Investor’s Roundup: Independent Bank Group Inc. (NASDAQ: IBTX)

MCKINNEY, Texas, June 21, 2019 – Independent Bank Group, Inc. (IBTX), the holding company for Independent Bank, recently declared net income of $37.10M, or $0.85 per diluted share, for the quarter ended March 31, 2019 contrast to $29.00M, or $1.02 per diluted share, for the quarter ended March 31, 2018 and $34.00M, or $1.11 per diluted share, for the quarter ended December 31, 2018.

First Quarter 2019 Operating Results

Net Interest Income:

  • Net interest income was $121.70M for first quarter 2019 contrast to $74.00M for first quarter 2018 and $87.10M for fourth quarter 2018, representing a 39.7% increase for the quarter. The increase in net interest income from the previous year and linked quarter was mainly because of increased average earning assets resulting mainly from the acquisition of Guaranty Bancorp. The acquisition of Integrity Bancshares in second quarter 2018 also contributed to the increase in net interest income from the prior year period.
  • The average balance of total interest-earning assets grew by $4.70B and totaled $12.20B for the quarter ended March 31, 2019 contrast to $7.50B for the quarter ended March 31, 2018 and increased $3.50B contrast to $8.70B for the quarter ended December 31, 2018. The increase from the prior year and linked quarter was mainly because of $3.40B in earning assets attained in the Guaranty transaction as well as organic growth. Earning assets of $718.90M attained in the Integrity transaction also contributed to the increase from the prior year.

Noninterest Income:

  • Total noninterest income increased $7.00M contrast to first quarter 2018 and increased $6.50M contrast to fourth quarter 2018.
  • The increase from the prior year mainly reflects increases of $2.40M in service charges, $2.20M in investment advisory and trust services, $620.0K in earnings on bank owned life insurance and $1.60M in other noninterest income all resulting mainly from the additional accounts attained in the Guaranty transaction. The investment management partner and trust division were attained with Guaranty. The increase in other noninterest income is mainly because of a boost in attained loan recoveries during first quarter 2019.
  • The increase from the linked quarter mainly reflects increases of $2.30M in service charges, $2.20M in investment advisory and trust services, $517.0K in earnings on bank owned life insurance and $1.40M in other noninterest income all resulting mainly from the acquisition of Guaranty Bancorp. The increase in other noninterest income is mainly because of a boost in attained loan recoveries during first quarter 2019. In addition, mortgage revenue of $3.10M in first quarter 2019 contrast to $3.40M in the linked quarter was negatively influenced by our hedging loss of $369.0K as compared to fourth quarter income of $394.0K.

Noninterest Expense:

  • Total noninterest expense increased $41.60M contrast to first quarter 2018 and increased $34.70M contrast to fourth quarter 2018.
  • The increase in noninterest expense contrast to first quarter 2018 is due mainly to increases of $17.20M in salaries and benefits, $3.30M in occupancy expenses, $1.40M in data processing, $1.90M in amortization of other intangibles, $14.40M in acquisition expenses and $1.90M in other noninterest expense. The overall increase in salaries and benefits, occupancy, data processing, amortization of other intangibles and noninterest expense from the prior year is reflective of additional headcount, branch locations and accounts attained in the Guaranty transaction in January 2019 and the Integrity transaction in June 2018 as well as organic growth during the year. The increase in other noninterest expense is mainly because of higher deposit- and loan-related expenses for the year over year period. Salaries and benefits expense is also elevated because of severance and retention payments made or accrued totaling $3.20M related mainly to the Guaranty transaction and our declared branch restructuring in second quarter 2019, as well as the Company’s increase in the 401(k) contribution match in third quarter 2018. The increase in acquisition expenses in the first quarter was mainly because of $8.70M in change in control payments as well as a boost in professional fees, contract termination fees, and conversion-related expenses related to Guaranty.
  • The increase from the linked quarter is mainly related to increases of $12.80M in salaries and benefits, $2.50M in occupancy, $876.0K in data processing, $1.70M in amortization of intangibles, $14.50M in acquisition expenses and $1.20M in other noninterest expense.

