Q4 2019 Earnings Call
Greetings welcome to independent Bank Group fourth quarter 2019 earnings call. At this time, all participants are in listen only mode.
She didn't answer session will follow the foreign presentation.
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I'll now turn the conference over to your host Paula <unk>, Vice President Investor Relations. Thank you you may begin.
Morning, everyone, Hi, Paul Langdale, Senior Vice President and director of corporate development for Independent Bank Group and I would like to welcome you to the independent Bank Group fourth quarter 2019 earnings call. We appreciate you joining us.
Related earnings press release in a slide presentation can be accessed on our website at <unk> Dot 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 we 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.
Note that if we give guidance about future results that guidance will only be 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 the number of financial measures considered to be non GAPP under the Fccs rules reconciliations of these financial measures to the most directly comparable GAAP financial measures are included in our release.
I'm joined this morning by David Brooks, Our Chairman CEO , and President band Brooks, Our Vice Chairman and Chief Risk Officer, and Michelle Hickox Executive Vice President and CFO at the end up their remarks, David well open the call the questions with that I'll turn it over to David.
Thank you Paul good morning, everyone and thanks for joining us today.
As always I will touch on some highlights for the quarter Sheldon cover the operating results and Dan is here to covered loan portfolio I look back at the end of closing remarks, and do open it up for questions.
I teams you other solid year continued great financial performance for independent Bank group.
Strong finish to the year fourth quarter adjusted earnings per share of $1.32. Adjusted return on average assets of 1.49% and adjusted return on tangible equity of 18 point, 32%.
Dropped 2019, we executed on our strategy of discipline healthy growth.
We organically grow deposits by 10.4% for the year, which is reflective of our commitment to maintain a granular funding base and continue to minimize the pressure on our net interest margin.
Again, if loan growth was 4.8% for 29 team, which was impacted by elevated pay off in the fourth quarter as investors. So she every assets to take advantage of low cap rates.
Despite this headwind the amount.
Total new loans funded in the fourth quarter was 11.7% higher than the linked quarter.
It shows that across our footprint our teams continue to source quality credits, while maintaining the same conservative underwriting standards them, yet that has served us well over these last three decades.
I'll now turn call over Michelle more detailed in operating results for the core.
Thank you David Good morning, everyone. Please note that slide six of the presentation include selected financial data for the quarter.
Our first quarter adjusted net income was 56.8 million or dollar 32 per diluted share compared with 34.1 million or $1.12 per diluted share for the fourth quarter last year, and 57.8 million or $1.35 per diluted share for the linked quarter.
As you can see on slide eight net interest income was 128.1 million in the fourth quarter up from 87.1 million in the fourth quarter 2018, and up from 125.4 million in linked quarter.
The net interest margin was 3.81% for the fourth quarter compared to 3.84% for the linked quarter and 3.98% fourth quarter last year.
And then excluding all purchase loan accretion decreased five basis points from 3.54% in the linked quarter to 3.49% primarily due to continued pressure on loan yield driven that competition and the continued depression of longer term index right.
Total noninterest income was 18.3 million compared to 9.9 million in the fourth quarter of 2018, and 27.3 million in the linked quarter recall that we sold two loan pools in a branch in July that generated gains of 8.3 million in Q3 and insulated noninterest income.
The remaining decrease is primarily related to mortgage banking income with an offset for a gain of one point threemillion on the sale of our trust business.
Total non interest expense was 80.3 million for the fourth quarter, an increase of 3.4 million from the linked quarter.
The increase is due to higher FDIC insurance at 3.1 million, four and a half million in salaries and benefits and 1.1 million in legal and professional fees.
The increases were offset by decrease in acquisition related expenses of 4.2 million and impairments at 1.2 million.
Salaries and benefit expenses were elevated due to separation costs and an executive team member of 3 million and incentive compensation related to deposit growth of approximately 700000.
Legal expense for the bank of Houston lawsuit, we are defending accelerated to 1.2 million this quarter.
