Independent Bank Group Q1 2024 Earnings Call Transcript

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Provided by Quartr
April 23, 2024

There are 10 speakers on the call.

Operator

Greetings, and welcome to the Independent Bank Group First Quarter 20 24 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I will now turn the call over to Ankita Puri, Executive Vice President and Chief Legal Officer.

Operator

Thank you. You may begin.

Speaker 1

Good morning, and welcome to the Independent Bank Group's Q1 2024 earnings call. We appreciate you joining us. The related earnings press release and investor presentation can be accessed on our website at ir.ifinancial.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.

Speaker 1

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 is a statement of management's beliefs at the time the statement is made, and we assume no obligation to publicly update guidance. In this call, we will discuss several financial measures considered to be non GAAP under the SEC's rules.

Speaker 1

Reconciliations of these financial measures to the most directly comparable GAAP financial measures are included in our release. I'm joined this morning by our Chairman and Chief Executive Officer, David Brooks our Vice Chairman, Dan Brooks and our Chief Financial Officer, Paul Langdell. At the end of their remarks, David will open the call to questions. And with that, I will turn it over to David.

Speaker 2

Thank you, Ankeeta. Good morning, everyone, and thanks for joining the call today. 1st quarter adjusted net income totaled $26,000,000 or $0.63 per diluted share compared to $25,500,000 or 0.62 dollars per diluted share in the linked quarter. While the abrupt reversal in the rate markets and the non interest bearing deposit trends early in the quarter delayed the inflection of our NIM and NII, we were pleased to see continued steady performance on our fee lines and maintain expense discipline during the quarter. Net funded loan growth was slow as payoffs rose during the quarter.

Speaker 2

Encouragingly, we saw $640,000,000 in new commitments in the first quarter and the pipelines remain healthy. That said, the slower pace of net growth this quarter allowed us to preferentially remix our liabilities and reduce borrowings to the lowest level in over a year. Going forward, we remain well positioned to capitalize on any rate cuts that might flat rate environment, we expect to continue expanding earning asset yields. We continue to observe strength in our asset quality indicators for the Q1 with 0 annualized net charge offs and low non performing assets of 0.34%. We've continued to reprice our earning assets upward with loan yields expanding by 10 basis points during the quarter while observing no material issues in our borrowers' ability to absorb these higher rates.

Speaker 2

As Dan will discuss in greater detail, our credit migration trends remained positive and the ratio of classified loans to bank capital stood at just 5.18 percent at quarter end, down from 5.74% in the linked quarter and 7.05% in the Q1 of 2023. Our key consolidated ratios grew in the Q1 with total capital ratio expanding by 11 basis points to 11.68 percent and the tangible common equity ratio expanding by 7 basis points to 7.62%. Consistent with our philosophy of providing consistent returns to our shareholders, our Board of Directors declared quarterly dividend of $0.38 per share payable to the holders of our common stock on May 16. Lastly, and perhaps most importantly, I'm excited announce that we opened our 1st full service branch in San Antonio, Texas market on March 6. Entering this market has been a key focus of our strategic plan and we opportunistically recruited a very highly thought of and talented team to serve as a beachhead there for our franchise.

Speaker 2

This first full service location will allow us to capitalize on a strong deposit and loan pipeline that we've already built in the market. And with that overview, I'll turn the call over to Paul to discuss the financials.

Speaker 3

Thanks, David, and good morning, everyone. Net income for the quarter was $24,200,000 or $0.58 per diluted share. Adjusted net income for the quarter was $26,000,000 or $0.63 per diluted share, which primarily excludes the impact of the 2 point $1,000,000 supplemental FDIC special assessment as well as a $345,000 OREO impairment related to a closed branch property that was disposed of in the Q1. As David mentioned, the NII and NIM inflection was delayed due to the abrupt reversal in rate markets experienced in February March, as well as greater than anticipated non interest bearing deposit attrition experienced in late January early February. While the NIM compressed by 7 basis points to 2.42 percent for the Q1, our spot NIM in March increased by 1 basis point from February and non interest bearing balances have stabilized on an average basis.

