Veritex Holdings, Inc.

Q1 2022 Earnings Conference Call


spk08: Good day and welcome to the Veritex Holdings first quarter 2022 earnings conference call and webcast. All participants will be in the listen-only mode. Please note this event is being recorded. I will now turn the conference over to Ms. Susan Cottle, Investor Relations Officer and Secretary to the Board of Veritex Holdings.
spk09: Thank you. Before we get started, I would like to remind you that this presentation may include forward-looking statements and those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statements. At this time, if you're logged into our webcast, please refer to our slide presentation, including our safe harbor statement beginning on slide two. For those of you joining us by phone, please note that the safe harbor statement and presentation are available on our website, All comments made during today's call are subject to that safe harbor statement. Some of the financial metrics discussed will be on a non-GAAP basis, which our management believes better reflects the underlying core operating performance of the business. Please see the reconciliation of all discussed non-GAAP measures in our filed 8K earnings release. Joining me today are Malcolm Holland, our Chairman and CEO, Terry Early, our Chief Financial Officer, and Clay Reedy, our Chief Credit Officer. I'll now turn the call over to Malcolm.
spk02: Good morning, everyone. I'm pleased to bring to you our first quarter financial results. Operating net income was 66 cents, or $34 million, and a pre-tax, pre-reserve of 1.71%. The quarter had many positive attributes that continued to set us up for long-term success and increasing earnings growth. As I think about our growth during the quarter, both loan and deposit growth exceeded our expectations. Yet the majority of the loan growth came late in the quarter. Our average loan growth from Q4 to Q2 was only $107 million, producing less than expected revenue for net interest income. But our ending loan balance was $362 million greater than Q4 ending balance, resulting in a 21% annualized growth quarter and a great starting point for Q2. The growth came in C&I, $87 million, CRE of $222 million, and residential of $61 million. Just as encouraging was our deposit growth of 29%, with the majority being non-interest-bearing DDA, which grew $225 million during the quarter. The loan pipelines have actually increased and remain robust and should set us up for a similar to higher loan growth for the next several quarters. The why behind our growth profile continues to be the same four things. One, focus on constant upgrade and hiring of experienced and proven talent. Two, operating in the strongest growth markets in the country. Three, continued market disruption. And four, a commitment from my team that strong risk-focused growth is a pathway to enhancing our company's value. On the credit side, we find all of our metrics continue to trend in a very positive direction. NPAs have declined for the fifth consecutive quarter, moving down to 0.46% of assets from 0.51 the previous quarter. Criticized assets decreased 21% year over year. Past dues remain in an acceptable range, while total charge-offs were $4.8 million centered in two acquired credits, which were previously reserved. I'd like to spend a few minutes discussing the talent we continue to attract to our company. As you're aware, we have made it a major priority to invest in top-notch talent, both on the client-facing and non-client-facing side. For the quarter, we hired 47 new people, 20 of which are new position ads and 27 replacement ads. Of the 20 new ads, 10 are on the production side. This does not include the three seasoned lenders we hired in the Houston market a couple of weeks ago. These three hires and the teams they will assemble make a major statement to the Houston market that Veritex is committed and positioned very well to continue our organic growth in this market. Our focus on talent and finding the right people, and most importantly, that fit our culture and share our dedication to quality growth, will continue to drive our value proposition.
