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IB

Independent Bank Group, Inc. (IBTX)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023 was operationally mixed: GAAP EPS fell to $0.36 and adjusted EPS to $0.62 on higher funding costs and an $8.3M FDIC special assessment, while NII of $106.3M and NIM of 2.49% trended lower sequentially but management guided to near-term NIM inflection in Q1 2024 .
  • Credit quality remained strong (NPLs/LHFI 0.37%, NPAs/Assets 0.32%, net charge-offs 0.01% annualized) amid healthy core loan growth (+$383.6M; 11% annualized) and deposit growth (+$0.38B), with CET1 9.58% and TCE ratio 7.55% .
  • Management expects 5–7 bps NIM expansion in Q1 2024, a path to ~3.0% NIM by end-2024 and mid-3s by end-2025; expense run-rate guided to $85–86M, and mid-single-digit loan and deposit growth for 2024 .
  • Catalysts: deposit cost repricing (promo CDs and brokered portfolio rolling down), indexed deposits benefiting from potential Fed cuts, and repricing of ~$2B adjustable loans across 2024; potential use of BTFP to replace higher-cost FHLB advances adds funding optionality .

What Went Well and What Went Wrong

What Went Well

  • Healthy organic core loan growth and deposit growth: core LHFI +$383.6M (+11% annualized) and total deposits +$0.38B QoQ; loan-to-deposit ratio remained stable at 93.6% .
  • Credit metrics resilient: NPAs/Assets 0.32%; net charge-offs 0.01% annualized; classified assets fell 34% QoQ to $126M, reflecting payoffs/upgrades. “Credit quality remains excellent,” noted management .
  • Balance sheet/capital positioned for growth: CET1 9.58%, total capital 11.57%, TCE ratio 7.55%; TBV/share rose $1.79 to $32.90; book value/share up $1.71 to $58.20 .

What Went Wrong

  • Margin compression: NIM fell to 2.49% (vs. 2.60% Q3 and 3.49% prior-year) and NII declined to $106.3M amid higher deposit/brokered funding costs; GAAP EPS dropped to $0.36, adjusted EPS to $0.62 .
  • Noninterest expense elevated: $95.1M (up $13.8M QoQ) driven by $8.3M FDIC special assessment and a $3.0M OREO impairment; adjusted noninterest income also fell sequentially on lower mortgage banking revenue .
  • NPLs rose sequentially to 0.37% on a $13.3M CRE nonaccrual addition; OREO losses on sale and write-downs impacted fee line and expenses per accounting treatment .

Financial Results

P&L and Key Operating Metrics (Quarterly)

MetricQ2 2023Q3 2023Q4 2023
Net Interest Income ($USD Millions)$113.6 $109.0 $106.3
Net Interest Margin (%)2.71% 2.60% 2.49%
Noninterest Income ($USD Millions)$14.1 $13.6 $10.6
Noninterest Expense ($USD Millions)$85.7 $81.3 $95.1
Provision for Credit Losses ($USD Millions)$0.22 $0.34 $3.48
Diluted EPS (GAAP) ($USD)$0.80 $0.79 $0.36
Adjusted Diluted EPS ($USD)$0.82 $0.79 $0.62

Balance Sheet Snapshot

MetricQ2 2023Q3 2023Q4 2023
LHFI ex Mortgage Warehouse ($USD Billions)$13.63 $13.78 $14.16
Mortgage Warehouse ($USD Billions)$0.49 $0.44 $0.55
Total Deposits ($USD Billions)$14.87 $15.34 $15.72
Borrowings excl. Jr Sub Debentures ($USD Billions)$1.18 $0.55 $0.62
Total Assets ($USD Billions)$18.72 $18.52 $19.04

Year-over-Year (Q4 2023 vs Q4 2022)

MetricQ4 2022Q4 2023
Net Interest Income ($USD Millions)$141.8 $106.3
Net Interest Margin (%)3.49% 2.49%
Noninterest Expense ($USD Millions)$98.8 $95.1
Provision for Credit Losses ($USD Millions)$2.83 $3.48
Diluted EPS (GAAP) ($USD)$0.99 $0.36
Adjusted Diluted EPS ($USD)$1.20 $0.62
NPAs / Assets (%)0.35% 0.32%

Credit and Capital KPIs

KPIQ2 2023Q3 2023Q4 2023
NPLs / LHFI (%)0.28% 0.28% 0.37%
NPAs / Assets (%)0.32% 0.33% 0.32%
Net Charge-Offs (annualized, %)(0.03)% 0.01% 0.01%
CET1 (%)9.78% 9.86% 9.58%
Total Capital (%)11.95% 11.89% 11.57%
TCE Ratio (%)7.37% 7.35% 7.55%
Loan-to-Deposit Ratio (%)95.1% 92.7% 93.6%
Adjusted Uninsured Deposits (%)31.1% 29.9% 29.1%

Loan Composition (Q4 2023)

