Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Veritex Holdings Inc (VBTX, Financial) reported operating earnings of $28.3 million or $0.52 per share for the second quarter.
- The loan deposit ratio, excluding mortgage warehouse, continues to climb and sits below 86%, with a 19% decline in dependence on wholesale funding.
- Tangible book value increased to $20.62, up $1.21 from 2023, representing a 12.7% year-over-year increase.
- Net interest margin (NIM) increased by 5 basis points from Q1 to 3.29% in Q2, with expectations to remain in the range of 3.25% to 3.3% for the remainder of 2024.
- Non-performing assets (NPAs) reduced by 20% or $21 million from the previous quarter, now at 65 basis points of total assets.
Negative Points
- Operating non-interest income declined to $10.6 million, driven by a lack of gain on sale revenue in the USDA business.
- Net charge-offs were $6.9 million, a slight increase from the first quarter.
- Loan growth, excluding mortgage warehouse, has been flat for the year.
- Criticized and classified assets, while stable, still require significant ongoing management.
- The government-guaranteed fee business underperformed, though enhancements are expected to yield results in the latter half of the year.
Q & A Highlights
Q: Can you talk a little bit about what you're seeing on the government lending side? How is the funding dynamic in that business today? And what do you think we could expect to see from a prospect perspective in the back half?
A: We reset the business in the first half of the year and brought in Jonathan Schneider to lead it. We've integrated SBA and USDA efforts, which has already shown increased activity. We expect enhanced SBA business and a decent back half for USDA, with a good pipeline and a few deals likely to close.
Q: Regarding the CRE concentration, is there a need for something more wholesale, like loan sales, to get those numbers down by year-end?
A: It's strictly organic. Payoffs have been stable and heavy in the second quarter, and we anticipate this continuing. We expect to be under the 300% and 100% thresholds by year-end, barring any surprises.
Q: On the deposit mix shift, is the growth in non-interest bearing deposits something you think will continue? What's driving this expansion?
A: Yes, it's driven by our business bankers and community bankers. Our business bankers have had a stellar first half, growing deposits with low costs. We plan to increase the number of business bankers to further enhance this growth.
Q: Now that the loan-to-deposit ratio is in line, where do you think the NIB mix can go over time? Are there opportunities to shed higher-cost deposits?
A: We believe deposit costs are at or near their peak. We are focusing on changing the deposit mix and shedding higher-cost deposits while maintaining loan growth. This will be a key focus for the remainder of 2024 and into 2025.
Q: Can you give us a flavor of what's in the non-accrual bucket and if we should expect criticized classifieds to come down?
A: The non-accrual bucket has a mix of loans, each with a defined strategy. We have a positive outlook for the third quarter, with strategies emerging on other names. We anticipate NPAs to take a dip and criticized assets to trend down.
Q: Any thoughts on additional securities restructuring?
A: We regularly review this. Our portfolio yield is good, and the duration is short. We are considering a broader restructuring, but nothing significant is planned for the investment portfolio.
Q: How are you thinking about the maturing term funding in the third quarter?
A: We plan to reprice these lower. We've kept the funding profile short, anticipating the next Fed move to be down. We expect the repricing to continue into the fourth quarter.
Q: The SBA and USDA production was nil for the quarter. What's the story there?
A: We expect better production in the back half of the year. SBA has momentum, and USDA has been restructured. We hired a new team, and we anticipate improved fee income from these areas.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