spk01: With that, I'll turn it over to Terry. Thank you, Malcolm. Before I get into specific pages and results, I want to make a few general comments. Q4-21 was an amazing quarter at 84 cents operating EPS. During Q4, everything fell our way, including bond prepayment income, collection of non-accrual interest, BOLI proceeds, and an ALLL reserve release. If we adjust Q4 EPS for those things plus first quarter day count and share count, then we're right on top of our Q1-22 operating results of $0.66 in EPS. As you think about Q1-22, please keep the following in mind. First, the timing of the mismatch from when we raise capital until when we can get it fully deployed. Next, period end to period end loan growth drives the perception of business performance but growth in average loans is what drives earnings performance, and our growth came late in the quarter. Next, business momentum is building. This is true across our spread businesses and our fee businesses. Finally, we continue to invest in talent to drive future growth. When making talent investments, there is an inherent revenue expense mismatch that occurs at inception that we're willing to accept given the expected returns. Starting on page four, We're pleased with the continued strong financial metrics, even with the additional capital. Our operating return on average tangible common equity remained strong in the first quarter at 16.1% and 17.2% over the last four quarters. Veritax's pre-tax free provision operating return on average assets was 171 for the first quarter and has averaged 1.80% for the last year, reflecting a growing but very efficient company. On slide five, Malcolm has already mentioned our loan growth for the quarter. This loan growth includes the March purchase of a $49 million owner-occupied mortgage portfolio. Loan growth on a year-over-year basis is 19.5%, and this is the third quarter in the last year where it has exceeded 20%. Loan payoffs were a big part of the back half of 2021 growth story. Payoffs in the first quarter declined meaningly from Q4 levels, but are still well above the levels seen in the first half of 2021. The level of unfunded commitments in the ADC portfolio increased to almost $2 billion. Current quarterly loan fundings from the ADC portfolio are approximately $500 million every quarter. Q2 growth has started strong, much better early quarter performance than what we saw in Q1. Average mortgage warehouse balances decreased 12.8% in the first quarter. We're certainly pleased with these results, given what's going on in the mortgage space and seeing the portfolio changes for some of our competitors. This portfolio now sits at about 5.8% of average loans. Moving on to slide six. Loan production remained robust, with good production from each of our lines of business. Q1 is typically weaker than our other quarters, but does reflect an increase of 23% on a year-over-year basis. Note that we've not included the mortgage portfolio purchase in our production results. Q2 loan production has started stronger and is tracking ahead of Q1 production at the same stage of the last quarter. On page 7, earning assets ended the quarter at $9.6 billion as Veritex executed on the stated goal to build more on-balance sheet liquidity. Cash and investments now compose 20.5% of earning assets, up from 18% at the end of Q4. Expect this trend to continue throughout 2022 as we work to get our loan-to-deposit ratio, excluding mortgage warehouse, down into the mid-80s. Net interest income decreased $3.7 million from Q4 to $73 million in Q1. Two items accounted for $3.1 million of this decline. These were the $2.1 million in Q4 prepayment income from a debt security and $1 million from the Q4 collection of non-accrual interest. The other driver in the decline in net interest income was day count, which represents $1.6 million. These items were offset by $1 million increase in net interest income from growth and $400,000 from the savings on the sub-debt that was repaid late in Q4. The net interest margin decreased 15 basis points from Q4 to 3.22%. The debt prepayment and the collection of the non-accrual interest accounts for all but one basis point of the decline. Average liquidity was approximately $355 million higher than our normal target level, and this increased liquidity is primarily a function of strong deposit growth and had the effect of depressing the NIM by 12 basis points. As you look to model net interest income in future periods, remember the following. First, the Fed rate hike in March had minimal impact since the bulk of our one-month LIBOR and SOFR loans had a rate reset date of the first day of April. Second, average loans for the first quarter were $380 million below the ending balance on March 31st, creating a significant positive jump-off. Third, Veritex's asset sensitivity has increased since Q4, and with market expectations of additional Fed rate hikes in 2022 of 200 basis points, This will add significantly to net interest income. Finally, while we did not show data on the loan floors, but please know that with 75 BIPs and additional Fed rate increases, virtually all the loans will be above the floor rate. Moving to slide eight. North Avenue Capital continues to settle into Veritex and become more comfortable with our culture, processes, et cetera. The pipeline remains strong. Q1 revenue could have been higher, but a couple of closings slid to Q2. Net income forecast that we published when we announced the transaction remains on track. And so everything is going according to management expectations. Moving to Thrive, their results have certainly been impacted by seasonality as well as the competitive pressures brought on by pricing and higher mortgage rates. Origination volume is down 18.3% and gain on sale declined slightly as well. We're expecting better results in Q2 that they are aggressively managing cost and staffing levels, coupled with the successful hiring of a significant origination team in Arizona that should add meaningfully to forecasted volumes. On slide 9, non-interest income totaled $15.1 million. Results for SBA, swap fees, deposit fees, syndication fees were all in line with management expectations. Operating expenses on slide 10 increased $1.6 million from Q4, Salaries and employee benefits were the largest component of the increase, as headcount grew almost 4% during the quarter. Also impacting personnel expenses were FICA levels, 401K match on cash incentive payments, and $960,000 in cost related to 2019 performance share unit grants that vested at 150% of target due to our top quartile TSR performance over the last three years. Looking forward, Q2 marketing expenses will be elevated due to the cost related to the Veritex Bank Championship, a corn fairy tournament held in Arlington, Texas, during the month of April. Moving forward to slide 10, a great quarter on the deposit front with growth of 29% for the quarter and 14.3% for the last year. Total deposit costs continued to trend down and ended the quarter at 17 basis points. Non-interest-bearing deposits now represent 35% of the deposit book and time deposits are down to 18% of the total. Got to admit that I'm glad to have both of these in the current rising rate environment. On slide 12, all capital ratios improved with the common stock offering we completed in Q1. Tangible book value per share declined 2.5%, excluding the impact of the capital raise. This decline reflects the impact of rising interest rates on the AFS portion of the investment portfolio. We did move $117 million from AFS into HTM during the quarter. Veritex grew tangible book value per share 3% over the last year after adding back the impact of quarterly dividends and backing out the impact of the capital raise. TBV growth has been and remains an important priority for our management team. Our capital deployment priorities, given the current valuation of our stock, are organic growth, dividends, strategic growth, and lastly, share repurchases. With that, I'd like to turn the call back over to Malcolm.