ClassAmount ($USD Billions)% of Total
Commercial Real Estate$8.29 56.3%
C&D (Commercial construction, land, land dev.)$1.23 8.4%
Commercial & Industrial$2.27 15.4%
Residential Real Estate$1.69 11.5%
Single-Family Interim Construction$0.52 3.5%
Mortgage Warehouse$0.55 3.7%
Other (Agricultural, Consumer)$0.19 1.2%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
NIM trajectoryQ1 2024Stabilize in Q4; begin expanding in 2024 +5–7 bps in Q1; ~3.0% by end-2024; ~3.5% by end-2025 Raised specificity and pace
NII trend2024Stable in Q4; expansion in 2024 Inflection in Q1; growth accelerating through 2H24 and into 2025 Clarified earlier inflection
Noninterest expenseNext several quarters~$83–84M/quarter (Q4+ run-rate) $85–86M/quarter Raised
Loan growthFY 2024Mid-single-digit (4–6% annualized) for 2H 2023 Mid-single-digit (4–6%) for FY 2024 Maintained for FY
Deposit growthFY 2024Grow deposits with loans; competitive environment Deposits to grow at similar pace as loans (mid-single-digit) Clarified pace
Funding optimizationQ1 2024Reduced borrowings; brokered deposits less expensive than FHLB Potential BTFP use to replace higher-cost FHLB advances; indexed deposits reprice with Fed cuts Added tools

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2023)Trend
NIM/NII pathQ2: trough lower than anticipated; expect Q3 inflection and Q4 NII growth . Q3: bottoming; Q1 2024 expansion expected +5–7 bps NIM expansion in Q1; target ~3.0% by end-2024; mid-3s by end-2025 Improving visibility and pace
Deposit costs & indexingQ2: funding costs peaking; indexed deposits $3–4B . Q3: non-interest-bearing stability Promo CDs renewal cut to 5.15% APY; ~half deposit book moves inside 4 months with Fed; brokered CDs repricing <5% Liability sensitivity increased
Loan growth & repricingQ2: stronger 2H production; >$2B roll in 2024; new loans ~7.8% . Q3: $500M+ Q4 production ~$2B adjustable assets to reprice across 2024; several hundred million in Q1; new/renewal rates ~8% Tailwind to asset yields
CRE exposure & creditQ2/Q3: granular book; cautious on multifamily; construction limited One Houston CRE nonaccrual added ($13.3M); classified assets −34% QoQ; no systemic concerns Stable with isolated items
Funding strategyQ2/Q3: reduced FHLB and holdco LOC; increased brokered at lower cost May utilize BTFP to lock lower cost funding vs FHLB; contingent liquidity solid Enhanced optionality
M&A appetiteLittle emphasis in Q2/Q3Interested; potential activity in back half of 2024 contingent on performance and stock Watching environment

Management Commentary

  • “Fourth quarter earnings totaled $14.9 million or $0.36 per diluted share… adjusted fourth quarter earnings were $25.5 million or $0.62 per diluted share” .
  • “Credit quality remains excellent… net charge-offs totaling just 1 basis point annualized… TCE ratio strengthened to 7.55%… tangible book value grew 5.8% to $32.90 per share” .
  • “We have started to reprice some of our marginal liquidity downward… currently repricing brokered CDs below 5%… renewal rate on 6-month CDs reduced to 5.15% APY” .
  • “We expect to see NIM expansion and NII growth in the first quarter… opening our first full-service branch in San Antonio in the first quarter” .

Q&A Highlights

  • NII/NIM cadence: Management expects NIM inflection in Q1 and acceleration through 2H24; historic profitability by 2H25 (NIM mid-3s, ROA ~1.20–1.25%, ROTCE mid-teens) .
  • Rate sensitivity: Down 100 bps scenario yields double-digit net income pickup and near double-digit NII uplift due to enhanced liability sensitivity and indexed deposits; gap doubled QoQ .
  • Loan/deposit growth: 2024 mid-single-digit (4–6%) loan and deposit growth; deposit growth to match loan growth pace .
  • Funding optimization: Considering BTFP to replace higher-cost FHLB advances; indicated spread vs 1Y OIS ~50 bps at time of comment .
  • Expenses: Run-rate guided to ~$85–86M per quarter for next several quarters; normal seasonal uptick in Q1 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
See “Guidance Changes” table above

Estimates Context

  • We attempted to retrieve Wall Street consensus (S&P Global Capital IQ) for IBTX’s Q4 2023 EPS and revenue; data was unavailable due to missing CIQ mapping for the ticker (tool error). As a result, estimate comparison is not presented for Q4 2023 [SpgiEstimatesError].
  • Based on company disclosures, adjusted EPS was $0.62 vs GAAP $0.36; absent S&P Global consensus, we cannot assess beat/miss. Values in this section anchor to company reports .

Key Takeaways for Investors

  • Near-term NIM inflection: Management models +5–7 bps NIM expansion in Q1 2024 with deposit cost tailwinds from repricing of promo CDs and brokered funds; watch execution on liability repricing and pace of Fed cuts .
  • Asset yield tailwind: ~$2B of adjustable/fixed CRE loans set to reprice across 2024 with new/renewal rates ~8%, supporting NII even in flat/down rate scenarios .
  • Liability sensitivity enhanced: Roughly half of the deposit book moves within ~4 months with Fed, positioning IBTX to benefit in a cutting cycle; monitor indexed deposit share and customer retention .
  • Credit stable but vigilant: NPAs remain low and classified assets fell sharply; one CRE nonaccrual added; watch CRE market normalization and OREO disposal strategy impact on fees/expenses .
  • Expense discipline vs growth investments: Run-rate guided to $85–86M; new San Antonio branch opens Q1; monitor operating leverage as NIM rebuilds .
  • Funding optionality: Potential BTFP usage to reduce funding costs vs FHLB; watch liquidity strategy and maturities of brokered CDs (notably $1.3B maturing by end of May) .
  • Dividend maintained at $0.38/share, reflecting capital confidence despite margin pressure; capital ratios remain well above well-capitalized levels .

Notes: All quantitative figures and management commentary sourced from IBTX Q4 2023 8-K and earnings call; prior-quarter trends from Q3 and Q2 8-Ks and calls .