Earnings call: Independent Bank Group reports Q3 earnings, anticipates NIM expansion in 2024

Independent Bank Group (NASDAQ:) reported third quarter earnings of $32.8 million, or $0.79 per share, with a healthy annualized core loan growth of 4.5%. The bank also noted a decrease in the loan to deposit ratio to 92.7% at the end of the quarter, while deposit costs rose due to the Federal Reserve’s rate hike. Despite these changes, the company remains optimistic about its commercial real estate portfolio and expects net interest margin (NIM) to stabilize in Q4 2023 and begin expanding in Q1 2024.

Key takeaways from the earnings call include:

• Non-interest expenses declined to $81.3 million while fee income remained stable.
• The bank’s credit metrics remained strong, with low nonperforming assets and net charge-offs.
• The Tier-1 capital ratio stood at a healthy 10.21%.
• Core loans increased by $154.7 million in the quarter, indicating strong credit quality.
• The bank anticipates expenses to be held flat at $83 million to $84 million in the near term.

During the earnings call, Paul Langdale, an executive at Independent Bank (NASDAQ:), highlighted the increase in loan yield in Q3 and expected further expansion in Q4. Langdale also stated that the bank expects the rate of change in loan yields to continue through 2024. He expressed confidence in maintaining a loan-to-deposit ratio of 93% and growing deposits and loans at equal rates in the mid-single digits.

Langdale also discussed the correlation between net interest income (NII) and margin, stating that given the bank’s cash levels, he expects NII to be stable in Q4 and see expansion in 2024. He noted that deposit costs increased in Q3 due to a shift from borrowings to deposits but stated that the bank is comfortable with its funding costs.

The bank has $3-4 billion of indexed deposits that will move immediately with the Federal Reserve, allowing for quick rate adjustments. In terms of the Fed’s impact on the bank’s margin and NII, Langdale expressed optimism that rate cuts in 2024 would be beneficial to Independent Bank. The executives emphasized their focus on positioning the bank to weather any macroeconomic conditions and expressed confidence in the bank’s growth prospects.

The company also expressed confidence in its commercial real estate portfolio, citing strong NOI growth and adherence to its core philosophy. They anticipate an increase in margin in 2024 due to higher loan yields and stable deposit and funding costs. The magnitude of the margin upside will depend on external factors such as interest rates. The company expects $2-3 billion of repricing activity in 2024 and predicts loan pricing to average in the high 7s, compared to around 4-4.5 for rolled-off loans. They also mentioned stability in noninterest-bearing deposits in Q4 and expressed confidence in their ability to win business in a competitive environment. There were no downgrades in the office book this quarter, and there are no plans for a bond portfolio restructuring. The company expects the warehouse balances to remain flat in 2024.

According to recent data from InvestingPro, Independent Bank’s market cap stands at $1.480 billion and its P/E ratio is 21.6. The company’s revenue for LTM2023.Q2 was $575.9 million, with a negative revenue growth of -2.49 %. The bank’s dividend yield for Y2023.D298 is 4.25 %, and it has raised its dividend for 10 consecutive years, as noted in InvestingPro Tips. However, it’s worth noting that the company’s stock has fared poorly over the last month, with a 1 month price total return of -12.61 %.

InvestingPro Tips also reveal that the company has been experiencing a declining trend in earnings per share, and 3 analysts have revised their earnings downwards for the upcoming period. Despite these challenges, the company’s executives remain confident in its growth prospects and its ability to navigate the changing economic landscape. For more in-depth insights and tips, consider checking out InvestingPro’s premium services.

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