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IB

Independent Bank Group, Inc. (IBTX)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 delivered GAAP EPS $0.58 and adjusted EPS $0.63, with NIM compressing 7 bps to 2.42% as deposit costs remained elevated early in the quarter; management expects the long-anticipated NIM/NII inflection to begin in Q2 as noninterest-bearing balances stabilized and funding mix improved .
  • Asset quality remained a standout: 0.00% annualized net charge-offs, NPLs/LHFI 0.40%, and a $3.2M CECL reserve release on improved forecasts and negative loan growth, underscoring conservative credit and strong portfolios .
  • Balance-sheet optimization continued: total deposits were stable at $15.7B, FHLB advances were paid down to zero at quarter-end (partly replaced by $225M lower-cost BTFP), and total borrowings fell to the lowest level in over a year .
  • Dividend held at $0.38/share; strategic expansion advanced with first full-service San Antonio branch opened March 6, positioning for deposit and C&I-led loan growth .
  • Stock reaction catalysts: a visible Q2 NIM/NII turn, deposit-cost moderation, and sustained pristine credit should be supportive; risks include further NIB mix erosion or slower-than-expected NIM recovery given competitive deposit pressures .

What Went Well and What Went Wrong

  • What Went Well

    • Credit: “Net charge-offs of 0.00% annualized” and “low nonperforming assets of 0.34%” highlight benign credit; classified loans to bank capital fell to 5.18% (lowest in 15+ years) .
    • Funding mix and liquidity: FHLB advances paid to zero at quarter end; brokered deposits reduced $97M with improved liability sensitivity and deposit pipelines described as robust .
    • Strategic execution: Opened first full-service San Antonio branch (Mar 6) to “capitalize on a strong deposit and loan pipeline,” with CEO emphasizing momentum in core Texas/Colorado markets .

  • What Went Wrong

    • Margin pressure: NIM declined to 2.42% (down 7 bps q/q) as deposit costs rose and NIB balances dipped early in Q1; March spot NIM improved only slightly (+1 bp m/m) .
    • Loan balances: Net funded loan growth was slow with above-average payoffs; LHFI (ex-warehouse) fell ~$101M q/q to $14.06B .
    • Expense mix: While reported noninterest expense fell q/q due to the prior quarter’s special FDIC assessment, underlying adjusted OpEx stepped up with salary/merit increases; run-rate guided around ~$86M/quarter .

Financial Results

MetricQ1 2023Q3 2023Q4 2023Q1 2024
Interest Income ($M)201.2 222.7 232.5 235.2
Net Interest Income ($M)127.9 109.0 106.3 103.0
Noninterest Income ($M)12.8 13.6 10.6 12.9
Provision for Credit Losses ($M)0.09 0.34 3.48 (3.20)
Net Income ($M)(37.5) 32.8 14.9 24.2
Diluted EPS ($)(0.91) 0.79 0.36 0.58
Adjusted Diluted EPS ($)1.07 0.79 0.62 0.63
Net Interest Margin (%)3.17 2.60 2.49 2.42
Efficiency Ratio (%)132.41 63.75 78.70 73.68
Adjusted Efficiency Ratio (%)58.17 63.84 67.96 71.63

Balance sheet and capital

MetricQ1 2023Q3 2023Q4 2023Q1 2024
Total Assets ($B)18.80 18.52 19.04 18.87
LHFI ex. Warehouse ($B)13.61 13.78 14.16 14.06
Mortgage Warehouse ($B)0.40 0.44 0.55 0.55
Total Deposits ($B)14.06 11.64 (IB) + 3.70 (NIB) = 15.34 15.72 15.67
Noninterest-bearing Deposits ($B)4.15 3.70 3.53 3.30
Borrowings (ex. Jr. Sub) ($B)2.14 0.55 0.62 0.50
CET1 Ratio (%)9.70 9.86 9.58 9.60
Total Capital Ratio (%)11.88 11.89 11.57 11.68
TCE/TA (%)7.31 7.35 7.55 7.62
NPAs/Assets (%)0.32 0.33 0.32 0.34
NPLs/LHFI (%)0.27 0.28 0.37 0.40

