Independent Bank Group, Inc (IBTX)

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Independent Bank Group, Inc. (IBTX)

Q1 2019 Earnings Conference Call

April 23, 2019 8:30 AM ET

Company Participants

Mark Haynie - Executive Vice President & General Counsel

David Brooks - Chairman & Chief Executive Officer

Michelle Hickox - Executive Vice President & Chief Financial Officer

Dan Brooks - Vice Chairman & Chief Risk Officer

Conference Call Participants

Brandon King - SunTrust

Michael Rose - Raymond James

Brett Rabatin - Piper Jaffray

Matt Olney - Stevens



Good day, ladies and gentlemen, and welcome to the Independent Bank's First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. And later, we will conduct the question-and-answer session and instructions will follow at that time. [Operator Instructions]

I would now like to turn the conference over to Mr. Mark Haynie. You may begin.

Mark Haynie

Good morning. I am Mark Haynie, Executive Vice President and General Counsel for Independent Bank Group, and I would like to welcome you to the Independent Bank Group first quarter 2019 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.

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 the 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 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 release.

I am joined this morning by David Brooks, our Chairman and CEO; Dan Brooks, Vice Chairman and Chief Risk Officer; and Michelle Hickox, Executive Vice President and CFO. At the end of their remarks, David will open the call to questions.

With that, I'll turn it over to David.

David Brooks

Thank you Mark. Good morning everyone. We appreciate you joining us for today's call. Independent Bank is off to a strong start in 2019. We closed the Guaranty acquisition on January 1 and our first quarter results reflect the beginnings of the value of this premium Colorado franchise adds to our company.

We continue to report solid earnings with adjusted EPS of $1.19 per share and adjusted return on average assets of 1.51% for the quarter. Organic loan growth is 7.2% annualized, reflects sustained demand for loans in the markets we serve as well as our conservative credit culture and efforts to reduce our CRE concentration over time.

Our teams are focused on ensuring the continued smooth integration of the Guaranty acquisition with the conversion scheduled for June. As part of this integration process, we announced a strategic realignment of our branch footprint and we remain positive about the opportunity to realize synergies with our expanded presence in the Colorado market.

Now Michelle will provide some additional details on the operating results for the quarter.

Michelle Hickox

Thank you David. Good morning. Please note that slide 5 of the presentation includes selected financial data for the quarter. Our first quarter adjusted net income was $52 million or $1.19 per diluted share, compared with $29.2 million or $1.03 per diluted share for the first quarter last year and $34.1 million or $1.12 per diluted share for the linked-quarter.

As you can see on slide 7, net interest income increased to $121.7 million from $74 million in the first quarter 2019 and $87.1 million in the linked-quarter. The net interest margin improved to 4.05%, up 7 basis points from the previous quarter at 3.98%. The NIM was impacted by several things this quarter including lower yields on assets and cost on deposits from Guaranty as well as accretion recognized on the acquired loan portfolio related to the purchase accounting adjustments due to interest rates. A total of $6.9 million was recognized, which impacted the NIM by 23 basis points.

In addition, we adjusted the way we account for deferred loans fees and costs to be consistent across our footprint. While we estimate this change reduced our reported loan yields by 10 basis points, it did not significantly impact net income. Excluding accretion related to the Guaranty acquisition, interest rate mark the NIM would have been 3.82% for the quarter.

Total non-interest income was $16.4 million compared to $9.5 million in the first quarter of 2018 and $9.9 million in the fourth quarter. We added revenue from Guaranty's wealth management and trust services of $2.2 million, which are new lines of business for us. The remaining increase is primarily due to increases in service charges, early income and other fees due to the Guaranty acquisition.

Mortgage revenue was a $3.1 million this quarter versus $3.4 million in the linked-quarter and was negatively impacted by hedging loss $369,000 in the first quarter versus a gain of $394,000 last quarter.

Total non-interest expense was $86.6 million in the first quarter. This includes $19.2 million of acquisition expenses primarily related to the Guaranty deal, a large portion of which consists of $3.2 million in severance and retention bonus payments and $8.7 million in change control payments. The remaining increase from the linked-quarter is primarily related to Guaranty including a $1.7 million increase in amortization of core deposit intangibles.

Read the rest of this transcript on seekingalpha.com