IBTX - Earnings call transcript Q2 2022 | Independent Bank Group, Inc.

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Operator

Greetings, and welcome to the Independent Bank Group Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paul Langdale, Executive Vice President of Investor Relations. you. Thank begin. may you Paul,

Paul Langdale

under you to Independent could morning, call our remarks the related subject Vice include everyone. David to Brooks, end Chairman of in Group and is and most this Executive Dan of the President slide it Safe the comments the is be several for statements. you today's and to Vice update X Paul will With I publicly of that earnings can quarter results, provisions call, statements call. we of presentation will today We made at statement press by forward-looking I in Page release. Harbor measures joined Development David. that, forward-looking the no and our or this to financial guidance release questions. we risks slide CEO; remind statement. note release results open beliefs directly ibtx.com. presentation morning Hickox, I am guidance appreciate I about Safe such for Those and At turn may the their GAAP Page Michelle are to you Corporate CFO. we included welcome are discuss statement Bank Reconciliations our Brooks, I of subject us. measures like statements. comparable to Langdale, Group’s SEC's financial remarks, call Executive Chairman; Strategy would second to the over and these statements to will would by during financial see President to Harbor our X be future the XXXX website that Please The All Vice like differ. expected joining that cause to a text measures management's are obligation to of that time the made to We Good non-GAAP on the if at Bank statement. earnings intend give assume be for uncertainties covered made, guidance. and In the rules. accessed considered Independent that David actual am and Please and

David Brooks

Thanks for Paul. and Good morning thanks the joining today. everyone call

will as to demographic For Colorado driven strong and and of continued we borrowers growth warehouse our growth the XX% earnings second type the color breakdown loan quarter, subsidy product exceptional adjusted and Texas as growth. impacts. for $X.XX well demand growth record economic loan share diluted by of additional and relationship This our per experience annualized on markets as excluding announced touch will was geographic on quarter, the from strong rates of Michelle across Dan mortgage PPP. provide the while some and

history we’ve downturns. whole and have teams support These them. substantial bank ever credit strongest is and exceptional and we’ve ensure turn long-standing infrastructure both guided in this culture our of a that growth greatly able producers credit the while opportunities the company to of of in through the in and maintaining fact. us attracted bench growth built this we to pursue years. have quarter seasoned talent our time, our lenders few new enhanced made have On though, investments result At also to the past developed lending record was our previous has over underneath we propelled direct same been producers had that Today, strong lenders lending by the have our

XX quarter in while yields. in basis of X.X% grew with points funding, base Net the of core X.XX% expanded interest our rise versus also deposit were successive by of we coupled Fed by loan During by income by a the resilience encouraged granularity our the to prior the hikes. the face the aided quarter NIM

and equity the quarter, philosophy to repurchase overview, common long-standing the us our results now of for over with returning addition, shareholders. the our consistent In detail for the with our excess markets during opportunity more million gave on volatility that stock to the the call shares over of to Michelle capital operating turn X.X quarter. And I'll

Michelle Hickox

that selected Good shows the David. Slide you, Thank morning, quarter. data everyone. for X financial Note

of the growth deposit which net our significant was loan $XXX NIM growth cost. $XX.X quarter. income excluding during liquidity was excess X.XX% purchase the This liquidity XX anticipated. sooner linked during million saw primarily This The Net quarter. to quarter, driven totaled of redeployment the linked interest increase $X.X basis was the share, accretion for $X.X quarter was million rise $X.XX increase quarter from million the by points the by adjusted over diluted from or in per than of quarter. linked which the Second increase slightly due increased loan an income from loan deployment million quarter, offset much and up of the significant

