, 2020.
(5) Non-GAAP financial measure. Excludes average balance of goodwill and net other intangible assets.
(6) Non-GAAP financial measure. Excludes unexpected income recognized on credit impaired acquired loans of $354, $982, $791, $618 and $2,695, respectively.
(7) Efficiency ratio excludes amortization of other intangible assets. See reconciliation of non-GAAP financial measures.
(8) Credit metrics –Nonperforming assets, which consist of nonperforming loans, OREO and other repossessed assets, totaled $28,403, $31,601, $31,549, $18,407 and $27,999, respectively. Nonperforming loans, which consists of nonaccrual loans, loans delinquent 90 days and still accruing interest, and troubled debt restructurings, and excludes loans acquired with deteriorated credit quality, totaled $26,601, $28,493, $26,616, $11,893 and $16,904, respectively.

Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Income
Three and Six Months Ended June 30, 2020 and 2019
(Dollars in thousands)
(Unaudited)

 
  Three Months Ended June 30,     Six Months Ended June 30,  
 
  2020     2019     2020     2019  
Interest income:
                       
Interest and fees on loans
  $ 143,405     $ 157,431     $ 290,510     $ 302,962  
Interest on taxable securities
    4,828       5,277       9,992       10,727  
Interest on nontaxable securities
    2,168       2,127       4,233       4,352  
Interest on interest-bearing deposits and other
    840       2,828       2,911       5,198  
Total interest income
    151,241       167,663       307,646       323,239  
Interest expense:
                               
Interest on deposits
    18,327       31,322       46,398       59,164  
Interest on FHLB advances
    1,289       2,984       2,915       5,594  
Interest on other borrowings
    2,685       2,923       5,480       5,638  
Interest on junior subordinated debentures
    568       791       1,240       1,548  
Total interest expense
    22,869       38,020       56,033       71,944  
Net interest income
    128,372       129,643       251,613       251,295  
Provision for loan losses
    23,121       4,739       31,502       7,963  
Net interest income after provision for loan losses
    105,251       124,904       220,111       243,332  
Noninterest income:
                               
Service charges on deposit accounts
    4,849       6,164       10,391       12,074  
Investment management and trust
    1,646       2,522       3,632       4,741  
Mortgage banking revenue
    10,479       3,702       13,004       6,795  
Gain on sale of loans
    689             647        
Gain on sale of other real estate
    12       312       37       312  
Gain on sale of securities available for sale
    26       20       382       265  
Gain (loss) on sale and disposal of premises and equipment
    340       (279 )     277       (270 )
Increase in cash surrender value of BOLI
    1,331       1,374       2,672       2,733  
Other
    6,003       2,384       8,844       5,973  
Total noninterest income
    25,375       16,199       39,886       32,623  
Noninterest expense:
                               
Salaries and employee benefits
    34,428       40,532       73,088       82,912  
Occupancy
    9,378       9,585       19,415       18,576  
Communications and technology
    5,925       5,776       11,477       10,840  
FDIC assessment
    1,989       962       3,741       2,210  
Advertising and public relations
    862       812       1,473       1,475  
Other real estate owned expenses, net
    42       79       416       150  
Impairment of other real estate
    738       988       738       1,424  
Amortization of other intangible assets
    3,175       3,235       6,351       6,470  
Professional fees
    2,181       1,544       6,395       2,714  
Acquisition expense, including legal
    15,629       3,723       16,178       18,710  
Other
    8,683       10,742       18,126       19,092  
Total noninterest expense
    83,030       77,978       157,398       164,573  
Income before taxes
    47,596       63,125       102,599       111,382  
Income tax expense
    8,903       13,389       19,739       24,515  
Net income
  $ 38,693     $ 49,736     $ 82,860     $ 86,867  
                                 

Independent Bank Group, Inc. and Subsidiaries
Consolidated Balance Sheets
As of June 30, 2020 and December 31, 2019
(Dollars in thousands)
(Unaudited)

 
  June 30,     December 31,  
Assets
  2020     2019  
Cash and due from banks
  $ 191,812     $ 186,299  
Interest-bearing deposits in other banks
    1,414,099       378,871  
Cash and cash equivalents
    1,605,911       565,170  
Certificates of deposit held in other banks
    4,481       5,719  
Securities available for sale, at fair value
    1,049,592       1,085,936  
Loans held for sale
    72,865       35,645  
Loans, net
    12,497,449       11,562,814  
Premises and equipment, net
    243,310       242,874  
Other real estate owned
    1,688       4,819  
Federal Home Loan Bank (FHLB) of Dallas stock and other restricted stock
    57,294       30,052  
Bank-owned life insurance (BOLI)
    217,753       215,081  
Deferred tax asset
    3,208       6,943  
Goodwill
    994,021       994,021  
Other intangible assets, net
    94,390       100,741  
Other assets
    144,063       108,392  
Total assets
  $ 16,986,025     $ 14,958,207  
 
