Independent Bank : Reports First Quarter Financial Results

Press Release

For Immediate Release

INDEPENDENT BANK GROUP, INC. REPORTS FIRST QUARTER FINANCIAL RESULTS

April 22, 2019

McKINNEY, Texas, April 22, 2019 -- Independent Bank Group, Inc. (NASDAQ: IBTX), the holding company for Independent Bank, today announced net income of $37.1 million, or $0.85 per diluted share, for the quarter ended March 31, 2019 compared to $29.0 million, or $1.02 per diluted share, for the quarter ended March 31, 2018 and $34.0 million, or $1.11 per diluted share, for the quarter ended December 31, 2018.

Highlights

•Completed the acquisition of Guaranty Bancorp on January 1, 2019, increasing total assets by $3.9 billion, total loans by $2.8 billion and total deposits by $3.1 billion

•Solid earnings of $37.1 million, or $0.85 per diluted share and adjusted (non-GAAP) net income of $52.0 million, or $1.19 per diluted share

•Organic loan growth of 7.2% for the quarter (annualized)

•Continued strong asset quality with credit metrics remaining at historically low levels

•Repurchased $10 million of Company stock through the Share Repurchase Program

•Increased the quarterly dividend to $0.25 per share from $0.14 per share

"Our Company is off to a great start in 2019," said Independent Bank Group Chairman and CEO David R. Brooks. "We completed the Guaranty acquisition on January 1st and are already beginning to see the benefits of adding this premier Colorado franchise to our footprint. The integration of the outstanding team and strategic locations has been smooth and our first quarter results reflect the beginnings of the value that is being added to our company." Brooks continued, "In addition, we had another solid quarter of earnings and continued strong credit metrics. Based on this performance, we were pleased to be able to return value to our shareholders through execution of our share repurchase program and by increasing our quarterly dividend."

First Quarter 2019 Operating Results

Net Interest Income

•Net interest income was $121.7 million for first quarter 2019 compared to $74.0 million for first quarter 2018 and $87.1 million 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 primarily due to increased average earning assets resulting primarily 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 $4.7 billion and totaled $12.2 billion for the quarter ended March 31, 2019 compared to $7.5 billion for the quarter ended March 31, 2018 and increased $3.5 billion compared to $8.7 billion for the quarter ended December 31, 2018. The increase from the prior year and linked quarter was primarily due to $3.4 billion in earning assets acquired in the Guaranty transaction as well as organic growth. Earning assets of $718.9 million acquired in the Integrity transaction also contributed to the increase from the prior year.

•The yield on interest-earning assets was 5.17% for first quarter 2019 compared to 4.77% for first quarter 2018 and 5.15% for fourth quarter 2018. The increase from the prior year was due primarily to higher rates on interest-earning assets due to continued increases in the Fed Funds rate during these periods as well as increased acquired loan accretion due to the Guaranty acquisition. The small increase from the linked quarter is due to larger amounts of acquired loan accretion but was negatively impacted by Guaranty's acquired interest-earning assets, which had lower effective interest rates.

•The cost of interest-bearing liabilities, including borrowings, was 1.59% for first quarter 2019 compared to 1.05% for first quarter 2018 and 1.64% for fourth quarter 2018. The increase from the prior year is primarily due to higher rates offered on our deposits, primarily commercial money market accounts and certificates of deposit, resulting both from market competition and general increases in interest rates on deposit products tied to Fed Funds rates, as well as rate increases on short-term FHLB advances and

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junior subordinated debt. The decrease from the linked quarter is primarily related to the interest-bearing liabilities acquired with the Guaranty acquisition, which had lower interest rates related to their deposit mix and subordinated debt.

•The net interest margin was 4.05% for first quarter 2019 compared to 4.00% for first quarter 2018 and 3.98% for fourth quarter 2018. The adjusted (non-GAAP) net interest margin, which excludes unexpected accretion on loans acquired with deteriorated credit quality was 4.01% for first quarter 2019 compared to 3.96% for first quarter 2018 and 3.93% for fourth quarter 2018. Excluding accretion related to the Guaranty acquisition interest rate mark, the net interest margin would have been 3.82% for first quarter 2019.

Noninterest Income

•Total noninterest income increased $7.0 million compared to first quarter 2018 and increased $6.5 million compared to fourth quarter 2018.