Provision for Loan Losses:

  • Provision for loan loss was $3.20M for first quarter 2019, a boost of $529.0K contrast to $2.70M for first quarter 2018 and a boost of $314.0K contrast to $2.90M for fourth quarter 2018. Provision expense is mainly reflective of organic loan growth as well as charge-offs or specific reserves taken during the respective period.
  • The allowance for loan losses was $46.50M, or 0.43% of total loans at March 31, 2019, contrast to $42.00M, or 0.64% of total loans at March 31, 2018, and contrast to $44.80M, or 0.58% of total loans, at December 31, 2018. The dollar increases from prior periods are mainly because of additional general reserves for organic loan growth. In addition, the decrease in the allowance for loan losses as a percentage of loans from prior year reflects that loans attained in the Guaranty and Integrity transactions were recorded at fair value without an allowance at acquisition date.

Income Taxes:

  • Federal income tax expense of $11.10M was recorded for the quarter ended March 31, 2019, an effective rate of 23.1% contrast to tax expense of $6.80M and an effective rate of 19.0% for the quarter ended March 31, 2018 and tax expense of $8.30M and an effective rate of 19.6% for the quarter ended December 31, 2018. The higher effective tax rate in first quarter 2019 was because of $1.40M in deductibility limitations related to the change in control payments made as part of the Guaranty transaction and $203.0K in nondeductible acquisition expenses.

First Quarter 2019 Balance Sheet Highlights

Loans:

  • Total loans held for investment, net of mortgage warehouse purchase loans, were $10.70B at March 31, 2019 contrast to $7.70B at December 31, 2018 and $6.50B at March 31, 2018. Loans held for investment increased $3.00B, or 38.5% for the quarter, $2.80B of which was attained in the Guaranty acquisition. Loans held for investment increased $4.20B from March 31, 2018, or 63.8%, $3.40B of which was attained in the Integrity and Guaranty acquisitions and $724.60M of which was organic growth, or 11.1% for the year over year period. Organic loan growth for the first quarter 2019 was 7.2% on an annualized basis.
  • Average mortgage warehouse purchase loans were $128.00M for the quarter ended March 31, 2019 contrast to $120.90M for the quarter ended December 31, 2018, representing a boost of $7.00M, or 5.8% for the quarter, and contrast to $114.40M for the quarter ended March 31, 2018, a boost of $13.50M, or 11.8% year over year. The change from the linked quarter and prior year quarter is reflective of increased mortgage loan market activity related to seasonality and fluctuating interest rates during the respective periods.
  • Commercial real estate (CRE) loans were $5.80B at March 31, 2019 contrast to $4.10B at December 31, 2018 and $3.50B at March 31, 2018, or 53.3%, 52.3% and 52.4% of total loans, respectively.

Asset Quality:

  • Total nonperforming assets were unchanged at $16.90M or 0.12% of total assets at March 31, 2019, contrasts to $16.90M or 0.17% of total assets at December 31, 2018, and reduced from $20.50M or 0.23% of total assets at March 31, 2018.
  • Total nonperforming loans reduced to $10.70M or 0.10% of total loans at March 31, 2019, from $12.60M, or 0.16% of total loans at December 31, 2018, and from $14.90M, or 0.23% of total loans at March 31, 2018.

Deposits and Borrowings:

  • Total deposits were $11.20B at March 31, 2019 contrast to $7.70B at December 31, 2018 and contrast to $6.80B at March 31, 2018. The increase in deposits from the linked quarter is mainly because of $3.10B of deposits attained in the Guaranty acquisition as well as organic growth of $392.80M, or 3.6% for the period. The increase in deposits from the prior year is because of $3.70B of deposits attained in the Integrity and Guaranty acquisitions as well as organic growth of $742.90M, or 10.9%, for the year over year period.
  • Total borrowings (other than junior subordinated debentures) were $538.40M at March 31, 2019, a boost of $111.10M from December 31, 2018 and a decrease of $79.20M from March 31, 2018. The change in the linked quarter and prior year reflects the use of short-term FHLB advances as needed for liquidity. The change in the linked quarter also reflects the addition of $40.0M in subordinated debt assumed in the Guaranty acquisition as well as $21.0M borrowings against the Company’s unsecured revolving line of credit with an unrelated commercial bank.