Spread and funding KPIs

KPIQ1 2023Q4 2023Q1 2024
Loan Portfolio Yield (%)5.33 5.81 5.93
Cost of Interest-bearing Liabilities (%)2.63 3.98 4.11
Avg Rate on Interest-bearing Deposits (%)2.43 —4.03
Total Cost of Deposits (%)——3.16
Net Charge-offs (annualized, %)0.04 0.01 0.00

Segment/loan mix (period-end)

Loan ClassDec 31, 2023 ($M, %)Mar 31, 2024 ($M, %)
Commercial2,266.9 (15.4%) 2,194.3 (15.0%)
CRE8,289.1 (56.3%) 8,356.4 (57.1%)
Commercial Construction/Land/Dev1,231.5 (8.4%) 1,169.6 (8.0%)
Residential RE1,686.2 (11.5%) 1,711.3 (11.7%)
Single-family Interim Construction517.9 (3.5%) 460.6 (3.1%)
Mortgage Warehouse549.7 (3.7%) 554.6 (3.8%)
Agricultural109.5 (0.7%) 112.1 (0.8%)
Consumer76.2 (0.5%) 76.4 (0.5%)
Total Loans14,727.0 (100%) 14,635.2 (100%)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
NIM trajectoryFY24Targeting ~3% NIM by YE24; +5–7 bps in Q1 with acceleration thereafter “Not quite” 3% by YE24; meaningful expansion expected over next few quarters; March spot NIM +1 bp; Q2 inflection expected Lowered/Delayed
NII/NIM inflection timing1H24Anticipated NIM expansion and NII growth starting Q1 Inflection delayed to Q2 given early Q1 deposit/NIB dynamics Delayed
Noninterest expense2024 run-rate~$85–$86M per quarter ~ $86M per quarter for remainder of year Maintained
Loan growth2024Mid-single digits for year Low-to-mid single-digit in Q2; accelerating to mid-single digits in 2H24 Maintained
Deposit costs2024Peaked; indexed deposits should fall quickly with cuts Peaked; stabilization improving as brokered/CD roll-down and mix shift progress Maintained
Borrowings mixNear-termPotential BTFP use to reduce funding costs FHLB advances repaid to $0 at Q1-end; $225M BTFP outstanding Executed
DividendOngoing$0.38/share declared in Q4 $0.38/share declared for Q1 (payable May 16) Maintained

Earnings Call Themes & Trends

TopicQ3 2023Q4 2023Q1 2024Trend
NIM outlookBottoming; expansion expected to begin in Q1’24 +5–7 bps in Q1; ~3% by YE’24 base case NIM -7 bps to 2.42%; Q2 inflection expected; YE’24 <3% Slower ramp vs prior
Deposits/NIBNIB stabilizing post-Q3; competitive environment Deposit costs peaked; large indexed base for cuts NIB stabilized and rising MoM in March/April; funding mix improved Improving into Q2
Loan growth/mixGranular CRE/cautious construction; building C&I/SBA Mid-single-digit 2024 growth; C&I hires Slow net growth Q1; $640M commits; energy/C&I momentum Building in C&I
Credit qualityStrong; NCOs ~1 bp; NPAs ~0.33% Strong; NCOs ~1 bp; classified down 34% q/q NCOs 0%; NPAs 0.34%; reserve release Remains strong
Mortgage warehouseStable balances Stable Higher avg balances; competitors exiting supports share Slight tailwind
Rate sensitivityLiability sensitive; indexed deposits a lever Enhanced liability sensitivity; double-digit NI uplift in down-100 bp case Still liability sensitive, slightly nearer neutral after paydowns Sustained hedge to cuts
M&A stanceWatching environment Back half ’24 possible if conditions allow Macro makes timing uncertain; strategic interest remains On hold near term
ExpensesDiscipline; $83–$84M run-rate $85–$86M/quarter guided ~$86M/quarter for 2024 Stable

