Independent Bank Group, Inc (IBTX)

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Independent Bank Group, Inc. (IBTX)

Q4 2017 Results Earnings Conference Call

January 30, 2018, 08:30 AM ET


James Tippit - Head of Corporate Responsibility

David Brooks - Chairman, President and Chief Executive Officer

Michelle Hickox - Chief Financial Officer

Dan Brooks - Vice Chairman and Chief Risk Officer


Brady Gailey - Keefe, Bruyette & Woods, Inc.

Samuel Ross - Evercore Group L.L.C.

Matt Olney - Stephens Inc.

Michael Rose - Raymond James

Brett Rabatin - Piper Jaffray

Brad Milsaps - Sandler O'Neill + Partners, L.P.

Michael Young - SunTrust Robinson Humphrey

Brian Zabora - Hovde Group



Good day, ladies and gentlemen, and welcome to the Independent Bank Group fourth-quarter 2017 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference is being recorded.

I would now like to hand the floor over to James Tippit, Head of Corporate Responsibility.

James Tippit

Good morning, everyone. I am James Tippit, Head of Corporate Responsibility for Independent Bank Group, and I would like to welcome you to the Independent Bank Group fourth-quarter earnings call. We appreciate you joining us.

The related earnings press release and a slide presentation can be accessed on our website at ibtx.com.

Before we get started, I would like to remind you that remarks made today may include forward-looking statements. Those statements are subject to risks and uncertainties that could cause actual and expected results to differ.

We intend such statements to be covered by Safe Harbor provisions for forward-looking statements. Please see page 5 of text in the release or page 2 of the slide presentation for our Safe Harbor statement. All comments made during today's call are subject to that Safe Harbor statement.

Please note that if we give guidance about future results, that guidance will be only a statement of management's beliefs at the time the statement is made and we do not publicly update guidance.

In this call, we will discuss a number of financial measures considered to be non-GAAP under the SEC's rules. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are included in our releases.

And I am joined this morning by David Brooks, our Chairman and CEO; Dan Brooks, our Vice Chairman and Chief Risk Officer; and Michelle Hickox, our CFO.

At the end of their remarks, we will open the call to questions.

With that, I will turn it over to David.

David Brooks

Thanks, James. Good morning, everyone, and thank you for joining us today. As usual, I will briefly touch on some highlights for the quarter, then Michelle will cover the operating results and Dan is with us again this morning to provide color on the loan portfolio.

2017 was a good year for the bank. We reported record annual earnings and profitability with ROA trending to 1.15% for the fourth quarter. Fourth-quarter adjusted net income was $25.3 million and represents a 63% increase in adjusted earnings from the fourth quarter 2016.

A quarterly earnings and annual print chart is on page 6 of the slide deck.

Organic loan growth returned to anticipated levels for the quarter and, overall, we had another solid year of loan growth at 12.2% of year-end 2016 loan balances.

We successfully closed and converted the Carlile acquisition, which expanded our footprint into Fort Worth and into the Colorado front range markets. We continue to see improvement in our efficiency ratio as integration continues.

The announced acquisition of Integrity Bancshares is another step forward for our company. This transaction expands our footprint into the Houston market and is expected to be accretive to earnings with minimal dilution to tangible book value.

Houston has been a key contributor to our growth over the past year and increasing our branch and employee network there is a big positive.

Finally, we completed a successful primary, secondary equity offering and a subordinated debt issuance, following that. The proceeds from these offerings have enhanced our capital levels both on a consolidated basis and at the bank.

This additional capital will support future growth and improves our CRE concentration levels.

Now, let me turn it over to Michelle to provide details on the operating results for the quarter.

Michelle Hickox

Thank you, David, and good morning, everyone. Please note that slide five of the presentation includes selected financial data for the quarter.

Our fourth-quarter adjusted net income was $25.3 million or $0.90 per diluted share compared to $15.5 million or $0.83 per diluted share for the fourth quarter of last year and to $24.8 million or $0.89 per diluted share for the linked quarter.

As you can see on slide seven, net interest income increased to $75.3 million in the fourth quarter from $46.5 million in the fourth quarter 2016 and from $72.9 million for the third quarter of 2017.

The net interest margin improved to 3.97% for the quarter, up 12 basis points from the previous quarter, which was 3.85%.

The adjusted margin, net of acquired loan accretion, was 3.84% compared to 3.8% in the third quarter. Accretion from acquired loans was approximately $2.5 million this quarter compared to $905,000 in the linked quarter.

There were several unexpected payoffs of acquired loans during the quarter. Average loan yields for the quarter, net of accretion income, were 4.95%, which is consistent with the third quarter yields.

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