We expect comparable cost in Q1 and that it will trend lower the remainder of 2020.
In addition, we incurred consulting expenses related to their compliance project of 300000 in the fourth quarter that project should be completed first quarter with expected remaining cost of approximately $600000.
Slide 18 shows our deposit composition in cost total deposits were 11.9 billion as of December 31st 2019.
Organic deposit growth was 213.5 million or 7.2% annualized for the quarter, and 1.1 billion or 10.4% year over year period.
The average cost of interest bearing deposits was 141 basis points down five basis points from the fourth quarter 2018, and down 15 basis points from the linked quarter.
We continue to evaluate pricing our deposit products and have lowered rates strategically.
Market rates have flattened a bit since November , but we continue to get benefit from maturities at higher cost special products renewing at lower rates.
That concludes my comments I'll now turn it over to Dan to discuss credit metrics and get some color on their own portfolio.
Thanks, Michelle good morning.
Organic loan growth was 505 point threemillion or 4.8% for the year ended December 31st 2019.
Overall loans held for investment not including mortgage warehouse purchase loans were 10.9 billion at December 31st 2019, compared to 7.7 billion at December 31st 2018.
Slide 11 illustrates standing alone growth comparisons.
Slide 12 shows the composition of our loan portfolio and our commercial real estate portfolio.
As of December 31st 2019, commercial real estate makes up 50.4% of loans, which has declined from 51.0% in the linked quarter.
Theory continues to be well diversified.
Types of collateral with larger segments and office and retail.
Slide 13 further breaks down the retail theory portfolio by property type.
Mortgage warehouse purchase loans averaged $575.0 million for the quarter ended December 31st 2019, compared to 434.1 million for the quarter ending.
September 32019, representing an increase of approximately 140.8 million or 32.4% for the quarter.
This growth, partly reflects seasonality and the impact of lower mortgage loan rates during the quarter as well as our focus on growing this line of business this year.
Asset quality metrics remained strong.
Total nonperforming assets were 31.5 million, 4.21% total assets at December 31st 2009 thing.
This is a slight increase compared to the total nonperforming assets to 18.4 million, 4.12% of total assets at September 32019.
Which is primarily due to a 14.5 million dollar commercial energy loan that has matured in is pending workout.
Offset by a partial write down in subsequent sale of 1.5 million of Oreo that was a former branch.
Overall charge offs remained low at 0.2% annualized for fourth quarter compared to point to 1% annualized in the linked quarter.
Good 0.1% annualized in the fourth quarter 2018.
Provision for loan loss expense was one point sixmillion for the fourth quarter, a decrease of 3.6 million over the linked quarter due to continued strong asset quality as well as more moderated loan growth.
These are all the comments I had related to the loan portfolio. This morning, so with that I'll turn it back over to David.
Thanks, Dan We began 29 p. by closing on the acquisition of guaranteed Bancorp, we had a successful integration and conversion and our Colorado market has proven to be every bit is strong in terms of growth in qualities are types markets. We ended 2019 by announcing a transformational merger of equals.
Texas Capital Bancshares, and we've begun the hard work and planning for the integration of our two highly complementary franchises.
Excited for the opportunities as merger brings for our shareholders customers employees and communities.
Slide 2021 will provide you an update on the progress that has been made to date as well as some milestones for the deal.
Our teams continue to work toward a mid year close.
Meanwhile, we haven't taken right off the ball dropped 29 team, we continue to organically grow our balance sheet without compromising on our condemned to credit quality.
This disciplined execution by our strategy and focus on performance allowed us to enhance shareholder value last year through operating two reporting a strong, Norway and orally disciplined share repurchases and an increase dividends.
As we begin 2020, we're focused on planning our merger of equals with Texas capital while continue to execute.
In our four great markets across Texas and Colorado.
We are grateful to our customers employees and communities. We may 2019, another great year, French Bank group and you look 40 carrying that momentum into 2020 as we embark on a new chapter.
