MCKINNEY, Texas, July 25, 2016 (GLOBE NEWSWIRE) -- Independent Bank Group, Inc. (NASDAQ:IBTX), the holding company for Independent Bank, today announced net income available to common shareholders of $11.8 million, or $0.64 per diluted share, for the quarter ended June 30, 2016 compared to $10.5 million, or $0.61 per diluted share, for the quarter ended June 30, 2015 and $12.4 million, or $0.67 per diluted share, for the quarter ended March 31, 2016.

Highlights

• Core earnings were $13.8 million, or $0.74 per diluted share, compared to $12.4 million, or $0.67 per diluted share, for first quarter 2016, representing an increase of 10.5%
• Annualized organic loan growth of 11.8% for the quarter and 13.2% year to date
• Credit quality metrics improved to historically low levels
• Significant paydowns in the energy portfolio reducing it to 2.9% of the total loan portfolio at quarter end
• Completed $45 million subordinated debt offering enhancing the Company's capital position

Independent Bank Group Chairman and Chief Executive Officer David Brooks said, "This was another quarter of improved operating performance for our Company. Continued solid loan growth and improved credit metrics drove strong core earnings. We also strengthened our capital position with our recent issuance of subordinated debt. We believe that this quarter's results reflect our commitment to stronger earnings and enhancement of shareholder value."

Second Quarter 2016 Operating Results

Net Interest Income

• Net interest income was $45.9 million for second quarter 2016 compared to $37.8 million for second quarter 2015 and $45.7 million for first quarter 2016. Net interest income increased compared to the linked quarter due to continued organic loan growth and despite significantly lower accretion income compared to first quarter 2016. The increase in net interest income from the previous year was primarily due to increased average loan balances resulting from organic loan growth as well as loans acquired in the Grand Bank acquisition in November 2015.
• The yield on interest-earning assets was 4.49% for second quarter 2016 compared to 4.64% for second quarter 2015 and 4.60% for first quarter 2016. The first quarter 2016 included unusually high accretion income of $1.3 million compared to only $265 thousand during second quarter 2016. In addition during first quarter 2016, $182 thousand in interest income was recognized resulting from the payoff of a nonaccrual loan as well as the collection of a $160 thousand extension fee on an energy credit that also increased the yield compared to the second quarter. The decrease in the rate from prior year is primarily due to decreased market rates over the year and also due in part to lower accretion income on acquired loans in the second quarter 2016 compared to the same period in 2015.
• The cost of interest bearing liabilities, including borrowings, was 0.66% for second quarter 2016 compared to 0.69% for second quarter 2015 and 0.65% for first quarter 2016. The decrease from the prior year is primarily due to the maturities of higher rate FHLB advances during 2015. The slight increase from the linked quarter is due to increased money market and CD costs.
• The net interest margin was 3.96% for second quarter 2016 compared to 4.10% for second quarter 2015 and 4.08% for first quarter 2016. The core margin, which excludes purchased loan accretion, was 3.94% for second quarter 2016 compared to 4.04% for second quarter 2015 and 3.96% for first quarter 2016.
• The average balance of total interest-earning assets grew by $960.8 million and totaled $4.7 billion at June 30, 2016 compared to $3.7 billion at June 30, 2015 and grew by $155.8 million compared to $4.5 billion at March 31, 2016. This increase from prior year and the linked quarter is due to organic growth while the change from prior year is also due to loans acquired in the Grand Bank acquisition.

Noninterest Income

• Total noninterest income increased $820 thousand compared to second quarter 2015 and increased $459 thousand compared to first quarter 2016.
• The increase from the prior year reflects an increase of $592 thousand in mortgage fee income and a $275 thousand increase in other noninterest income. The increase in mortgage fee income is due to a decrease in mortgage rates and increased home purchase activity in the Dallas and Austin markets. The increase in other noninterest income from the prior year is primarily related to an increase in earning credits on correspondent accounts.
• The increase from the linked quarter primarily relates to an increase of $645 thousand in mortgage fee income offset by a decrease of $184 thousand in other noninterest income. The increase in mortgage fee income is explained above and the decrease in other noninterest expense is primarily due to a decrease of $291 thousand in income distributions from small business investment funds offset by an increase of $102 thousand in earning credits on correspondent accounts for the respective periods.

Noninterest Expense

• Total noninterest expense increased $6.6 million compared to second quarter 2015 and $2.5 million compared to first quarter 2016.
• The increase in noninterest expense compared to second quarter 2015 is due primarily to an increase of $4.9 million in salaries and benefits expense in addition to increases of $537 thousand in data processing expenses, $376 thousand in FDIC assessment, $300 thousand in professional fees and $303 thousand in other noninterest expense. Overall increases in noninterest expense from the prior year are generally due to the increase in number of employees and operating costs resulting from the Grand Bank transaction. The increase in salaries and benefits from the prior year is also due to compensation costs of approximately $2.6 million recognized during the second quarter relating to the Company's senior leadership restructure including $2 million for the former Houston Region CEO's Separation Agreement which was previously disclosed. The increase in professional fees is primarily due to increased legal fees on existing litigation inherited in the Bank of Houston transaction and legal fees related to energy loan workouts.
• The increase from the linked quarter is primarily related to increases of $2.8 million in salaries and benefits and $317 thousand in professional fees offset by a decrease of $549 thousand in acquisition fees. Salaries and benefits increased primarily due to the executive team restructure as discussed above. Professional fees increased during second quarter 2016 primarily because legal expenses related to the energy portfolio and the existing Bank of Houston litigation. Conversion-related acquisition expenses were lower in the second quarter as most of the expenses related to the November 2015 acquisition of Grand Bank were recognized in the first quarter of 2016.