to sensitive, The as $X.X due continue to loss quarters. sheet rate of year-to-date $XX.X shows volumes was vertical Non-interest the income billion increase for the was in rising adversely and XX million Deposits over non-interest is a Total Slide million mix quarter which loans end, be warehouse to lower linked illustrates quarter benefits our as somewhat accounts increase mortgage versus has production as our deposit cash million presented common within $X Mortgage decrease expense a shows by company’s $XX.X compared offset decrease of common of second included expense. from remain XXst quarter. portfolio. in impacted equity Tangible million with That of I to quarter this quarter, to of balance target comments. treasury with in concludes was X.XX% sale the officer, one to executive cost. the the to XX. buyback second stock increase expenses Slide quarter. the March $XX.X reduced ratios for previous and during in end. asset specialty of our core ratio million of as totaled will quarter of an by our still on environment. consolidated expense, to the salaries discuss the $X.X on a termination the brokered revenues chart X.XX% are the increase elevated loan capital as of ratio by the These [ph] $X.X mostly While quarter. and due my seasonality slight and it insurance ratios QX. and stability Slide execution ratios levels the The Capital well our an loan at deposit the linked public and includes over total departure recruitment first are The XX.XX%. revenue Dan an well due for capital million change down funds. which totaled health acquiring XXX and is versus quarter. driven was capital change a banking deployment XX second million plan asset from equity on links turn $XXX,XXX of mortgage a at deposits The by coming sensitivity having tier

Daniel Brooks

end to excluding mortgage Thanks quarter linked held warehouse in the at billion purchase $XX $XX for loans investment quarter. Michelle. compared loans billion were Overall

in to Credit held changes quality the real than no XXXX, addition industry. $XXX.X Of of driven loans of total total and the loan in basis than new allowance assets on commitments or commitments new represents and new quarter, increased none this of X.XX% the to $XXX.X pressure in assets million $X.X CECL loans factors estate morning. primarily the credit the XX%, $X our by approximate decrease points third the charge call. new category well for Growth mortgage been had in energy property million for retail a during linked second last our about annualized mortgage of at quarter, of loans. for impact booked purchase loan are economic for the comments rate between upward single loans multifamily at related in which primarily million market volumes, respectively. lending of and offs residential mortgage prior annualized Excluding X.XX% of greater model for of for accounting due on nonperforming $XXX.X was remained that provision with XX%. warehouse billion or increased and portfolio Total an At by new totaled quarter. regions by the down X loans, quarter for investment largest their losses was over estate This the The There the all with These in lower four had held million demands, during during the accounted to of loan quarter in loan growth. quarter. more being mortgage categories and strong quarter expense the XX% XX, June million the loans resulting PPP investment healthy. from core at office decreased growth. the accounted excluding million, warehouse the more Average no decreased rates growth. offset the owned to shares distributed the growth to due real COVID-related real quarter I Houston discussed on markets estate one greater XX% our family Net majority is XX% end. at accounting C&I for in X was metrics times X% drivers production increased than across hold of than quarter's Geographically, with million $XX.X loans, loans shorter XX%, $XX.X

that, So back with to it I'll David. over turn

David Brooks

Dan. Thanks

the loan are to third in we moderate strong growth growth quarter. was the in our exceptionally quarter, While anticipating second

core for am our across strong achieving level in growth. the performance this, Texas we record and loan to loan to their XXXX. remainder grateful the expect Colorado at digit of for quarter I this Given single portfolio our grow high teams

as mentioned As as strong our across been is talent never organization it today. earlier, I the has

our infrastructure our to not teams but several Over we production have in and sustainable our ensure organization past in across the significant made growth. areas, the investments, years, only strengthen

and disciplined the we economies our to performance continue across Texas continuing and talented resilience forward the tailwinds companies new you we us bank since that these encouraged significant serve number of today. taking high IPO growth look and to relocate and and to to both Building by the strategy individuals the our of remain for road to exhibit in join execution pursuit ahead. as markets a the continue opportunities been Colorado. on has and time rapid of we markets, Looking Thank growth our hallmark a

We to line will now questions. Operator? the open

Operator

you. Thank

question with your proceed Instructions] Please Piper be will is conducting Sandler. from Brad a session. question. We now [Operator Our question-and-answer Milsaps with first

Brad Milsaps

Hey, good morning.