Speaker 3

Average non interest bearing balances month to date in April are $3,410,000,000 an increase from the March average of $3,350,000,000 Currently, our modeling indicates that if these trends remain stable, we should see the expected inflection of both NIM and NII in the second average loan balance going forward. We continue to maintain a significant liability sensitivity that will benefit our income statement in the event of rate cuts, but that should also stabilize our interest bearing deposit costs as the Fed holds rates constant. During the quarter, we further bolstered our liquidity position and reduced borrowings to the lowest level in over a year. Notably, we paid our FHLB liabilities down to 0 at quarter end and we were able to reduce broker deposits by $97,000,000 during the quarter as well. Our deposit pipelines remain robust and net growth in our core branch deposits will allow us to further optimize and manage our funding cost as we remain at the terminal rate.

Speaker 3

During the quarter, we recognized a $3,200,000 release in our CECL reserve, which was driven partly by a reduction in the size of our loan portfolio, a further decline in classified loans as well as an improvement in macroeconomic factors in the Moody's forecast. Adjusted non interest income was $12,800,000 in the Q1, an increase from $12,400,000 in the linked quarter. The increase was primarily driven by increases in mortgage banking revenue due to stronger mortgage production in the Q1. Adjusted non interest expense was $86,000,000 for the Q1, an increase from $83,800,000 in the linked quarter that was primarily driven by anticipated additions to salary and benefits expense due to annual compensation adjustments and merit awards. Going forward, we expect non interest expense to remain around $86,000,000 per quarter for the remainder of the year.

Speaker 3

As David mentioned, our consolidated risk weighted capital ratios improved over the linked quarter with the common equity Tier 1 capital ratio improving 2 basis points to 9.60 percent, the Tier 1 capital ratio improving 1 basis point to 9.94 percent and the total capital ratio improving 11 basis points to 11.68 percent. Additionally, our tangible common equity ratio improved by 7 basis points to 7.62%. These are all the comments I have today. So with that, I'll turn the call over to Dan.

Speaker 4

Thanks, Paul. Loans held for investment were $14,100,000,000 as of March 31, 2024, down $101,300,000 from the linked quarter. Growth was seasonally slow during the Q1 and payoffs rose to above average levels compared to totaling $640,000,000 in new commitments during the Q1. Average mortgage warehouse purchase loans were $455,700,000 for the quarter compared to $408,400,000 for the Q4 of 2023. Mortgage warehouse was supported during the quarter by higher borrower mortgage production driven by lower rates early in the quarter as well as recent exits and curtailment of the mortgage warehouse business of some of our competitors.

Speaker 4

While mortgage rates have begun to climb back up again alongside the broader rate markets, we expect to be able to continue to maintain these levels of average balances going forward. As David mentioned, asset quality metrics continue to remain very strong. Net charge offs were 0% annualized for the Q1 compared to 0.01% annualized in the linked quarter and 0.04% annualized in the Q1 of 2023. In addition, non performing assets remain low at 0.34% of total assets. We observed a further decline in classified assets during the quarter with classified loans representing just 5.18 percent of bank as of March 31, 2024.

Speaker 4

These are the lowest levels of classified loans to bank capital that we've experienced in over 15 years. We have managed our book with the same approach for the past 36 years with an eye toward conservatism and underwriting a focus on being nimble and proactive when risks emerge. We continue to be pleased with the performance of the portfolio, but as always, we remain both vigilant in our internal stress testing and watchful for emerging risks that may arise. These are all the comments I have related to the loan portfolio this morning. So with that, I'll turn it back over to David.

Speaker 2

Thanks, Dan. We remain very encouraged by the strength and resilience of our markets across Texas and Colorado, and we've been pleased to note growing demand for high quality business from our core customers. Looking ahead, we will remain strategically focused on the disciplined management of our expense base, optimization of our funding stack and the continued pursuit of 3rd cycle performance and healthy growth. We expect loan growth to remain slow with pipelines indicating that net growth in loan balances should gradually accelerate over the coming quarter. Notably, we have made strategic investments in C and I and SBA lenders that we expect to begin yielding new production in the second quarter, and we remain encouraged by our deposit production pipelines across all four of the metropolitan areas.