Provision for Loan Losses

• Provision for loan loss expense was $2.1 million for the second quarter 2016, an increase of $464 thousand compared to $1.7 million for second quarter 2015 and decrease of $874 thousand compared to $3.0 million for the first quarter 2016. The provision expense for second quarter 2016 was based upon loan growth and net charge-offs for the quarter. It was lower compared to first quarter 2016 because it does not include a general provision to reflect potential risk in the energy portfolio that was made for this purpose in first quarter 2016. The provision expense is higher compared to second quarter 2015 due to higher organic loan growth experienced during second quarter 2016.
• The allowance for loan losses was $30.9 million, or 0.73% of total loans, at June 30, 2016, compared to $21.8 million, or 0.64% of total loans at June 30, 2015, and compared to $30.0 million, or 0.73% of total loans, at March 31, 2016. The maintenance of the allowance at the same percentage of total loans compared to first quarter 2016 reflects the improved credit metrics in the energy portfolio as well as the significant reduction in the total energy portfolio. The increase in the allowance from the prior year is due to additions to general reserves for organic loan growth, specific allocations on impaired assets, as well as an increase in general reserves for the energy portfolio. As of June 30, 2016, the total energy related allowance to the total energy portfolio was 6.8%.

Income Taxes

• Federal income tax expense of $5.9 million was recorded for the quarter ended June 30, 2016, an effective rate of 33.2%, compared to tax expense of $5.2 million and an effective rate of 33.0% for the quarter ended June 30, 2015 and tax expense of $6.2 million and an effective rate of 33.1% for the quarter ended March 31, 2016.

Second Quarter 2016 Balance Sheet Highlights:

Loans

• Total loans held for investment were $4.251 billion at June 30, 2016 compared to $4.130 billion at March 31, 2016 and to $3.376 billion at June 30, 2015. This represented total loan growth of $121.0 million for the quarter, or 11.8% on an annualized basis. Loans have grown 13.2%, annualized, from December 31, 2015.
• Energy outstandings at the end of second quarter were $122.1 million (2.9% of total loans) versus $185.9 million at first quarter 2016, a reduction of 34.3%. The production portfolio, consisting of working interest and royalty credits, was $108.9 million (2.6% of total loans) made up of 21 credits and 20 relationships. Oil field service related loans represented an additional $13.2 million (0.3% of loans) and consisted of 25 borrowers. As of June 30, 2016, there were four nonperforming classified energy credits with balances totaling $11.7 million and three performing classified energy credits with a balance of $20.5 million. All energy related credits continue to be closely monitored and the Company is in close contact with borrowers to maintain a real time understanding of their current financial condition.

Asset Quality

• Total nonperforming assets decreased to $18.7 million, or 0.34% of total assets at June 30, 2016 from $32.7 million, or 0.62% of total assets at March 31, 2016 and increased slightly from $16.3 million, or 0.37% of total assets at June 30, 2015.
• Total nonperforming loans decreased to $17.2 million, or 0.40% of total loans at June 30, 2016 compared to $29.9 million, or 0.72% of total loans at March 31, 2016 and increased from $13.3 million, or 0.40% of total loans at June 30, 2015.
• The decrease in nonperforming assets and nonperforming loans from the linked quarter is primarily due to the pay-off of a $17.1 million energy loan participation that had been placed on nonaccrual during the first quarter 2016.
• Charge-offs were 0.11% annualized in the second quarter 2016 compared to 0.01% annualized in the linked and prior year quarters. The increase in charge-offs for the current quarter is primarily due a $925 thousand charge-off related to the $17.1 million energy loan discussed above, which was paid off at a discount during the second quarter 2016.

Deposits and Borrowings

• Total deposits were $4.208 billion at June 30, 2016 compared to $4.172 billion at March 31, 2016 and compared to $3.467 billion at June 30, 2015.
• Total borrowings (other than junior subordinated debentures) were $578.2 million at June 30, 2016, an increase of $133.4 million from March 31, 2016 and an increase of $306.7 million from June 30, 2015. These changes reflect the issuance of $43.4 million, net of discount and costs, of our 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

• The tangible common equity to tangible assets and the Tier 1 capital to average assets ratios were 6.88% and 7.42% (estimated), respectively, at June 30, 2016 compared to 6.86% and 7.36%, respectively, at March 31, 2016 and 7.11% and 8.40%, respectively, at June 30, 2015. The total stockholders’ equity to total assets ratio was 11.56%, 11.71% and 12.79% at June 30, 2016, March 31, 2016 and June 30, 2015, respectively. Total capital to risk weighted assets was 11.35% at June 30, 2016 (estimated) compared to 10.47% at March 31, 2016 and 12.05% at June 30, 2015. The respective changes in capital ratios from the previous year and the linked quarter is primarily due to the redemption of the SBLF preferred stock in January 2016 and the issuance of $45 million subordinated debentures in June 2016.
• Book value and tangible book value per common share were $34.08 and $19.28, respectively, at June 30, 2016 compared to $33.38 and $18.54, respectively, at March 31, 2016 and $31.30 and $17.18, respectively, at June 30, 2015.
• Return on tangible equity (on an annualized basis) was 13.52% for the second quarter 2016 compared to 14.57% and 14.48% for the first quarter 2016 and second quarter 2015, respectively.
• Return on average assets and return on average equity (on an annualized basis) were 0.88% and 7.60%, respectively, for second quarter 2016 compared to 0.95% and 8.10%, respectively, for first quarter 2016 and 0.99% and 7.91%, respectively, for second quarter 2015. Ratios for the second quarter 2016 were negatively impacted by $2.6 million in additional compensation costs related to the senior leadership changes during the second quarter 2016.

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 42 banking offices in three market regions located in the Dallas/Fort Worth, Austin and Houston, Texas areas.