David Brooks

morning, Brad. Hey, good

Brad Milsaps

expansion. just nice Thanks looks core to start from It of some It I I a to wanted the points for taking quite loan of just was kind or guys there, you my question. change. looks margin, bit Michelle, X mix maybe like specifically you wanted kind maybe with know, were see yields. like so. your basis may be up around outlook what benefited

in think immediately. repriced the past for loans NIM of your that of going the and kind just you for I about maybe you've XX% what of that of mentioned kind kind talk means Can forward?

Michelle Hickox

is now, a would closer Yes, It loans Brad that of actually immediately. bit. increased reprice XX% that's to probably

return us. funding, will been Looking on where betas we have that beneficial on most likely at is needs they erring probably are and we we bit modeling for those been have normal given our XX% deposits. to so have can then continue levels, from that's to to loan historically, and lagged will tell XX% as that you expect those which our betas to closer growth liquidity, where a But

probably expansion of Our a we few modeling quarters. basis fourth that some third points will benefit, still shows and get

that be Of risk our be that there to the and could that higher course the risk is betas outlook would

David Brooks

loan basis Brad out rates the that's able XXX from start there. of points a yes are, been yields the we've push battle competitive to year. Obviously over Loan up

far good over to loans the a X% year. up have and so on We July that the to we expect in of go coming was strong continue average rate during

we'll that know we from to now. rate And knowing so what get the some said benefit environment and continue modeling indicates our as Michelle rising

Brad Milsaps

of Great. the growth follow And coming sort to term kind that, that's of a you'll a terms over Michelle, deposits and reached in? just of you peak the of bond sort just as that up portfolio near absent to in use fund any do think

Michelle Hickox

remained of Yes, the flat. have we end smaller this bond year, reinvest rolling in the quarter it’s probably remainder expect portfolio a discontinued we just of but given year. the the could growth the I flows by for will and loan the be We it bit cash

Brad Milsaps

in back hop Thank guys. you, great. Okay, queue. I'll

David Brooks

thanks, Brad. Hey,

Operator

Thank you.

Our next question is Please KBW. with proceed Gailey with from Brady question. your

Brady Gailey

Good Thank you. morning guys.

David Brooks

Brady. morning, Good

Brady Gailey

buyback thinking the great in buyback thoughts also active how you’re back you're year? for the half to on on quarter. the the It just of see Maybe was about the

David Brooks

our to that with Yes still pleased were low. repurchase actively have we opportunity we left were felt authorization Yes, some year. prices stock disproportionately at for we the

on our we'll going the year about think buying the the year probably be we’ll availability we we less way the a be I what's But it. back with of prices need active and given the I think second think the half for we it. if second a have now quarter. did in in lot of We little PPP still would in is

Brady Gailey

on next rate come estimate. expenses, of know if right. run you the expenses? at look I but kind non-recurring any heavier that out is thoughts that'll a all then of And forward came million than Okay, they $X.X quarter, my the little so

Michelle Hickox

has which that of I we has consistent higher Yes, others our I've kind health so been anticipated, claims. insurance some heard, post than just pandemic been think with running

original fourth some out that But year We bonus I if and we in quarter. not expense the made termination hires expense, and that recruitment pull our is having rate anticipated plan. had rest for third on that also that, non-recurring some our good said that the of opportunistic you for signing required think run production so team

Brady Gailey

Okay.

So, $XX million or so? around [ph]

Michelle Hickox

number probably maybe Yes, less little that, a use. a but than that's good to

points should your credit be is could from more be you close ex-warehouse, Okay, how all, percentage outlook so mean, great at going the it's but all And XXX your do flat basis we reserve as then I there now what’s is for still same think that, is ratio your the growth the at you some or think -- that here uncertain. ex-PPP, time, to clean look economic downside? the Is about should the reserve right. forward? fairly loan provision you

David Brooks

XXX I think dropped ratio down we'll continue. XXX, we said, the or that used Obviously as you range.

attention XXX I probably expecting good think That high digit going it to paying asset X our the single is, and range economy the to to anything about quality. is a broad is Brady forward think way we're given I think whatever X% the year. we're a And our growth our the think second way thinking our is, of provision growth X% for about of it. half loss back in kind planning we is to for good as the loan we're half about of think said

Brady Gailey

Okay, all guys. Thank you, right, great.