Speaker 2

Our entry into San Antonio market should additionally help spur production for both loans and deposits. We are fortunate to be in dynamic and growing markets with strong fundamentals. The demographic and macroeconomic tailwinds in Texas and Colorado continue to support our goal of running a high performance, purpose driven company dedicated to serving our customers and communities. I remain tremendously grateful to our teams who are working tirelessly to deepen existing relationships and win new business across our footprint every day. Thank you for taking the time to join us today.

Speaker 2

We'll now open the line to questions. Operator?

Operator

Thank you. The floor is now open for questions. Today's first question is coming from Brandon King of Chua Securities. Please go ahead.

Speaker 5

Hey, good morning. Thanks for taking my questions.

Speaker 4

Good morning, Brandon.

Speaker 5

So with the NIM and NII, like you mean pushed to the Q2, could you give us a sense of what the magnitude of expansion you're expecting throughout this year? Particularly in a stable rate environment? Sorry.

Speaker 3

Sure. I think I'll take you back to last quarter's call. We were really getting about 40 to 50 points basis points of pickup on broker deposit spreads. That coupled with the non interest bearing declines that we saw in the quarter really was what drove that NIM compression. We've seen non interest bearing balances come back actually not just stabilize, but increase in the month of March and really into April.

Speaker 3

Those balances are stable as of this morning. So given that, we should expect to notch some meaningful NIM expansion over the next few quarters as we continue to reprice expect earning asset yields to continue to expand at an accelerating pace and that with stable deposit costs should get us back to where close to where we expected to be at the end of the year

Speaker 2

on the last call. Okay.

Speaker 5

And so is the expectation that deposit costs have already peaked?

Speaker 3

Yes. And a couple of color on that, Brandon, just to clarify, we weren't able to run off some of the brokered funds and some of the excess liquidity that we were carrying on the balance sheet during the quarter. So average cash balances during the Q1 were a little higher than we'll be able to carry them in the 2nd quarter. And the broker deposits, the more expensive funding in the FHLB advances that we paid down, that came right at quarter end. So that should benefit us more meaningfully on the deposit cost side in the second quarter.

Speaker 5

Okay. Okay. And then lastly, loan growth sounds like it's trending a little slower for the year. How much of that are you expecting commercial real estate to contribute to loan growth this year just given concentration levels?

Speaker 2

That's a great question, Brandon. We did see a slight decline in average loan balances, as you know, or at quarter end loan balances, as you saw in the numbers. We still had strong production during the quarter and that was more balanced this quarter With C and I, particularly energy, is getting some traction right now with oil prices where they are. We're seeing a lot of companies picking up their drilling activities. And so seeing some nice demand there, companies advancing on their lines, etcetera, so increasing the funded debt there.

Speaker 2

And we expect that trend to continue actually into the year. We've been careful as we have made lending hires over the last 12 months, primarily focused on C and I broadly adding to our energy team, adding to our SBA team as well. And again, when I say SBA, I want to be careful to say that's a business line that we overlay in our markets and it's not we haven't embarked on a national SBA business or anything like that. It's just really beefing up the SBA team across our footprint in order to capture a bigger percentage of our customers in our markets. So with those efforts, Brandon, I think we'll see positive loan growth in the second quarter, probably low to mid single digits here in the Q1.

Speaker 2

And we think that picks up as the year goes along to maybe mid single digits. So something 3% to 5% this quarter and maybe 5% ish for the balance of the for the second half of the year. And we feel good about what's coming on in a much more balanced method. We also expect our deposits I think the overall numbers showed deposits declining, but those were wholesale and broker deposits that went out. We had core deposit growth in the Q1 and we expect that to continue and accelerate as year goes along.

