Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net income for Q2 2024 was $111 million, showing a slight increase from the previous quarter.
- Net interest income before provision for credit losses increased to $258 million, up by 8.6% from the previous quarter.
- Net interest margin improved to 2.94% for Q2 2024, compared to 2.79% in Q1 2024.
- Loans increased by $1.056 billion or 5% from the previous quarter, primarily due to the Lone Star acquisition.
- Deposits increased by $757 million or 2.8% from the previous quarter, also driven by the Lone Star merger.
Negative Points
- Merger-related expenses and provisions for credit losses amounted to $9.1 million, impacting net income.
- Nonperforming assets increased to $89 million, up from $83 million in the previous quarter.
- Net charge-offs for Q2 2024 were $4.368 million, a significant increase from $2.143 million in Q1 2024.
- Noninterest expense rose to $152.8 million, up from $135.8 million in the previous quarter, partly due to the FDIC special assessment.
- Deposits excluding those from acquisitions decreased by $470 million or 1.8% compared to the same period last year.
Q & A Highlights
Q: Can you provide an update on the net interest margin outlook for the fourth quarter? It seems like you can do better than 3%.
A: Asylbek Osmonov, CFO: Our model shows continuous improvement on the margin going forward. For the fourth quarter, we expect to be a little better, with an exit margin around 3%. Our static model indicates that we should continue to increase, aiming for a net interest margin of about 3.3% to 3.4% in the next 12 to 24 months.
Q: Can you talk about loan demand and provide an update on lending? Are we getting closer to the bottom?
A: Kevin Hanigan, President and COO: We believe we are getting closer to the bottom. Rate cuts will stabilize deposits and encourage business growth. We started the year with a 3% to 5% growth target for core loans and expect to be towards the lower end of that range. Recently, we've seen renewed optimism among middle-market customers, which should lead to better performance in the second half of the year.
Q: How are you managing the competitive loan environment?
A: David Zalman, CEO: The competition is intense, but we are focusing on building true customer relationships. We've toughened our terms and conditions slightly to maintain quality. We are also seeing opportunities to increase our position in shared credits.
Q: What impact do you expect from potential rate cuts on loan demand?
A: Tim Timanus, Chairman of the Board: Rate cuts will likely boost loan demand. Many customers have projects they want to start but are waiting for rate cuts. Even a small rate cut will improve sentiment, and a significant cut could lead to substantial increases in loan activity.
Q: Can you elaborate on the impact of the Lone Star acquisition on your financials?
A: Asylbek Osmonov, CFO: The Lone Star acquisition contributed to our net interest income and margin improvement. We recognized a purchase accounting provision expense of $9.1 million and fair-value loan income of $7.2 million for the second quarter.
Q: What are your expectations for noninterest expenses in the third quarter?
A: Asylbek Osmonov, CFO: We expect noninterest expenses to be in the range of $141 million to $143 million for the third quarter. This includes expenses related to the Lone Star Bank operation and an FDIC special assessment.
Q: How are you managing deposit levels and brokered deposits?
A: David Zalman, CEO: We have not purchased brokered deposits to offset deposit losses and do not currently intend to do so. Our focus is on building core deposits. Historically, our deposits decrease in the second and third quarters and increase again in the fourth quarter.
Q: What is your outlook on nonperforming assets and credit quality?
A: Tim Timanus, Chairman of the Board: Nonperforming assets totaled $89.6 million at the end of the quarter, a slight increase from the previous quarter. We had net charge-offs of $4.4 million for the quarter. We continue to monitor and manage credit quality closely.
Q: How do you view the current economic environment and its impact on your business?
A: David Zalman, CEO: Texas continues to be a favorable environment for business, with no state income tax and a business-friendly political structure. We remain optimistic about our ability to create long-term value for shareholders through organic growth and strategic acquisitions.
Q: What are your plans for shareholder returns?
A: David Zalman, CEO: Over the last 12 months, we have returned $284 million to shareholders through share repurchases and cash dividends. We remain committed to enhancing shareholder value.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