Our company's history with that we'll open the call to questions.
Thank you if he would like to ask a question. Please press star one on your telephone keypad confirmation total indicate your line is in the question Kim.
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For participants using speaker equipment, it may be necessary to pick up handset before pressing the star. He is our first question is from.
Todd Milsaps of Piper Sadler. Please proceed.
Hey, good morning.
Hey, good morning, Brad Brad.
David It sounds like you had a really good loan production in the quarter. However, you know you got hit by some some big pay offs. Just curious if you could give us a little more color on sort of the dollar amount of the payoffs and and how that makes you feel about you know sort of your loan growth prospects out for 2020.
Yes, Brad Thanks, Good question we.
Our loan generation production was 10% up for the quarter for the fourth quarter versus the third quarter in terms of new loans, we booked but our payoffs were $120 million in excess of what they were in the.
Third quarter so.
Our we'd put on a we put on.
A $50 million more loans in the fourth what did you give a third but we had 120 million more pay off so not a.
Minus 70 million because of the access pay off so all that to say.
Our loan losses, or you are hustle and they're doing a great job building customer relationships expanding customer relationships.
And we're encouraged we've been around the Dan and I have been around to all the markets already just this quarter.
Speaking people not only talking about the merger, but talking about you know the need to continue to do in strong business here in this interim period in and our loan officers and our leadership across all of our markets are very positive.
Optimistic about where we are.
There's a.
Lot of those payoffs Brad were related to say old assets, Yeah, I kind of looking at how the payoffs picked up in the second half of the year.
I don't have any data to my my hunch is that.
That.
When rates turn back down unexpectedly and that pushed cap rates back down on some of these industrial somebody investment real estate.
Yeah owners investors some families decided that gosh you know at these cap rates, we better think again about weather.
Want to sell some of these assets and and so we saw a lot of asset sale. There was a little bit of your refinanced going on.
A couple of the national banks.
Deciding that market share in attractive markets and doing so by competing with your range that we don't consider to be market rates and things.
Things like that but mostly it was just asset sales Brett.
Got it still comfortable that was up mid single digit type type growth.
Yes, I think five 6% as we've been talking to our folks here.
The last a few weeks just looking at the pipelines looking at your deals that we've got in under consideration and already approved ready to close we think by 6% still really good number for this year.
Okay, Great and then Michele just to.
A follow up on the margin obviously, a couple of moving parts. You know your your accretion was just under 11 million. This quarter I'm also a bigger warehouse quarter for you guys, which can can hurt the NAND, a little bit but accretive to dollars kind of curious with all those kind of moving parts kind of how you're thinking about the core and reported NIM over the next couple of quarters.
And yes, I'm still outlet, yes from the normal accretion attending in I'm still saying anything about 7 million again that differential comes from pay offs and we can't always predict that so you know obviously it could be higher than that again, but I don't expect that at this point you know weve done a really good job of bringing down to.
Posit rate you saw those came down significantly.
And that really since November does have flattened the bid.
Our still getting some benefit from repricing at some of that specials that we put out there last year and that's you know significant reduction in cost on those that I would tell you that our deposit costs at least since November have not turned it down at the same rate that they did you know in October and November .
Loan pricing is competitive.
But it after looking at the January yield that was it not come down they significantly as they did in the fourth quarter. So you know kind of saying all that I would call for you know a stable to maybe down a few basis points and then you know at least in the near term.
Okay, great all back into queue. Thank you guys.
Hey, thanks.
Our next question is from Michael Young with Suntrust Robinson Humphrey. Please proceed.
Hey, Thanks, good morning.
Good morning, Mike.
One to just ask a quick follow up on the pay downs you kind of mentioned.
Particularly some money center banks getting involved but could you maybe just characterize it geographically if there's been any more concentrations of payoffs or paydowns in certain markets.
I think the payoffs have been really across the entire footprint, Michael we've not seen in that I specific stage or market than sir.
We have seen just from a high level.