Speaker 2

We've got really good trends in the pipeline on deposits and new deposit relationships along with the new loan relationships. So we expect deposits to actually grow at or in excess of the pace of our loan growth for the year.

Speaker 5

Got it. I'll hop back in the queue. Thanks for taking my questions.

Speaker 2

Hey, thanks, Brent.

Operator

Thank you. The next question is coming from Michael Rose of Raymond James. Please go ahead.

Speaker 6

Hey, good morning guys. Thanks for taking my questions. Just wanted to go back to the margin discussion. Good morning. I know you guys have talked about kind of around a 3% margin at the end of the year.

Speaker 6

That's a pretty steep ramp in the back half of the year. Paul, maybe if you can just give us some of the asset repricing dynamics, whether it be how much in loans are expected to mature this year and what the yield pickup could be and then kind of expectations on the deposit side. Just trying to figure out what are the puts and takes to getting back there. And if we don't get any cuts and we are higher for longer, particularly given it seems like a little bit slower loan growth, just how should we kind of reconcile that is that steep ramp that you guys are still anticipating? Thanks.

Speaker 3

Sure, Michael. Happy to give you some color around that. A couple of the big moving pieces, we really do see actually an acceleration in earning asset yield pickup. If you think about seasonality for our company, visavis the loans that are maturing, we have slower seasonality in the Q1 always. So I'd expect the second, 3rd and Q4, if you look at the year in which we had the originations that are now maturing to pick up in terms of our ability to reprice those earning assets upwards.

Speaker 3

From this point on through the remainder of the year, we had $640,000,000 of net new commitments in the sorry, in gross new commitments in the Q1, I'd expect that pace to pick up over the remainder of the year. And so I think you're going to be able to price those up reliably 300 basis points on average. That's going to help really be the tailwind that helps the NIM expansion for the remainder of the year. The wild card is our ability to manage non interest bearing balances. On the interest bearing side, we have the ability to really manage those deposit costs a little bit more nimbly with slower net growth and the additional payoffs and paydowns that we're going to have for the remainder of the year, we did see a higher pace of payoffs in Q1.

Speaker 3

That's going to give us breathing room to manage those deposit costs down. As I said earlier in response to an earlier question, at the end of the quarter, we really were able to take some of those deposit costs down. And so we'll get the benefit of that in the Q2, which should help kind of kick start us a little bit as we walk through the next three quarters.

Speaker 6

Okay, that's helpful. And then I know you guys have talked about kind of a longer term end of 2025 margin outlook that was even higher than what you end the year kind of in the 3.55 to 3.65 range. But how does that change in a higher for longer rate environment? Does that get pushed out? And I know it's hard to guess on timing, but you do have a fixed asset repricing story.

Speaker 6

So just trying to understand if that's still what you guys are thinking if we don't get any rate cuts over time? Thanks.

Speaker 3

Sure. I mean, obviously, spreads will still be very attractive at higher rates. As we think about repricing risk in the portfolio, we've really firmly established our ability to pass through higher rates to our customers and we've been very disciplined about how we price our loans. So I would expect that even in a higher for longer environment, we're going to be able to get meaningful uplift on the earning asset yields to help offset some of that lack of rate cuts versus when we gave the last forecast. That said, I think it's a little bit of a longer road back to the historical NIM that we've had, but it's not going to push it out so far into the future to where we're not going to get back there and maybe the end of 2025 being in that historical $350,000,000 range, I'd say that gets pushed out to $26,000,000 In a higher for longer.

Speaker 3

In a higher for longer.

Speaker 6

Yes, helpful. And maybe just last one for me, just following up on loan growth. I know some of it is just what the market will give you and you guys definitely pulled back from kind of the higher growth days and I think very prudently and I think that speaks for your asset quality performance. But as we think about the intermediate term, just given that you have San Antonio coming online, David, you mentioned adding some folks in C and I and SBA, pipeline is healthy, as you mentioned in the release. What do you think the kind of the intermediate term loan growth for IBTX is, is it kind of a $20,000,000,000 asset bank?