               
Liabilities and Stockholders’ Equity
               
Deposits:
               
Noninterest-bearing
  $ 3,984,404     $ 3,240,185  
Interest-bearing
    9,314,631       8,701,151  
Total deposits
    13,299,035       11,941,336  
FHLB advances
    925,000       325,000  
Other borrowings
    191,462       202,251  
Junior subordinated debentures
    53,924       53,824  
Other liabilities
    91,644       96,023  
Total liabilities
    14,561,065       12,618,434  
Commitments and contingencies
               
Stockholders’ equity:
               
Preferred stock
           
Common stock
    430       430  
Additional paid-in capital
    1,930,722       1,926,359  
Retained earnings
    454,878       393,674  
Accumulated other comprehensive income (loss)
    38,930       19,310  
Total stockholders’ equity
    2,424,960       2,339,773  
Total liabilities and stockholders’ equity
  $ 16,986,025     $ 14,958,207  
                 

Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
Three Months Ended June 30, 2020 and 2019
(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 June 30,  
 
  2020     2019  
 
  Average
Outstanding
Balance
    Interest    
Yield/
Rate (4)
    Average
Outstanding
Balance
    Interest    
Yield/
Rate (4)
 
Interest-earning assets:
                                   
Loans (1)
  $ 12,297,599     $ 143,405       4.69 %   $ 11,088,633     $ 157,431       5.69 %
Taxable securities
    750,381       4,828       2.59       776,869       5,277       2.72  
Nontaxable securities
    348,204       2,168       2.50       332,552       2,127       2.57  
Interest bearing deposits and other
    1,296,048       840       0.26       446,075       2,828       2.54  
Total interest-earning assets
    14,692,232       151,241       4.14       12,644,129       167,663       5.32  
Noninterest-earning assets
    1,793,324                       1,753,723                  
Total assets
  $ 16,485,556                     $ 14,397,852                  
Interest-bearing liabilities:
                                               
Checking accounts
  $ 4,350,985     $ 6,044       0.56 %   $ 3,846,970     $ 10,653       1.11 %
Savings accounts
    598,237       260       0.17       524,642       332       0.25  
Money market accounts
    2,304,386       4,540       0.79       2,074,568       11,041       2.13  
Certificates of deposit
    1,707,470       7,483       1.76       1,782,799       9,296       2.09  
Total deposits
    8,961,078       18,327       0.82       8,228,979       31,322       1.53  
FHLB advances
    1,076,648       1,289       0.48       500,330       2,984       2.39  
Other borrowings
    184,393       2,685       5.86       201,540       2,923       5.82  
Junior subordinated debentures
    53,906       568       4.24       53,708       791       5.91  
Total interest-bearing liabilities
    10,276,025       22,869       0.90       8,984,557       38,020       1.70  
Noninterest-bearing checking accounts
    3,699,045                       3,093,478                  
Noninterest-bearing liabilities
    92,448                       78,305                  
Stockholders’ equity
    2,418,038                       2,241,512                  
Total liabilities and equity
  $ 16,485,556                     $ 14,397,852                  
Net interest income
          $ 128,372                     $ 129,643          
Interest rate spread
                    3.24 %                     3.62 %
Net interest margin (2)
                    3.51                       4.11  
Net interest income and margin (tax equivalent basis) (3)
          $ 129,344       3.54             $ 130,568       4.14  
Average interest-earning assets to interest-bearing liabilities
                    142.98                       140.73  
                                                 

(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
Six Months Ended June 30, 2020 and 2019
(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.