Management Commentary

  • “For the first quarter, we maintained exceptional credit quality while continuing to reprice our maturing fixed-rate loans upward… grow our total capital and TCE ratios… opened our first full-service branch [in San Antonio] on March 6th.” – David R. Brooks, CEO .
  • “Our spot NIM in March increased by 1 basis point… Average noninterest-bearing balances month-to-date in April are $3.41B, up from March… if these trends remain stable, we should see the expected inflection of both NIM and NII in the second quarter.” – CFO Paul Langdale .
  • “We paid our FHLB liabilities down to 0 at quarter end… reduced brokered deposits by $97M during the quarter as well.” – CFO Paul Langdale .
  • “Classified loans… just 5.18% of bank capital… the lowest levels… in over 15 years.” – Vice Chairman Daniel Brooks .

Q&A Highlights

  • NIM path and deposit costs: Management expects “meaningful NIM expansion over the next few quarters” with deposit costs having peaked; stabilization aided by rolling down brokered/CD rates and stronger core deposit production; Q2 should benefit more fully from late-Q1 mix actions .
  • 2024 NIM endpoint: YE’24 NIM likely “not quite” 3% vs prior ~3% outlook; higher-for-longer would push historical mid-3% NIM (~3.5%) target into 2026 vs 2025 absent cuts .
  • Loan growth drivers: Expect low-to-mid single-digit growth near term, improving to mid-single digits in 2H; mix tilting toward C&I (including energy) and SBA within footprint; San Antonio expansion supports both loans and deposits .
  • Rate sensitivity: Still liability sensitive (slightly closer to neutral after paydowns); substantial indexed deposit base allows rapid pass-through of cuts to deposit costs .
  • Mortgage warehouse: Balances expected to hold or modestly increase as competitors exit and seasonal demand improves .

Estimates Context

  • We attempted to retrieve S&P Global (Capital IQ) consensus for Q1 2024 EPS and revenue but could not access estimates for IBTX in the current system (SPGI mapping unavailable). As a result, a formal beat/miss versus S&P Global consensus cannot be provided at this time [SpgiEstimatesError].
  • Implications: Sell-side models may need to reflect (i) Q2-timed NIM/NII inflection (not Q1), (ii) slightly lower YE’24 NIM endpoint (<3%), (iii) OpEx run-rate ~$86M/quarter, and (iv) strong credit/CECL release and improved funding mix .

Key Takeaways for Investors

  • NIM/NII inflection now a Q2 event; March/April datapoints on NIB stabilization and spot NIM are encouraging near-term catalysts .
  • Credit quality remains a core differentiator (0% annualized NCOs; NPAs 0.34%), enabling reserve release and supporting earnings resilience through rate normalization .
  • Funding mix is improving: FHLB to zero, brokered roll-down underway, indexed deposits offer rapid leverage to future cuts; this should aid the pace of margin recovery .
  • Growth mix is pivoting toward C&I (including energy) and SBA within footprint; San Antonio adds a new, attractive core market for relationship deposits and balanced production .
  • 2024 OpEx is firmly managed around ~$86M per quarter, supporting operating leverage as NIM recovers .
  • Watch for Q2 evidence: sequential NIM expansion, deposit-cost decline, and re-acceleration of average loans as key proof-points for the YE’24 and 2025 recovery trajectory .
Note on non-GAAP: Adjusted metrics exclude items including special FDIC assessments and OREO impairments; reconciliations are provided in the company’s 8‑K exhibits **[1564618_0001564618-24-000057_exhibit991q12024.htm:16]** **[1564618_0001564618-24-000057_exhibit992q12024-finalfi.htm:6]** **[1564618_0001564618-24-000057_exhibit992q12024-finalfi.htm:7]**.  
Dividend: $0.38/share payable May 16, 2024 (record date May 2) **[1564618_0001564618-24-000057_exhibit991q12024.htm:0]** **[1564618_0001564618-24-000057_ibtx-20240418.htm:3]**.