Speaker 6

Hopefully, once we get past whatever slowdown we're going to have here, just how should we think about conceptually the loan growth engine at IBTX

Speaker 5

moving forward? Yes.

Speaker 2

I think in a healthy economy and healthy market, where rates stabilize wherever they're going to be, Michael, we're still 8% to 10% growth company organically in the markets we're in especially with San Antonio coming on and picking up a new pipeline there. And that's we picked up a really strong team from a C and I focused bank and we're seeing a lot of traction there early. We had discussed doing an LPO at first and just getting going, but the demand is so good, the quality the and also a very balanced deposit, core deposit and core loan growth possibility there in San Antonio. So we're bullish on San Antonio. We've always liked that market.

Speaker 2

We were hoping to acquire Intuit over the years and just haven't there's some really terrific banks there, but we just haven't found the right timing on that yet. But in the meantime, we had a chance to get a really good team with a good balance C and I and real estate outlook.

Speaker 6

Great. Thanks for taking my questions.

Speaker 7

Hey, thanks, Michael.

Operator

Thank you. The next question is coming from Catherine Mealor of KBW. Please go ahead.

Speaker 8

Thanks. Good morning.

Speaker 2

Hey, good morning, Catherine.

Speaker 8

Another question on the margin. Can we just zero in on loan yield? You saw a nice increase, I think about 10 basis points on loan yields this past quarter. How do we just think about the repricing? I know you talked about average earning asset yields moving higher throughout the year no matter what the right environment does.

Speaker 8

Is there any way to quantify, is this kind of 10 basis points a quarter pace, something that's realistic to model in this kind of static rate environment? And then how does that kind of change with rate cuts as well?

Speaker 3

Based on what we're seeing in terms of maturities and if payoffs remain at the same level they did in Q1, I would expect that to be a little bit higher, Catherine. We do have some nice tailwind of chunky earning assets repricing that will price up at a slightly higher spread. I think that's going to position us well for really notching that NIM expansion that earning asset yield is going to help drive it.

Speaker 2

Also Catherine, this is David. Also, the fact that loans were down slightly in the Q1 versus what we expect going forward will also give some tailwind to that overall margin expansion. Yes, we feel like 10 basis points is the floor and that should accelerate through the year. And that's how I believe Michael was asking earlier that's how we can get back to a materially higher run rate NIM by the end of the Q4.

Speaker 8

Okay, that's great. And then how much in a I know you talked about deposit cost stabilizing and maybe even coming down just because of the broker deposit dynamic and maybe if non interest bearing deposits remain at higher balances as we move through next quarter. But is there a way to quantify just kind of if rates don't move, so just kind of higher for longer scenario, where you think are the deposit costs could stabilize to? If we're coming down, do we kind of moderate where would you say your deposit costs kind of moderate before we start to get the impact of cuts?

Speaker 3

I think we given the deposit pipelines we have as well as some of the growth initiatives we have out in the field, we've seen some robust production at lower rates than where our brokered funding is. So I think there's some meaningful upside, Catherine, on our ability to control deposit costs. Hard to quantify exactly what that looks like just because we need to see that production come in from the field first to have that confidence in our ability to get deposits down deposit costs down. But I do believe that there's some upside there.

Speaker 8

Okay. And could you just one more follow-up on that. Could you comment on where incremental deposit costs are coming in? What the rate is of that?

Speaker 3

Sure. We have products our most popular products are priced between $380,000,000 and about 5%. So all in that blended rate is much lower than where our brokered funding is.

Speaker 8

Great. Okay, that's helpful. Okay, thank you for the follow-up.

Operator

Thank you. The next question is coming from Stephen Scouten of Piper Sandler. Please go ahead.

Speaker 7

Hey, good morning, everyone. I guess I was curious first, you've talked a little bit about investments to be made not to be not so concentrated in CRE and you talked about the C and I and SBA. I guess as you think about those teams over the next year or 2, how much more do you need to scale those up? And kind of what do you envision that being as a percentage of the balance sheet? Or kind of what are the aspirational goals there for growth?