 
  Six Months Ended June 30,  
 
  2020     2019  
 
  Average
Outstanding
Balance
    Interest     Yield/Rate (4)     Average
Outstanding
Balance
    Interest     Yield/Rate (4)  
Interest-earning assets:
                                   
Loans (1)
  $ 11,917,473     $ 290,510       4.90 %   $ 10,899,746     $ 302,962       5.61 %
Taxable securities
    757,608       9,992       2.65       774,837       10,727       2.79  
Nontaxable securities
    338,923       4,233       2.51       333,757       4,352       2.63  
Interest bearing deposits and other
    916,812       2,911       0.64       413,248       5,198       2.54  
Total interest-earning assets
    13,930,816       307,646       4.44       12,421,588       323,239       5.25  
Noninterest-earning assets
    1,794,757                       1,766,074                  
Total assets
  $ 15,725,573                     $ 14,187,662                  
Interest-bearing liabilities:
                                               
Checking accounts
  $ 4,341,287     $ 17,017       0.79 %   $ 3,877,885     $ 20,751       1.08 %
Savings accounts
    574,327       525       0.18       514,816       656       0.26  
Money market accounts
    2,177,205       12,353       1.14       1,987,400       20,652       2.10  
Certificates of deposit
    1,762,340       16,503       1.88       1,720,679       17,105       2.00  
Total deposits
    8,855,159       46,398       1.05       8,100,780       59,164       1.47  
FHLB advances
    743,407       2,915       0.79       473,329       5,594       2.38  
Other borrowings
    189,618       5,480       5.81       193,656       5,638       5.87  
Junior subordinated debentures
    53,881       1,240       4.63       53,683       1,548       5.81  
Total interest-bearing liabilities
    9,842,065       56,033       1.14       8,821,448       71,944       1.64  
Noninterest-bearing checking accounts
    3,398,116                       3,059,110                  
Noninterest-bearing liabilities
    91,768                       76,521                  
Stockholders’ equity
    2,393,624                       2,230,583                  
Total liabilities and equity
  $ 15,725,573                     $ 14,187,662                  
Net interest income
          $ 251,613                     $ 251,295          
Interest rate spread
                    3.30 %                     3.61 %
Net interest margin (2)
                    3.63                       4.08  
Net interest income and margin (tax equivalent basis) (3)
          $ 253,498       3.66             $ 253,133       4.11  
Average interest-earning assets to interest-bearing liabilities
                    141.54                       140.81  
                                                 

(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 six month periods are annualized.

Independent Bank Group, Inc. and Subsidiaries
Loan Portfolio Composition
As of June 30, 2020 and December 31, 2019
(Dollars in thousands)
(Unaudited)

Totals loans by category
  June 30, 2020     December 31, 2019  
 
  Amount     % of Total     Amount     % of Total  
Commercial (1)(2)
  $ 3,417,423       27.0 %   $ 2,482,356       21.3 %
Real estate:
                               
Commercial real estate
    5,813,311       45.9       5,872,653       50.4  
Commercial construction, land and land development
    1,363,849       10.8       1,236,623       10.6  
Residential real estate (3)
    1,546,975       12.2       1,550,872       13.3  
Single-family interim construction
    370,957       2.9       378,120       3.2  
Agricultural
    95,784       0.8       97,767       0.9  
Consumer
    58,215       0.4       32,603       0.3  
Other
    337             621        
Total loans
    12,666,851       100.0 %     11,651,615       100.0 %
Deferred loan fees (2)
    (16,482 )             (1,695 )        
Allowance for loan losses
    (80,055 )             (51,461 )        
Total loans, net
  $ 12,570,314             $ 11,598,459          
                                 

(1) Includes mortgage warehouse purchase loans of $903,630 and $687,317 at June 30, 2020 and December 31, 2019, respectively.
(2) Includes SBA PPP loans of $823,289 with net deferred loan fees of $18,722 at June 30, 2020.
(3) Includes loans held for sale of $72,865 and $35,645 at June 30, 2020 and December 31, 2019, respectively.

Independent Bank Group, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
Three Months Ended June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019 and June 30, 2019
(Dollars in thousands, except for share data)
(Unaudited)

 
 
  For the Three Months Ended  
 
 
  June 30, 2020     March 31, 2020     December 31, 2019     September 30, 2019     June 30, 2019  
ADJUSTED NET INCOME
 
                             
Net Interest Income – Reported
(a)
  $ 128,372     $ 123,241     $ 128,069     $ 125,393     $ 129,643  
Unexpected income recognized on credit impaired acquired loans
 
    (354 )     (982 )     (791 )     (618 )     (2,695 )
Adjusted Net Interest Income
(b)
    128,018       122,259       127,278       124,775       126,948  
Provision Expense – Reported
(c)
    23,121       8,381       1,609       5,233       4,739  
Noninterest Income – Reported
(d)
    25,375       14,511       18,229       27,324       16,199  
(Gain) loss on sale of loans
 