David Brooks

Hey, thanks, Brady.

Operator

you. Thank

with Our next Securities. Truist King question is your proceed from question. Please with Brandon

Brandon King

good morning. Hey,

David Brooks

Good morning, Brandon.

Brandon King

Good morning. Yes.

the better to in to So half deposit borrowings fund I growth wanted get for exceeds a the wondering of if sense of your back long is growth, or what to if use potentially capacity expectations and deposit growth was willingness year, your the growth? loan

Michelle Hickox

of this if significant a bit retail with do plan Yes, that the our deposits, treasury have we be to made our we grown specialty access in so year. those and to let access they that's quarter go last those capacity of can some of if preference. have run first more as borrowing and need plenty but to are needed off the deposits FHLB of the to, resort. we we that we'll so in growth our able loan plan fund they have, and deposits. We've expensive core We And where our and they have we teams was treasury at investments if sort you that our our in still we look teams not

So…

David Brooks

continue care going yes fund take whatever our us of level think continue to if our X%, I philosophy that X%, brand loans growing to our that leads would customers and growth. to our we to take clients be our and that markets will and markets. to is, We're of care or

Brandon King

things, quarter. growth in loan the side the increased of Okay. energy loan And

wanted think the markets customers of what I a your to get just you're So and where that year half could you go in the sense with second that segment? within of in your seeing

Daniel Brooks

second year. I'll Brandon, half is of expect Dan. in the Yes, the based one. this that continued take certainly growth We broad

had a and level, asset granular continuation was in at really If you high do in look The across just growth it production second diversified a was of markets. and at geography. strong we class our what the we the quarter, well

through same the year. expect we to go that half be second the We the as of

David Brooks

nice to Specifically year calls, well. part very of EMP others. relationships first from lending in really might or midstream we’ll had of we successful second traction traction that to on added energy at there made with you some as continue in in last We’ve and and a quarter. of the well, We a we previous officer well-established in expect bit the new the and a higher, been as the have note the seven little get senior lender through energy upstream Houston

know still the grow book. of the see are about and outstandings less out. you'll continue expect will some we year opportunities to do loan than I nice think is current our that which $XXX As to million, as that plays X%

Brandon King

my answering for thanks Okay, questions.

David Brooks

Hey, thanks Brandon.

Operator

Thank you.

Our with with next from comes Stephens. Olney your question question. Please Matt proceed

Matt Olney

thanks. going mortgage about the warehouse. morning. ask I Hey, Good was

balances which think Any underperformance below your little average the and the would I down some XX%, be of a the from XQ around what's outlook in were this color on here? quarter. peers bit

Daniel Brooks

Hey, well. take Matt, one this Dan, is as that I’ll

of flat the volume cases at be the just the hold we've flat own down balance play rates, year. many and We the as expect of year. that given the we expect to be, think Yes, it seen this continue in essentially to point, come out has to I be but our to as current for we environment

Matt Olney

year this that, And remarks and comparison on hold you're also or hold prepared from times, shorter flat average year these balances a from was balances? last then up times? period seeing you or that mentioned from follow shorter some your of to gave just And the end

David Brooks

Yes.

the than the in comparison and the second expected, retail year fourth quarter. more why Matt, second be has be also and balances for that balance we for soft, third year. last quarter. of that’s balance flat warehouse to the second used softer quarter, the of of both year, the retail income we our quarter balance been in So to and flat the through for down for to I the the terms is of expect to that average their that's yes, levels we But fee expect flat the a think mortgage be at And year,

Matt Olney

think prepared benefits as the come higher then got specific the you it. I as in liquidity as that analysis. Okay, you as more sensitivity, the of come rate levels excess as model also the as down have kind mentioned point far And interest shock rates that XXX basis the of far down, remarks anything

of I you in as XX preliminary far called numbers? think June you NII can March X% the XXst, growth for anything disclose as

Michelle Hickox

filing Q Yes, our we’re actually today.