Speaker 3

Well, Stephen, to be clear, we've already had an SBA vertical. So we are scaled up and we are working in SBA. It's embedded with our teams across Texas and Colorado. We just see opportunity to continue to grow that. So where we see payback on those investments, it comes very quickly when we hire SBA lenders.

Speaker 3

With C and I, there's a little bit longer of a ramp. I'd probably say it takes about a year to really get a portfolio fully up to speed in terms of the production that we'd expect to see. That said, we're investing very opportunistically where we have the opportunity to notch early wins on the C and I space. And I think that I'll also point you to owner occupied commercial real estate. If I look at the loan production report over the last quarter, we've had really nice production and owner occupied commercial real estate.

Speaker 3

And I would expect that to continue over the course of the second second quarter. So I think we're being very careful in how we make investments because we don't want too long of a ramp. We want to be able to see results relatively quickly to have that accountability that we need to really hit that growth target that we've set for ourselves.

Speaker 2

Stephen, I would add on to that, that we have because of our expense discipline and focus on controlling the things that we can control, we have self funded, if you will, this mix shift as we've had some real estate focused lenders choose different career paths. We've taken those dollars and reinvest them on the commercial side. So it's not been I don't want to leave the mix shift as we move investments that that is coming in a mix shift as we move investments around across markets, across teams where we had opportunities to add team members, where someone else has departed, we've added back on the commercial side.

Speaker 3

And that's a great point, David. Just to underscore, we do expect the non interest

Speaker 7

yes. Good point of clarification. Appreciate that.

Speaker 5

And I would say, David, in my view, you sounded

Speaker 7

a little more constructive around the thoughts of M and A over the last couple of quarters. How does this dynamic around the higher for longer environment, maybe a longer path to traditional profitability. How does that impact your view there? Does that become more of like a late 2025, early 2026 sort of conversation at this point in time?

Speaker 2

That's hard to tell. My broad view hasn't changed, Stephen, in terms of that I think this industry is going to consolidate and that all of the macro factors point that direction. I think the long term rates staying higher for longer and the long term rates shifting up as well over the last quarter is not helpful to the discussions, but I do believe there are a lot of thoughtful discussions going on across our space, whether it's community banks, regional banks, and even the super regional banks, just a lot of discussions around what types of partnerships and what types of pairings make sense as you look forward. So we're certainly a part of always a part of downstream discussions and other types of M and A activity. But it is a tough environment.

Speaker 2

And yes, I mean, your guess is as good as mine is when the environment is going to get better. It would be nice if we got a downshift in rates here, but we're not as we've talked about this morning, we're controlling what we control and that is booking high quality business in our markets, growing our core deposits, keeping our ability to remix those deposits as best we can as we grow and doing the things we control and the rest of this will work out when the time is right.

Speaker 7

Yes, makes sense. And maybe just last follow-up for me going back to the NIM conversation. My one maybe point of confusion I guess is we were talking about like a 3% NIM by Q4 'twenty four last quarter, but I think the curve at the time maybe was showing 8 to 10 cuts potentially. Now we're looking at 3 to 4, but think we can still get there. So is the ramp really not dependent upon lower rates in your view?

Speaker 7

Or has there been another change that kind of helps you to get there irrespective of that change in the forward curve and expectations?

Speaker 3

The ramp is slower at higher rates, but we still get back to where we expect to be. And I don't think we'll quite get to that 3% by the end of 2024. But that said, Stephen, if you think about spreads, we do expect that spreads will remain relatively constant in our modeling. So even though we would get that benefit on deposit costs that will come quicker in a down rate environment, we still are going to be able to notch the meaningful expansion from that earning asset reprice. So the variability between those two scenarios, it's not as wide of a range as you'd expect when you look at the modeling on paper.

Speaker 3

Even in a flat rate environment, we're going to have some meaningful NIM expansion.

Speaker 7

Yes, very helpful. All right, great. Thanks guys. Appreciate the time. Thanks, Steve.