    (689 )     42             (6,779 )      
Gain on sale of branch
 
                      (1,549 )      
Gain on sale of trust business
 
                (1,319 )            
Gain on sale of other real estate
 
    (12 )     (25 )     (24 )     (539 )     (312 )
Gain on sale of securities available for sale
 
    (26 )     (356 )     (10 )           (20 )
(Gain) loss on sale and disposal of premises and equipment
 
    (340 )     63             315       279  
Recoveries on loans charged off prior to acquisition
 
    (3,640 )     (84 )     (425 )     (107 )     (258 )
Adjusted Noninterest Income
(e)
    20,668       14,151       16,451       18,665       15,888  
Noninterest Expense – Reported
(f)
    83,030       74,368       80,343       76,948       77,978  
Separation expense
 
                (3,421 )            
OREO impairment
 
    (738 )           (377 )           (988 )
Impairment of assets
 
          (126 )           (1,173 )      
COVID-19 expense (4)
 
    (1,451 )     (262 )                  
Acquisition expense (5)
 
    (15,644 )     (1,008 )     (6,619 )     (10,885 )     (6,069 )
Adjusted Noninterest Expense
(g)
    65,197       72,972       69,926       64,890       70,921  
Adjusted Net Income (1)
(b) – (c) + (e) – (g)
  $ 49,076     $ 43,354     $ 56,799     $ 57,827     $ 52,928  
                                           
 
 
     
ADJUSTED PROFITABILITY
 
 
                             
Adjusted Return on Average Assets (2)
 
    1.20 %     1.17 %     1.49 %     1.56 %     1.47 %
Adjusted Return on Average Equity (2)
 
    8.16 %     7.36 %     9.69 %     10.06 %     9.47 %
Adjusted Return on Tangible Equity (2)
 
    14.86 %     13.66 %     18.32 %     19.48 %     18.65 %
Total Average Assets
 
  16,485,556     14,965,628     15,091,382     14,742,618     14,397,852  
Total Average Stockholders’ Equity
 
  2,418,038     2,369,225     2,326,176     2,279,878     2,241,512  
Total Average Tangible Stockholders’ Equity (3)
 
  1,328,568     1,276,545     1,230,344     1,177,851     1,138,340  
 
                                       
EFFICIENCY RATIO
 
                                       
Amortization of other intangible assets
(h)
  3,175     3,176     3,175     3,235     3,235  
Reported Efficiency Ratio
(f – h) / (a + d)
    51.94 %     51.68 %     52.75 %     48.27 %     51.25 %
Adjusted Efficiency Ratio
(g – h) / (b + e)
    41.71 %     51.17 %     46.44 %     42.98 %     47.39 %

(1) Assumes an adjusted effective tax rate of 18.7%, 21.3%, 21.3%, 21.1%, and 21.2% for the quarters ended June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019 and June 30, 2019, respectively.
(2) Calculated using adjusted net income.
(3) Excludes average balance of goodwill and net other intangible assets.
(4) COVID-19 expense includes expenses such as employee’s premium pay, personal protection and cleaning supplies, remote work equipment, advertising and communications, and community support/donations.
(5) Acquisition expenses include $15, $459, $1,349, $1,420 and $2,346 of compensation related expenses in addition to $15,629, $549, $5,270, $9,465 and $3,723 of merger-related expenses for the quarters ended June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019 and June 30, 2019, respectively.

Independent Bank Group, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
As of June 30, 2020 and December 31, 2019
(Dollars in thousands, except per share information)
(Unaudited)

Tangible Book Value & Tangible Common Equity To Tangible Asset Ratio
           
 
  June 30,     December 31,  
 
  2020     2019  
Tangible Common Equity
           
Total common stockholders’ equity
  2,424,960     2,339,773  
Adjustments:
               
Goodwill
    (994,021 )     (994,021 )
Other intangible assets, net
    (94,390 )     (100,741 )
Tangible common equity
  1,336,549     1,245,011  
 
               
Tangible Assets
               
Total assets
  16,986,025     14,958,207  
Adjustments:
               
Goodwill
    (994,021 )     (994,021 )
Other intangible assets, net
    (94,390 )     (100,741 )
Tangible assets
  15,897,614     13,863,445  
Common shares outstanding
    43,041,119       42,950,228  
Tangible common equity to tangible assets
    8.41 %     8.98 %
Book value per common share
  56.34     54.48  
Tangible book value per common share
    31.05       28.99  

SOURCE: Independent Bank Group Inc.

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https://www.accesswire.com/599091/Independent-Bank-Group-Inc-Reports-Second-Quarter-Financial-Results-Provides-COVID-19-Update

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