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Independent Bank Group, Inc (IBTX)

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Independent Bank Group, Inc. (IBTX)

Q2 2019 Earnings Conference Call

July 23, 2019 8:30 a.m. ET

Company Participants

Paul Langdale - VP and IR Officer

David Brooks - Chairman, CEO and President

Dan Brooks - VC and Chief Risk Officer

Michelle Hickox - EVP and CFO

Conference Call Participants

Brady Gailey - KBW

Brad Milsaps - Sandler O'Neill

Brett Rabatin - Piper Jaffray

Michael Rose - Raymond James

Matt Olney - Stevens, Inc.

Brandon King - SunTrust Robinson Humphrey

Presentation

Operator

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

I would now like to introduce your host for this conference call, Mr. Paul Langdale. You may begin, sir.

Paul Langdale

Good morning, everyone. I am Paul Langdale, Vice President and Investor Relations Officer for Independent Bank Group, and I would like to welcome you to the Independent Bank Group second quarter 2019 earnings call. We appreciate you joining us. The related earnings press release and a slide presentation can be accessed on our Web site 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 five of the text in the release or page two 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, CEO and President; Dan Brooks, our 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 turn it over to David.

David Brooks

Thank you, Paul. Good morning, everyone. I will briefly touch on some of the highlights for the quarter, and then Michelle will cover the operating results, and Dan will discuss the loan portfolio. I will be back at the end with some closing remarks, and we will open it up for questions.

Independent Bank Group had a solid second quarter. We continue to report healthy earnings with an adjusted EPS of $1.22 per share and adjusted return on average assets of 1.47% for the quarter.

We have continued to see results from our positive growth efforts, and we had good, little bit more moderate organic loan growth during the quarter. We had strong growth in mortgage warehouse, energy lending in one to four family held for investment with CRE loans decreasing as a percentage of total loans.

We successfully completed the operational convergence of Guaranty last month, and our teams did a great job ensuring the process went smoothly. We expect to recognize the full benefits of this acquisition during the second-half of this year.

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

Michelle Hickox

Thank you, David. Good morning, everyone. Please note that slide five of the presentation includes selected financial data for the quarter. Our second quarter adjusted net income was $52.9 million or $1.22 for diluted share, compared with $32.2 million or $1.11 per diluted share for the second quarter last year, and $52 million or $1.19 per diluted share for the linked quarter. As you can see on slide five, net interest income increased to $129.6 million in the second quarter from $78.9 million in the second quarter 2018, and $121.7 million in the linked quarter.

The net interest margin was 4.11%, up six basis points from the previous quarter at 4.05%. Excluding accretion related to the Guaranty acquisition, the NIM would have been 3.72% for the quarter, compared to 3.82% in the linked quarter. This decrease is primarily related to the growth in the mortgage warehouse portfolio, which are significantly lower yields than another ones held for investment. The adjusted yields on NIM net of accretion decreased from 5.17% in Q1 to 5.11% this quarter. The NIM was also impacted by increased liquidity, lower security yields, and increased deposit cost.

Total non-interest income was $16.2 million compared to $10.1 million in the second quarter of 2019, and $16.4 million in the linked quarter. The decrease of $225,000 from the first quarter of 2019 is primarily due to a decrease of $1.2 million in other non-interest income, which is partially offset by increases of $303,000 in wealth management and trust services, and $609,000 in mortgage banking revenue.

Mortgage warehouse fee income also increased approximately $330,000 from the first quarter. The decrease in other non-interest income is primarily due to the decrease in acquired loan recoveries during the second quarter 2019 from $1.3 million to $258,000. Total non-interest expense was $78 million, a decrease of $8.6 million from the linked quarter. This includes $6 million of expenses related to the Guaranty acquisition as well as a $988,000 impairment taken on former branch locations that were closed as part of our branch realignment strategy. We also had approximately $400,000 of cost related to our re-branding and expenses related to our headquarter relocation.

Read the rest of this transcript on seekingalpha.com