Operator

The next question is coming from Matt Olney of Stephens. Please go ahead.

Speaker 9

Hey, thanks. Good morning. Maybe just following up on that good morning. Just following up on Stephen's last question there. Any change in the bank's interest rate sensitivity projections?

Speaker 9

I think back in January, we moved to incrementally more liabilities sensitive. Any material changes from then?

Speaker 3

No, I'd say that the liability sensitivity remains. One thing that has changed a little bit, Matt, is as we paid off some of those short duration brokered funds at the end of the quarter, that probably kicked us a notch back toward neutral, but, not meaningful.

Speaker 9

Okay. So Paul, you're saying still liability sensitive, but maybe not as much as you were in the Q4. Is that right?

Speaker 2

Correct.

Speaker 4

Correct.

Speaker 9

Okay. That's helpful. And then I guess going back to Catherine's question around deposit costs stabilizing in the near term, I think we're just trying to get more comfortable with this outlook since we did see deposit costs move up 20 bps this past quarter. And I get a lot of that is going to be on non risk bearing deposits stabilizing. And Paul, you gave us some great details around the spot balances for NIBs.

Speaker 9

Do you happen to have the spot deposit cost that we can compare to the Q1 average or just additional color on deposit cost by month in the Q1? Just any other details that can get us more comfortable with that.

Speaker 3

Hard to pin down an exact spot deposit cost on a daily basis, Matt. But what I will say is that where we have seen rate exception requests in the Q1, we haven't seen those really recurring in the Q2. Where we have the ability to negotiate price a little bit more aggressively in March April that we didn't have in February rate market. I think it was, a little bit of depositor behavior that factored into it. As everyone was pricing in those cuts, people were trying to reach for yield.

Speaker 3

But as it became looking like it was going to be higher for longer, than it's been a more rational negotiation with folks on rate. The big key though for us, Matt, as I mentioned earlier, is going to be that production in the field and our ability to really grow those core deposits. And that's where we see the traction and that's what gives us that incremental confidence that we're going to be able to manage those costs down because really it's about running off that wholesale funding that bears the highest cost. Anything that we book in the field is going to be a positive spread to that. It's going to

Speaker 2

be helpful for us.

Speaker 9

Okay. Appreciate that, Paul. And then just lastly for me on the mortgage warehouse, it sounds like some of your competitors have stepped back and opened up a little opportunity for you guys. Just any more color behind that? And I think you mentioned kind of maintaining these current balances.

Speaker 9

Did I capture that right?

Speaker 2

Yes. Matt, good morning. This is Dan. I'll take that one. We do expect the balances that we have enjoyed here for the last 90 days or last two quarters to continue to be at that level.

Speaker 2

In fact, if you think about it, we're headed into the spring summer season here. So there's kind of a normal pickup beyond what happens in

Speaker 4

the Q1. There was a

Speaker 2

bit of a bump when the mortgage rates dropped right at the beginning of the year, but we've actually seen ours hold and accelerate again because the consumer seems to become more comfortable with the higher rates and we have seen competitors continue to exit this and that gives us plenty of confidence that our book will hold and certainly at these levels maybe be up a little bit in the next quarter.

Speaker 9

Okay, perfect. Thanks guys.

Speaker 2

Hey, thanks Matt.

Operator

Thank you. At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Speaker 2

Thank you. I appreciate everyone joining today. We feel, as you heard, incrementally encouraged about the NIM having bottomed out. We did have a slight increase in March and expecting a slight increase in April here in our NIM run rate. So we were encouraged about that.

Speaker 2

And broadly, as you've heard, the credit quality is as good as it's been in 15 years here. So we're encouraged by that and encouraged by what we see in the pipeline both on deposits and loans. So we're looking for a good Q2 and hope everyone has a great day.

Operator

Ladies and gentlemen, this concludes today's event. You may disconnect your lines and log off the webcast at this time and enjoy the rest of your day.

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Earnings Conference Call
Independent Bank Group Q1 2024
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