Independent Bank Group, Inc. (NASDAQ:IBTX) Q3 2023 Earnings Call Transcript

Paul Langdale: Yes. And I’ll just note Brandon, really during the third quarter that push for the loan to deposit ratio to come down, that was a real deliberate strategy that we employed to trade a little bit of earnings for some balance sheet strength, which we think positions us very nicely to capitalize on the growth opportunities that we’ve seen. We feel really comfortable with where the loan to deposit ratio, is right now and we feel very comfortable with where the balance sheet is right now. We think it gives us a lot of optionality at this point in the cycle.

Brandon King: Okay. I’ll hop back in the queue. Thanks for taking my questions.

David Brooks: Thank you.

Operator: Thank you. [Operator Instructions] Our next question is coming from Matt Olney from Stephens. Your line is now live.

Matt Olney: Hi. Thanks. Good morning, guys.

David Brooks: Good morning, Matt.

Matt Olney: On the margin – Paul, you gave us some good commentary about some tailwinds for the margin throughout the quarter. I think you mentioned some better loan growth at the end of 3Q and some better loan resets, over the last few weeks of 3Q. Do you happen to have that margin by month in the third quarter just to help us get more comfortable with that margin is stabilizing – even more so in the fourth quarter?

Paul Langdale: Yes, the margin, I don’t have the numbers right in front of me, Matt. But I will tell you that the margin went up from August to September, so we did see a little bit of expansion intra-quarter.

Matt Olney: Okay. That’s great. That’s what I was looking for. And then what about – a lot of commentary on the margin, what about the NII, any – anything unique there as we think about our forecasts, or should have followed the margin as far as being stable in the fourth quarter and then expanding early next year?

Paul Langdale: I think given where we’re holding cash levels, I’d expect NII and margin to be correlated pretty much. Obviously that will depend on the magnitude of balance sheet growth we get. We do – we do certainly expect NII to be stable in the fourth quarter and then to see some expansion in 2024 and throughout 2024.

Matt Olney: Okay. Great. And then on the deposit costs, you mentioned that’s obviously the big – variable here. Those deposit costs went up a little bit more than I was expecting in 3Q and a little bit more than we’ve seen in our peers. Any more commentary on kind of what we just saw in the third quarter? And remind us of your deposits that are indexed, that have automatic resets if the Fed moves, any commentary on that as we think about forecast for next year?

Paul Langdale: Yes, absolutely. A couple – notes on deposit costs from the third quarter primarily flipping from borrowings into deposits, obviously increased deposit costs more than it otherwise would have. But again, we were – pretty deliberate about reducing those borrowings. So, I think on an aggregate, when you look at funding costs while we did see. We did take a little bit more expense to pursue that balance sheet strength. We’re comfortable with the position that we have. As it pertains to index deposits, we’ve been much more deliberate about that this cycle. We have $3 billion to $4 billion of indexed deposits that will move immediately with the Fed. We would expect to be able to move rates pretty quickly if the Fed cuts. So in any scenario where you see Fed cuts in ’24 that’s going to materially help us in terms of the income statement, NII and NIM.

Matt Olney: Okay. And Paul that last point was kind of my follow-up there. Maybe you expand on that as far as kind of the – ideal scenario for Independent Bank’s margin NIIs with respect to the Fed next year with what’s – lots of variables out there, but what do you prefer to see?