Its interest of.
Yeah, some of the bigger companies expanding their their market doesn't they'd been public about it I wanted to increase their market share in these markets that are growing and it was this something you face for 30 132 years now that we happened to be in great markets and continue to increase our presence in great.
Markets and no surprise, it's rather people want to be and so we're going to continue to see that you know and we think the demographic trends the great trends favor.
Dallas Fort Worth Austin, Houston, San Antonio in Denver, and.
So we're going to they see that no surprise.
Okay.
Maybe just switching over to expenses.
Yes.
There was a little bit noise in the expense base this quarter.
Related to some of the merger pieces and then some other moving parts, but just wondering on a core basis going forward should we expect the expense base, maybe a little higher you done preparation ahead of the Texas capital deal. If you guys are getting anything done on your side or should we really think goes it's been space kind of with normal growth history.
Sure, we are tracking at 47% efficiency ratio or whatever.
Yes, we should use there.
Yes, if you look at Q4 sort of the what I would call. The adjusted expense base is around $70 million and that included some additional expenses related to that a lot of things that we've been talking about this year has really accelerated we know what we thought those expenses only about half a million at four they were 1.2 million. This.
Corridor and based on what we know there will be about that in Q1 and and then we also have it that the I say project easing some consultants to help us with.
300000 in the fourth quarter it'll be about 600000. This quarter. So I think our expenses will be that the same in Q1, they couldn't be upbeat and just a bit from that just sort of normal you know errol payroll tax expenses, and that's sort of things always come in higher in the first quarter and then to 70 million dollar or run rate is probably good for Q.
Hey.
Okay, so more stable not not expecting inflation cut off that number.
No I don't think so.
Hi, Thanks, so somebody.
Thanks, Michael.
Our next question is from Brady Gailey with KBW. Please proceed.
Yeah. Thanks, good morning, guys.
Great.
So it back to the long grew up in the five 6% once TCB eye is in the mix do you think that a loan growth level will stay about the same or will it will it change from that level.
Well I think for the regional banking franchise, which is kind of the terminology reusing for the legacy or independent franchise, the I'd be T. S.
Regional banking model I think it's going to that were safe there.
In fact, we intend to expand and add new teams and I'm going to be go into San Antonio.
Via this merger and.
So we're we're encouraged actually weaken.
Our teams and step up that way you know in in post merger for the regional Bank.
But the other the middle market and corporate in some of the business lines and verticals at Texas capital.
We believe we're very encouraged about their growth prospects as well.
In terms of the overall Corporation Brady you know a lot of that's going to come down to what the what the final business mixes and and how we put together. The go forward a business model and so that will inform a little bit what that growth rate is but you [noise] from high level, we're going to be a great company Brady that's one of the things as we.
One of the objectives as we are building out. This go for a business model is that we're in great markets.
We should be able to grow we're gonna grow whether its five 6% or 810% or what those numbers aren't we didn't get more clarity.
Once we have the once we can paint roadmap to exactly where we're going over the next two years going I think we can give better.
No guidance or not guidance, but wasn't listing I didn't say guidance [laughter], but yeah, we'll be able to give a clearer picture of what we think about the great prospects look at pro for from a company once we get a little more clarity about exactly what that looks like.
All right that's helpful.
David I have the your year end 2020 tangible book value with TCB I had about 40 Bucks that puts your stock at 1.3 times tangible.
Which doesn't seem right for a company that's doing a high teens a return on tangible common equity.
So my question is on buyback your stock is notably an expensive I know the buyback can be talk when you have a deal pending but is there a the opportunity you guys to buy back stock before the TCB ideal closes and if not you have to stock States is cheap post closing do you think you'll be.
Active on the buyback.
Well I will agree with you Brady that we think the stock prices dislocated, but I don't have a Phd in whatever you have to have the figure that out so I'm not going to.
Speculate on on the exactly why that is we.
We remain extremely confident in our model extremely confident in what we told the market regarding this merger and what the performance of our company is gonna be you know in the short and mid term.