I think is over X% that what there. little in it's we're reporting a

Matt Olney

the exceeds deposit Okay. the and the And, to Thanks half year, if becomes the back right? high that access clarify wholesale don't single far more something, guidance sounds mentioned funding for as plan expect to for as you the reality, Michelle. just that, But before, then like you that it of the digit, of getting I am markets. loan the a that growth Michelle,

Michelle Hickox

would specialty with outlook, Yes, fund our or I But and or go given exceed we we more advances. can brokered back core that where we treasury deposit if for we're FHLB we our customers. to think current have to access loan that might that get either growth, be use again, fair could it accurate guiding or

Matt Olney

thank guys. you, Okay,

David Brooks

Hey, thanks Matt.

Operator

James. with Rose Michael from comes question Please next proceed your Our question. Instructions] with Raymond [Operator

Michael Rose

good Hey, morning.

following of questions, your some to the loan ratio XX%. Just about is deposit up deposit on

it low comfortable good of XXs, you funds a like on a a public deposits past. the kind I be you but had start kind of based do a in the, You've of or the built in the bit verticals to historically XXX% the group, little in quarter. it higher little range these than uncomfortable? out is the growth around treasury would mean, some is the back get to Thanks. treasury? bit good this seasonal where to run headwind, where a Obviously you that know levels keep I you running just of high goal

David Brooks

Good morning, Michael.

rate for know us to it we range would I the said, to XX% be certainly of we at think strategy that road not loan ago, to a deposits. comfortable a it sustain that a XXX% bank XX%, We loan access as coming it's say the our a et would in believe but at of part funding and deposit of I feel it this way, That XX%, we normal rather, run the can the but is to a of loan to can we matter not much would curve down said more it liquidity strategy the core be cetera, don't higher We'd XX%, best is just -- what's tremendous deposit. run we our and more we deposit. around amounts have Michelle that XX%. if generally moment need with obviously economically

to core can deposit as invested, So keep around core we're we to deposits loan working side. XX%. Michelle hard going the treasury and we our We've think on that in ratio we're fund so it said, heavily deposit and with

Michael Rose

assets going at just Very to just this fall or are I cash to short is you about million after you point? where then have buyback, expect maybe $XX given a to think might this low the fairly helpful. point you left And you Would at that use quarter. back

David Brooks

certainly We have the cash.

kind this the because ratios I down bought our we coming it's were back the stock, more and capital quarter. watching of think what's much down economy little pike, so really bit a

the the I the year. are going trade. over the markets what's We markets happen of course in back expect to know going that build how don't to Again to and

just point in how to and year fund growth me So grow our have. would we hard already predict, little repurchased, ratios our our have we capital for the less given I toward but desire to would that have say back at to bias to our a be go buying stock this much it's this continue

second in -- be So to we it half on the certainly right like us activity now have the stock, it liquidity our little there'll that. repurchase looks but to

Michael Rose

credit here you moved for for the maybe next out just And on just that I is that OREO assume in is perfect. the that should Okay, me, marketed and of an us can OREO? give being property or commercial quarter so, this to fair? Dan, update be finally

Daniel Brooks

determine Yes, Michael. fully talked a non-performing of the asset the down the last timing loans working is on imminent have there potential other it saw a it non-performing quarter. that where that think say the always about It difficult that's slightly took to getting the the that for in credit. this I was but was that. up Yes, adequately and see would there's Obviously the reserved we're amount that there, in firm side sale Yes, was I sold just already of it you was for we call, particular on processing that, -- we was on charge building. the you leasing potential of of because nothing are or it the that.

know. expectation reduce year, our some We point, this think I numbers will half those what expect the here we of the back of as to which those in at that’s resolve

Michael Rose

all Perfect, thanks for questions. taking my

David Brooks

Hey, thanks Mike.