•The increase from the prior year primarily reflects increases of $2.4 million in service charges, $2.2 million in investment advisory and trust services, $620 thousand in earnings on bank owned life insurance and $1.6 million in other noninterest income all resulting primarily from the additional accounts acquired in the Guaranty transaction. The investment management subsidiary and trust division were acquired with Guaranty. The increase in other noninterest income is primarily due to an increase in acquired loan recoveries during first quarter 2019.

•The increase from the linked quarter primarily reflects increases of $2.3 million in service charges, $2.2 million in investment advisory and trust services, $517 thousand in earnings on bank owned life insurance and $1.4 million in other noninterest income all resulting primarily from the acquisition of Guaranty Bancorp. The increase in other noninterest income is primarily due to an increase in acquired loan recoveries during first quarter 2019. In addition, mortgage revenue of $3.1 million in first quarter 2019 compared to $3.4 million in the linked quarter was negatively impacted by our hedging loss of $369 thousand versus fourth quarter income of $394 thousand.

Noninterest Expense

•Total noninterest expense increased $41.6 million compared to first quarter 2018 and increased $34.7 million compared to fourth quarter 2018.

•The increase in noninterest expense compared to first quarter 2018 is due primarily to increases of $17.2 million in salaries and benefits, $3.3 million in occupancy expenses, $1.4 million in data processing, $1.9 million in amortization of other intangibles, $14.4 million in acquisition expenses and $1.9 million 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 acquired 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 primarily due to higher deposit- and loan-related expenses for the year over year period. Salaries and benefits expense is also elevated due to severance and retention payments made or accrued totaling $3.2 million related primarily to the Guaranty transaction and our announced 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 primarily due to $8.7 million in change in control payments as well as an increase in professional fees, contract termination fees, and conversion-related expenses related to Guaranty.

•The increase from the linked quarter is primarily related to increases of $12.8 million in salaries and benefits, $2.5 million in occupancy, $876 thousand in data processing, $1.7 million in amortization of intangibles, $14.5 million in acquisition expenses and $1.2 million in other noninterest expense. The increases were primarily due to the acquisition of Guaranty and other increases as discussed above.

Provision for Loan Losses

•Provision for loan loss was $3.2 million for first quarter 2019, an increase of $529 thousand compared to $2.7 million for first quarter 2018 and an increase of $314 thousand compared to $2.9 million for fourth quarter 2018. Provision expense is primarily reflective of organic loan growth as well as charge-offs or specific reserves taken during the respective period.

•The allowance for loan losses was $46.5 million, or 0.43% of total loans at March 31, 2019, compared to $42.0 million, or 0.64% of total loans at March 31, 2018, and compared to $44.8 million, or 0.58% of total loans, at December 31, 2018. The dollar increases from prior periods are primarily due to 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 acquired in the Guaranty and Integrity transactions were recorded at fair value without an allowance at acquisition date.

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Income Taxes

•Federal income tax expense of $11.1 million was recorded for the quarter ended March 31, 2019, an effective rate of 23.1% compared to tax expense of $6.8 million and an effective rate of 19.0% for the quarter ended March 31, 2018 and tax expense of $8.3 million and an effective rate of 19.6% for the quarter ended December 31, 2018. The higher effective tax rate in first quarter 2019 was due to $1.4 million in deductibility limitations related to the change in control payments made as part of the Guaranty transaction and $203 thousand in nondeductible acquisition expenses.

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First Quarter 2019 Balance Sheet Highlights

Loans

•Total loans held for investment, net of mortgage warehouse purchase loans, were $10.7 billion at March 31, 2019 compared to $7.7 billion at December 31, 2018 and $6.5 billion at March 31, 2018. Loans held for investment increased $3.0 billion, or 38.5% for the quarter, $2.8 billion of which was acquired in the Guaranty acquisition. Loans held for investment increased $4.2 billion from March 31, 2018, or 63.8%, $3.4 billion of which was acquired in the Integrity and Guaranty acquisitions and $724.6 million 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 $128.0 million for the quarter ended March 31, 2019 compared to $120.9 million for the quarter ended December 31, 2018, representing an increase of $7.0 million, or 5.8% for the quarter, and compared to $114.4 million for the quarter ended March 31, 2018, an increase of $13.5 million, 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 $5.8 billion at March 31, 2019 compared to $4.1 billion at December 31, 2018 and $3.5 billion at March 31, 2018, or 53.3%, 52.3% and 52.4% of total loans, respectively.