That said, yes, we have a a policies you know uptake the excess capital and returning it to the shareholders via dividends and a buyback program and so.
Yeah. That's part of this whole equation Brady is we think about the go forward company.
Depending on what the pro forma sizes of the company once we close on the transaction get everything adjusted when you want to do over the next six to 18 months.
I do expect if there's going to be some significant cash flow coming off the combined organization that can be used for stock buybacks and to the extent that our balance sheet is slightly smaller that would also free up capital and and as you alluded to.
These kinds of prices, we've never seen our stock trade.
These kinds of your perspective multiples and we'll be very aggressive and ER in.
Acquiring back our stock and so I don't think right now during the interim period Brady, while we got a regular for applications have all been filed we're working with FCC on.
On those regulatory filings and and you know I don't I think it would be disruptive if we tried to you know.
[noise] do a lot of stock buybacks that would affect our pro forma capital ratios right now that we've put into the into the models and into the applications. So I don't I don't expect we're gonna be real aggressive between now and gene in buying back our our stock, but Oh gosh again.
There are scenarios, where yeah, we would have sticking with that but right now I think the mark will sort all this out we're very confident in that and what we what we can do and we talked about this internally Brady is we can build the model people are excited about the pro forma company.
And we can before and as we Didnt fourth quarter as we'll do in the first quarter.
And second quarter, we're going to continue to perform and and as we execute and perform in show investors and our.
Customer Gander employees, you know, what everything's going to look like as a combined company.
Really young people will I understand and see the value of the transaction.
All right and then finally from me.
Just a question on the T. cpis credit quality, but I'd be GXS not very.
Clean story, a you know for years.
I think one of the concerns that investors up with the mergers just other credit quality of Texas capital you know we saw impurities there.
Increase a decent amount when they reported earnings last week. So good can you just you know again talk to US about how you got comfortable with Tcs credit and you know anything that you any additional work or things that you've learned in the last.
Month or two post deal announcement.
Let me, let me give a high level you view of that Brady minimal, let Dan speak to some specifics around the due diligence process, but.
We.
The numbers that you saw that were in the announcement we're numbers those increases our September thirtyth through December 31st we were doing our due diligence in November in early December on that portfolio. So we we haven't really good handle on.
Where they were and what they had marked and what they were experiencing.
To the extent that we were seeing that information as part of the diligence. So we are not surprised I guess some start with that we are not surprise.
Yeah, there was a tick up in in some of those categories.
But we we feel like you we've got a good handle on what that exposure is and where it's going in and I'll, let Dan give some color commentary on that but.
Yeah, no up to add to that David or I would say the.
The due diligence process that we went through certainly confirmed that they are working hard to.
Assess their portfolio constantly that they're a understand what their risks are in are appropriately.
Grading those and so I don't think as David said I don't think there's any surprise in that and I think they're managing that accordingly.
Yeah, there yeah, there's going to continue to manage.
We have a lot of competence in their leadership there they're gonna have to you to manage their credit appropriately between now and the merger and we believe we've got to handle at high level like what the overall exposure than risk of both our portfolio in their portfolio is and we are very confident looking at you know seasonal reserves and looking at the mall.
Mark on the portfolios going for that at the merger there will be plenty of reserve there are still being appropriate reserve there for the amount of risk in the combined.
All right got it thanks to the color guys.
Okay. Thanks, great.
Our next question is from Michael Rose with Raymond James. Please proceed.
Hey, good morning, just wanted to touch on deposits Michel I think you mentioned that deposit costs have been relatively flat here, but you have some cities that are kind of coming do you remind us the amount.
That is coming due over next couple of quarters, and maybe what the what the cost us. Thanks.
Oh I don't have the exact number and then Dollarss Michael that he remember you know we had seven vessels that we went out last year, you know first quarter that we're paying to 65 to T 70, and if that is renewed our current rate on that is like 150. So it is significant drop in cost.