spk02: Thank you, Terry. The year has started out well for Veritex. With the announced acquisition of Interlink from Stonecastle Partners, the $154 million capital raise, and our continued organic growth, we are well positioned for continued success. As we think through the prospects of our partnership with Interlink, we're increasingly more excited about the numerous revenue opportunities and options on how to deploy these core deposits, while the additional capital will provide supplemental fuel and stability to help us execute our strategies. We say often, we have the right team, the right geographies, and this is the right time for Veritex. Thank you to my team for dedicated time. and our dedicated staff who continue to produce incredible results. One last comment I'd like to make. We couldn't be prouder of one of our brand ambassadors, Scotty Scheffler, the 2022 Master Champion and number one ranked golfer in the world. His humbleness and down-to-earth personality is so pleasing to be around, and we are grateful for our partnership. We have been committed to the game of golf for many years. We love its feel of community and camaraderie while displaying its principles of integrity, commitment, and truth, which represent what we aim to be every day for our clients and our communities. Operator, I'd now like to open the line for any questions.
spk08: To ask a question, you will need to press star 1 on your telephone, and to withdraw your question, just press the pound key. Please stand by while we compile the Q&A roster. Our first question will come from Michael Rose from Raymond James. Your line is open.
spk06: Hey, good morning, everyone. Thanks for taking my questions. Just wanted to start on the margins. So obviously a lot of moving pieces here, Terry. You know, I guess how should we think about, you know, kind of a starting point? Like obviously there's a lot of items on the slide, you know, what, what should we be backing out or adding back, and how should we think, you know, about a starting point, X rates, you know, for the margin? Thanks.
spk01: Oh, I think the 322 is a good starting point. You know, last quarter's 337 was just unusually, unusually high. So if you're not thinking about – I think you start with 322, and then it's whatever you assume about – The changing asset mix, can we get this excess liquidity down? As I said, that's 12 points. There's a lot of liquidity in the market. All banks have a lot of liquidity. Certainly, there have been quarters where we've been closer to our target levels, but it's been a few. So I would start there. And I think the biggest thing for net interest income growth is just knowing that You know, 75 basis points of moves and we're off the floors. Our asset sensitivity is up and our growth profile. And I know this is not NIM. I've transitioned to net interest income. And then it's just all about growth for us and getting liquidity, existing liquidity deployed as well as what we know we'll be bringing on in the back half of the year with the interlink opportunity that Malcolm mentioned.
spk06: Very helpful. And then, you know, obviously you guys have been very active on the hiring front. And if I look at expenses and I kind of exclude the FICA, you know, it looks like you were kind of flattish. Just how should we think about just expenses as we move forward, you know, balancing, you know, the people that you're adding, you know, along with expense control efforts? Thanks.