Operator

you. Thank

Our next Investor. Private question with your a Rabatin is question. proceed Please from Brett

Brett Rabatin

good. Hey, good It Michelle. sounds morning, you’re David,

David Brooks

Hey, good morning, Brett.

Michelle Hickox

Brett. Hi,

Brett Rabatin

competitive to think rate this something the that's and worried that thinking on rates as landscape? on fixed to planning you're about production [ph] wanted impression, floating how what’s additional sprite loan about on have production, and might ask then from we your just the here rate been hikes and I quarter, loans about relative making you're if

David Brooks

going the X%. far the we said, north in and so I during rapidly quarter put so loans as July Yes, were on of our Brett, have rates up been

sometimes all. I are good in about came trends and think be on bring pipeline, rate as days start average in that. pipeline we'll to the probably lag higher later Obviously along. on they'll quarter it's Xs-ish quarter, with at XX the right goes rates before not our loans float loans able those so always mid the there's the to your on a we and floating loans, project that and the And we're fixed effect came on working you that’s the in borrower second a concerned hair a continue a because rates, loans -- funding. XX think But increasing below to the

and about XXX? that the The we're with now and not yielding be loans, as Michelle Michelle but floating loan that's continues things commitments compression. But -- with dealing think said, to the that. is we're been So the worried like book about I itself challenge,

Michelle Hickox

XXX, close Yes, to that. XXX

David Brooks

XXX. Yes, so XXX,

than So XX, rate. our we're book bps higher than putting more XX on loans at

drive and to the off then, going and balancing as voiced funding. of NIM along few that basis yields we the we've a the each for with core of coming of goes And points loan that we're So think quarter Michelle year in increases obviously got generation deposits a the balance earlier year.

Brett Rabatin

Okay, that's hear. Good great to color.

side how if from adding less loan categories the environment. were people you you be folks space that. I'm talked about, might The risk other curious to for I given think credit inclined question the Class be of that David just there things guess trying forward, B like, thing, to a office figure have what to Brooks, see maybe might portfolio is some going a risk with recession look out lot like loops are and and any this core I looms, credit here and for aggressive

Daniel Brooks

I'll described that I earlier, in Dan. production this our Yes, diversified one. Yes, general, is think as take by is I asset always class.

that While you including classes, for book been suspect general, really back, I ones is the market. to that primarily keeping growth created more solid a all in us again, the and took we we of that That has that as on. really close have that regards downtown performed like the that office have we but in Obviously in may note well. even one space are is CRE don't in the concern buildings us do property have big places metros, book a office eye within asset banks,

that, assisted on an eye I living, we're space. So think beyond memory keeping care the

continued to has it lag. think I

challenging the that banks pandemic think even space. for I certainly active in who more that were very made

interested We have specific asset we're well. would say any know minor keeping I don't we're that, as be classes, on exposure in in would beyond But curtailing. that that there, I of but an eye --

credit I way to think always We're the time. that approach what be goes for that a Right? we the downturn. preparing just might all

Brett Rabatin

the Okay, great. appreciate all I color.

Daniel Brooks

Hey, thanks, Brett.

Operator

Thank time. further this any the you. like to There questions to back floor for over management are no turn I'd at comments. closing

David Brooks

Well thanks the this for joining morning. call

the great are but a was trends. the if macroeconomic our We’re developments we’re are where of the We are. continued excited we year kind alluding to watching the we anxiously with as about front, credit moment Dan optimistic about on happy, market ago very balance quality feel pleased the those performance of and about and

everyone you appreciate hope a good day. today have joining and I So Thanks.

Independent Bank (IBTX) 26 Jul 222022 Q2 Earnings call transcript