Relative to where they are and we are still strategically looking at a you know some of our money market Index Fund and you know trying to strategically lower some of those costs for VR is it mark at the fed not lowering rates and our the outlook is that they're not going to lower rate and seminar competitor.
Errors and have pets and more significant Reits out there again I'm not across the board that in certain markets. You know we have gotten from feedback that you know people had been trying to gather deposits.
So it's it's been a little more challenging lowering their rates at the same significance that we were able to in October and November , but I still expected our cost of funds is going to come down a bit this quarter.
Okay. That's helpful. Maybe as a follow up TCB I rolled out a new online deposit platform you know last week or you guys going to participate in that before the deal closes is there any plans to do that or is just going to happen naturally wants to once the acquisition closes.
Yes, correct.
Michael were they rolled out there bass bank at project were.
But.
Theres no crossover no ability for us.
Participate in that feeling this interim period and Oh, we're excited about having a digital platform for account opening and in really all the possibilities of that across small businesses and account opening.
And and how that plays with our branch.
Banks or branch network issues are part of what we're in discussions now.
Talking about how we can utilize that across our 90.
Four branches that we're bringing to the merger and but I think the technology is good and something that would be vital to us in today's Ed.
Okay, and maybe a one final one for me can you just give a little bit more color on the energy credit.
And I know, it's a small piece of the portfolio at this point, but as you know you have to levels like what the classified and criticized.
Our in that book and would you expect anymore issues you over the next couple of quarters. Thanks.
Yeah, Michael vis a credit has been a long time classified credit was part of the credits books or some five six years ago and a it's been effectively in a longer term workout situation for a couple of years now so no surprise on that.
Actually continuing to collect payments on it but that was matured at the end of the quarter, we chose to leave it that way as the borrower continues to.
Pursue a sales assets, which is currently what they're doing or potential mezz refinery.
Either which would take care of the debt, but no surprise in that so there's no migration that credit in that sense. Other than it was just over 90 days. It ended the quarter as it relates to the rest of the portfolio continues to be really good as we spoke to before the group out of Fort worth the energy team that we hired in.
Over a year ago had a really nice year in 2019, we really were able to cherry pick some of the best energy credits out there and I'm sure like the way those look even in today's environment. So.
No continued a deterioration or migration expected in the portfolio.
Alright, Thanks for taking my question.
Thanks, Mike Michael.
Our next question is from not only with Stephens. Please proceed hey, thanks, good morning, guys.
Good morning, Matt.
I want to go back to the discussion around the stock buyback and thinking more longer term, David what do you view as the minimum capital threshold [noise].
For a bank that's closing in on on 50 billion hours of assets, and specifically which capital ratio.
With the bank the most focused on over the next few years. Thanks.
I think we'll continue to look up Brady yet yeah tangible equity capital from just a base level and then on risk adjusted total capital risk adjusted as the other kind of lever.
We look at most of the time and yes.
Hey, due to put a floor anything on it at this point, Matt a lot of that just depends on what the business model looks like you know and what we perceive the risk to be in the volatility.
Our objective is to put together a.
Hi, performing.
Strong efficiency ratio strong return on tangible equity company, that's growing but growing yeah with strong risk parameters as we habit you independent over the years. So that's the go forward model and and what that capital ratio looks like.
We'll determine but you know.
Eight and a half person is what we've been saying on a tangible equity here the last.
Yeah last.
Your t. as kind of what we feel comfortable with as a target long term and 11 and a half 12% on the total risk base and so I don't see anything at this point that would change my mind about those numbers.
I reserve the I. I strongly reserve the right to to change that up or down depending on what the pro forma business model is flushed out finally to be.
Uh huh.
Your point that you need let me just reemphasize as to your point, we're gonna be we you tend to continue that dividend or even though I know teach you guys not historically paid a dividend we're going to continue that dividend our board will always be working and be inclined to try to increase that dividend overtime based upon their earnings of the company and then and to be.