Asset Quality

•Total nonperforming assets was unchanged at $16.9 million, or 0.12% of total assets at March 31, 2019, compared to $16.9 million or 0.17% of total assets at December 31, 2018, and decreased from $20.5 million, or 0.23% of total assets at March 31, 2018.

•Total nonperforming loans decreased to $10.7 million, or 0.10% of total loans at March 31, 2019, from $12.6 million, or 0.16% of total loans at December 31, 2018, and from $14.9 million, or 0.23% of total loans at March 31, 2018.

•The unchanged position of nonperforming assets and the net decrease in nonperforming loans from the linked quarter is primarily due to payoffs of two nonaccrual single-family interim construction loans and one commercial real estate loan totaling $3.9 million, nonaccrual charge-offs totaling $402 thousand, and a $544 thousand nonaccrual residential real estate loan placed in foreclosure, offset by a $3.0 million commercial loan placed on nonaccrual status. In addition, during first quarter 2019, other real estate owned increased by three properties totaling $1.7 million as a result of the Guaranty acquisition as well as the addition noted above, off-set by a $436 thousand impairment.

•The decrease in nonperforming assets and nonperforming loans from the prior year is primarily due to a net decrease in nonaccrual loans of $4.2 million, offset by net additions of other real estate owned of $539 thousand for the year over year period.

•Charge-offswere 0.06% annualized in the first quarter 2019 compared to 0.01% annualized in both the linked quarter and the prior year quarter. Charge-offs were slightly increased in the first quarter primarily due to the charge-offs noted above in addition to a partial charge-off of an energy loan totaling $827 thousand which had been fully reserved in prior periods.

Deposits and Borrowings

•Total deposits were $11.2 billion at March 31, 2019 compared to $7.7 billion at December 31, 2018 and compared to $6.8 billion at March 31, 2018. The increase in deposits from the linked quarter is primarily due to $3.1 billion of deposits acquired in the Guaranty acquisition as well as organic growth of $392.8 million, or 3.6% for the period. The increase in deposits from the prior year is due to $3.7 billion of deposits acquired in the Integrity and Guaranty acquisitions as well as organic growth of $742.9 million, or 10.9%, for the year over year period.

•Total borrowings (other than junior subordinated debentures) were $538.4 million at March 31, 2019, an increase of $111.1 million from December 31, 2018 and a decrease of $79.2 million 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 million in subordinated debt assumed in the Guaranty acquisition as well as $21 million 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 March 31, 2019, 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 9.60%, 9.33%, 10.07% and 11.96%, respectively, compared to 10.05%, 9.57%, 10.41%, and 12.58%, respectively, at December 31, 2018.

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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 March 31, 2019 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 March 31, 2019 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 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 first quarter earnings announcement will be held on Tuesday, April 23, 2019 at 8:30 a.m. (EDT) and can be accessed by the webcast link,https://edge.media-server.com/m6/p/72binuk9,or by calling 1-877-303-7611 and by identifying the conference ID/booking number 5867939 or by identifying "Independent Bank Group First Quarter 2019 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 April 23, 2019 through May 1, 2019 on our website.

Forward-Looking Statements

The numbers as of and for the quarter ended March 31, 2019 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") that are subject to risks and uncertainties and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 the Company 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 the Company'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. 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 our future financial results and performance and could cause such results or performance to differ materially from those expressed in forward looking statements. These factors include, but are not limited to, the following: (1) the Company's ability to sustain its current internal growth rate and total growth rate; (2) 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; (3) 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; (4) the Company's dependence on its management team and its ability to attract, motivate and retain qualified personnel; (5) the concentration of the Company's business within its geographic areas of operation in Texas and Colorado; (6) changes in asset quality, including increases in default rates and loans and higher levels of nonperforming loans and loan charge-offs; (7) 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; (8) 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;

(9)inaccuracy of the assumptions and estimates that the managements of Independent Bank and the financial institutions that it acquires make in establishing reserves for probable loan losses and other estimates; (10) lack of liquidity, including as a result of a reduction in the amount of sources of liquidity, that the Company currently has; (11) 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; (12) the Company's access to the debt and equity markets and the overall cost of funding its operations; (13) regulatory requirements to maintain minimum capital levels or maintenance of capital at levels sufficient to support the Company's anticipated growth; (14) 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 the net interest income of each of Independent Bank and the financial institutions that the Company acquires; (15) fluctuations in the market value

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