spk01: Yeah, I mean, you know, we gave this – pretty broad expense range to start the year. And, you know, I would say we're still in that range and we're not near the top of that range in our minds right now. Again, as you think about, you know, Q1, you know, you do have normal first quarter FICA stuff, you know, benefits up, things like that. But for us, we also had that $960,000 expense item that I mentioned related to the PSU's. You know, that item is... One time. One time. I mean, you know, we may be talking about a much smaller adjustment in Q1 of 23, but you just can't accrue that because you don't know. It's where your TSR performance, and you don't know how you're going to perform and how all your peers are going to perform.
spk02: And let me just add one thing, Terry. It's just about, not the actual number, but The reason we're somewhat flattish, Michael, I think we do a really good job of moving people out as we bring people in. So yes, headcounts are moving up. The bank's growing. We do have more employees. But we've done a pretty good job of managing out folks when we need to. So the net growth number is lower than you might expect. And so that'll keep the salary number down just a smidge.
spk01: Yeah. So, you know, Michael, I think for the year, I think we're still going to be pretty, you know, right now I would say close to the middle part of that range we gave you. But that obviously depends on a lot of things. There's certainly salary pressure we're all feeling. And we have a lot of open positions, especially in the back office, that you're always trying to get filled. But, you know, for us, this is all about revenue right now, the expenses. are pretty well behaved, and it's really about getting, you know, for me on the revenue side, it's about, in Q1, it was all about the timing of growth and better, and, you know, we've always said our fees are going to be lumpy, and they certainly, that's the case, but the expense side is doing really, from my chair, we're doing really well there and very much in line with what we thought when we started the year.
spk06: That's very helpful. Maybe just one final one for me, just on credit. As I look at the past couple quarters, the charge-off ratio has been a lot higher than I think I would have thought. I know these charge-offs have been kind of full reserve for, but how do we think about what's kind of happened and why those loans have gone bad? And then just more broadly, how do you think about credit? The reserve here is a little over 1%. I realize criticized and class supplies are down, which has been really good to see. But, you know, just given, you know, some concerns out there on the horizon, you know, how should we think about, you know, credit for you guys and maybe future provision trends? Thanks.
spk02: Yeah, you know, we feel really good about where our credit is. I mean, you got to take us back to when COVID started and, You know, everybody was running around pulling their hat, thinking the world was going to come to an end. And we purposefully kind of loaded up because we could, and we did. And so, you know, we feel really good about where our loan loss reserve is today. There's been a few of these acquired credits, candidly, that we're still working through. We've got a couple more that will get resolved in the back half of the year, we believe. And, you know, we don't charge things off until we know we've lost. I mean, I can give you, you know, there's an example or two in the last past year where, you know, we thought we were going to lose and we ended up collecting. And so we're pretty diligent on our collection efforts. But I don't see any deterioration in our portfolio, haven't seen any trends that are concerning. You know, as we go, as we fight the Moody's forecast about how good things are, it's going to be more and more difficult to keep our reserves where we have them. And so we work at that. And, you know, it's odd because, you know, the markets are saying and everyone is saying, you know, recession this and recession that, yet you get Moody forecasts and it shows the Texas GDP and unemployment pretty darn stable and positive. So those are things that are just challenges for us, but they're all first world challenges. But we have to work to keep it where it is. But overall, I feel really good about our credit portfolio and don't see any trends today. Now, 90 days from now, we're talking in July, that may change. But, Michael, I don't see it, and Clay didn't see it.
spk01: You know, Michael, I would add one thing. You know, it looks like the reserve, you know, it looks like it went down a fair amount, which it did. But we took the negative bias in the Moody's scenarios from 20% to 30% just out of a – because a lot happened from when Moody's released their data to the end of the quarter. Certainly a lot changed in the shape of the yield curve, inversion, et cetera. But do know, we made the model, you know, more conservative – than it otherwise would have been. And we could have been looking at a little bit of a reserve release if we had not made it more conservative. We just didn't think that was the thing to do. And I totally agree with Malcolm. As you dissect and slice and dice our reserve, keeping it here is not going to be easy. But that's our intent.
spk06: Great. I appreciate you taking all my questions.
spk01: Thanks, Mark. Thank you.
spk08: Our next question from Brett Robinson from Hove Drivelet. There you go. You may now begin.
spk03: Hey, guys. Good morning.
spk02: Good morning. Hey, Brett.