Aggressive and came case I wasn't clear my previous answer we will be very aggressive within the constraints of capital in earnings on buying back our stock, especially when it's trading at these kind of breast.
Okay understood and then David you you've mentioned a few times, you're putting together the go forward business model and year to come to the market what that at some point.
Is there a timeline of expectations you want provide today as far as.
Wait when the investment community will hear more about this go for plant.
No I think we've said Matt will do it absolutely as quickly as we can we're working hard on it VR is you might imagine our employees a both companies are anxious to know what that model looks like it out affects everyone.
And then obviously investors as well and so is absolutely quickly as we can just too early to say what any specific timelines on that so we're working on it and we will be very communicative as quickly as we can be.
Okay. Thanks, guys.
Yeah. Thanks, Matt.
As reminder, star run on your telephone keypad, if he would like to ask a question. Our next question is from.
<unk> Patel with Evercore ISI. Please proceed.
Right. Thanks.
So your NIM was around three anyone.
Next is capitals NIM to 95 this quarter.
So just using sort of a weighted average degree you know combine them off 320 I'm going from there. You know you started you stated you know your NIM would be down you know stable to down to bids.
Texas Capital's 2020, NIM outlook of three or five to 15 implies some improvements on the fourth quarter level. So you have that dynamic going on and then you know post the deal close you will eliminate the accretion that's tied to guarantee bancorp, but you wouldn't have additional accretion from you know the 195 million related to non PC D.
And to 37 million don't make mark.
Let's assume you know that's accreted over five years. So that's around 11 12 million of quarterly accretion. That's 10 Bips off you know per quarter accretion. So I'm just trying to get a sense for the first full quarter post the deal close is it fair to think about the NIM starting point of around 25 is that fair assessment.
I think it's way too early.
Honestly for us to a to be able to give an indication on that a lot of that depends of course, a part of what's what.
Believe Texas capital pointed to in the fourth quarter was you know the size and the growth in that mortgage business, which.
Was partly to push down the the NIM and you know and again all these things as we look forward.
What the relative size of that mortgage business, which Texas capital I believe is indicated they expect just the normal attrition that down to a more normal level and lot of it depends on what that normal level is and and then what other businesses, we choose to focus on which ones we deemphasize.
And so I I, just don't I don't think we could give any color and I wouldn't feel confident to show you know I don't know yeah. I mean, I think that I think the way you're thinking about it all the parts that make it up that doesn't make sense that they're you know there's too many unknowns at this point together prediction on what what the NIM would be at that point.
I didn't hear yeah. There is that there's a credit adjustment in cease all that will come back into income, but we do expect that there'll also be a right mark that will come back into it and that work place. Our current right Mark and I didn't hear you say that said that might be something else you need to think about.
Okay.
Then just on the expense basis, so a fourth quarter expenses came in higher than what you expect it I mean, what do you had guided to so just annualizing that $70 million gonna get to 80 number or the deal closes you know midyear. So you have 50% off Texas Capital's annual base off you know what out let's say, 50% of that is like 20.
Number. So you are starting from a 600, it's levels for the full year.
$50 million, you know cost saves realize in second half of this year.
So is it is it reasonable to think about the full year 20 expense days off around 550 million.
Yeah, I don't I can't really answer that right now either I think that I think that protection the model included.
25 million of cost savings this year for the second half of it here.
Okay.
All right. Thank you.
That.
Oh I do have one file a follow up question from my 20 young with Suntrust. Please proceed.
Hey, just wanted to ask me one Big picture question I'm on just the overall you know kind of pro forma company, you were pretty explicit and a pro forma EPS accretion intangible book value accretion of as was the balance sheet size, but then you've kind of talked about some some flow.
The way sons, and some of the business lines et cetera. So is there anything that you could give that would provide a little more confidence and some of those initial projections or should we think about some volatility in both the businesses and really just stay focused on the profitability level. The pro forma company just trying to gauge that.
Yeah, Great question, Michael we are the tangible book value accretion is a mathematical certainty you know when we close and we do the stock exchange that will create that tangible book value that we've talked about so I think you start there.
And.
You know so if there's concern about whether that's gonna materialize or not I'm not really sure I understand that.
In terms of how we get the earnings accretion.
Partially related to the cost saves, which again, we have a great deal competence and being able to achieve those what we've announced and then you and then the business models. We've been talking about this morning go forward any that's really what what you're talking about Michael is you know what point can we give some confidence in.
And around what the earnings and the growth in the margins you're going to be on this go forward you emerge balance sheet.
And I will tell you I.
Im extremely pleased when we look at the go forward leadership team has been hard at work now for you know five weeks or you know.
Meeting and talking and everyone is focused about.
I've been very impressed that the leadership of the team starting at the board level to the executive level and then you down from there the team he put together in this integration management office.
Our all focus.
Almost exclusively on this go forward entity and to be able to rally to pretty different.
Companies in terms of business model.
Them together so quickly.
Focused on what are all the great things, we can accomplish by putting these two together and the go forward model I think is going to turn out to be pretty unique when we look back at this overtime. So basket confidence that you're hearing US Express in you know we feel really good about where we are it's early and there's some work to do.
Okay and lot of tough decisions to make.
But you know as we've said all along we are willing to make the hard decisions that are no.
Sacred cows, if you will and he goes pick on cows, but.
There are no there are no assumptions from our previous business model other than we're going to keep serving the customers of Texas and Colorado.
Five of the seven to 10 best markets in the country.
And we're going to do it in a way that's that's a safe and sound.
You mentioned the volatility that's one of the objectives in the go for business, while we talked about which is to bring down the volatility of of earnings and NIM and all that into a you know into a stable win and that's when you are positive this because as we've talked about it it's the mortgage.
And so on the T.V. I side, the commercial real estate on on the independent bank side, all that mergers together into a much better looking combined balance sheet and so we continue to be very encouraged and that really goes back to be very earlier question of when can we you paint that picture of exactly but there's going to look like.
Mike just absolutely as soon as the waters, let me tell you.
And I guess as a follow up is there any you know expectation on timing of when the lawyers might [laughter] and surveys that garden.
Quarterly conference call scenario or or would that be as separate event any just any color on that.
Yeah. That's a that's a great question I mean, clearly by the April you know.
I will first quarter earnings call by the end of April lets you don't know the three months from now we should begin to be able to have more color around that.
By then whether we would do a separate call or separate filing or anything between now and then a you know I don't know I know, we're going to be we end, the Texas capital leadership, they're gonna be out.
About this spring and very you know aggressive in how we're communicating with investors, so, but but we clearly you when we have information to share will fare broadly it won't be in a one on meeting with someone so we'll we'll make sure that we get the information out in an appropriate.
Way as soon as we know it and and I understand that's the.
When you take two companies in this there's no surprise to our board's no surprise to keep the writer our leadership teams that when you take two companies that no. One is expecting to see come together with different business models and you put them together you know the the natural question is well how are you going to do that in isn't there a lot of integration risk there.
Aaron we understand that and we understood that before we announced that we understand it today, but I'm telling you as you know the CEO that that we're confident and that we are going to come forth with a model that takes the very best of what Texas capital is doing the very best of what independence done historically, but so.
Together into a high performing growth company in the best markets in the country and.
Again, I know that's a big picture show Me pretty me give me the details we understand that and we fully intend to do that and and I've never been more common in our ability to do.
Okay. Thank you for all the color I appreciate it.
Thanks, Mike.
We have reached the end of our question and answer session I would like to turn the call back over to David for closing remarks.
Thank you very much I really appreciate everyone being on this morning, it's an exciting time for us and and I. Appreciate your patience no I look forward to seeing the investors and analysts are on our travels here. The spring. Thanks for your interest in the in independent Bank in our proposed combination another great company in Texas gas.
So have a great day thanks.
Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.