spk03: I wanted to first talk about fee income for a second and make sure I understood the expectations. for Thrive and North Avenue. Obviously, mortgage is a little more challenged this year, but I just want to make sure I understand the expectations for both of those businesses. You talked about the hires that you made. Are any of the hires that you're making in some of the fee income businesses? What are you anticipating to maybe invest in some of those fee income initiatives this year?
spk01: Yeah, let's start with Thrive. You know, Thrive over 2021 and for the first quarter of 2022 has outperformed the NBA results consistently. In this quarter, I believe Q1 production was down 23% versus Q4, and they're down 18.5%. And that was true. That outperformance was true in 2021 versus the NBA. So I expect... that that's likely to continue by some level. And I mentioned the hiring they've done in Arizona for a team that's pretty significant coming on there. But, you know, internally, I'm forecasting it along the lines of the NBA forecast. You know, I just think they'll outperform it, but I think that's the right way to model it and forecast it right now. And I think gain on sale margins down 15 bps or so for them. I mean, that's not huge, and it seems to be, but it's competitive. You know, Brad, it really, really is out there. And as I made comments, I mean, they are being, like all the mortgage companies, very aggressive on managing cost, as you would expect when you're in that business. You know, looking at 4th Avenue, their pipelines are great. I'm excited about Q2. Our expectations for the full year have not changed, but the revenue that we thought we were going to do a little better when we started the quarter, even midway in the quarter, but it just slid over. You know, guys, we've always said this is a lumpy business, and we have hired in North Avenue Capital two people, I think, on the production side. Yeah, so we are trying to actively grow that business. They're doing good. I mean, they get through a lot of change. They went from being a private company to a part of a $10 billion bank. But it's a good team. They're engaged. I'm encouraged by the pipeline progress I see week to week. And I'm still bullish on the year, although I wish Q1 had been a little better.
spk02: And one other fee hire, just we've hired a guy that's focusing – strictly on the swap business now. Now, the swap business market's a mess because nobody wants to take on the other side of the trade, but that'll settle down at some point. So that's another, just one of our efforts from the hiring side to focus on the fee side.
spk03: Good point. Okay, great. You've got, that's great color on slide 14, by the way. I appreciate that, given the color there. And then one, just to follow up on the margin, you know, I want to make sure I understood with the pending deal, you know, is that baked into the static shock impact on NII or would that be different once that transaction is closed?
spk01: It's not built in because we don't have them on our core and the deal hasn't closed. Do I think it will make us a little bit asset sensitive? I do. But actually, you know, I'm okay with that because I'm turning to that slide with the interest rate slide seven. I mean, I love the upside asset sensitivity from a 100, 200, 300 shock, but I'm also looking at the down 100 shock. And, you know, when you look at the forward rate curve, rates peak in mid-23 and start down. And so, you know... I'm trying to figure out ways to take downside rate risk off the table should that occur. And that's certainly one of the things that will help along with what we're doing in the investment portfolio and the mortgage side of the business that we're building the portfolio there as well. But no, to answer your question, it's not built in. It will take some sensitivity, up sensitivity off the table, but it will also take some down sensitivity off the table since it will reprice down quickly.
spk03: Okay. And then maybe just lastly, as it relates to that, on slide six, you've got that great chart that shows the 13-month yield trend for loan production. And, you know, I was just curious if you're starting to see stuff with solid four handles these days or what the competitive landscape has maybe done to spreads as rates are moving higher.
spk02: There's some talk about it. We push it, certainly. But pricing will be the last thing to move. There's still some competitiveness in the marketplace, mainly in the lower end. On the very lower end, on the very high end, that could be irrational. And as Terry always says, you get what you misprice. And so there's some of that going on in the market. But listen, our pipelines are as full as they've ever been. Our second quarter, if you liked our first, you'll probably love our second. So we're getting what we want, and it's a little bit lower than we'd like, but we're okay with that. We like the volume.
spk01: Yeah, spread, look, I think, you know, if you were to look, we're typically, and I always think of spreads, not rates, fixture variable. It's all about spread. And do I think that spreads are going to compress a little bit on new origination? Yes, but there's too much liquidity and too much capital. And we're definitely seeing that, especially in the term CRE space. And I agree with Malcolm on the high end. There's some way too skinny pricing. Look, our industry is moving into a phase where it's going to misprice risk for a while. But that's what's going to happen. And we're a price taker, not a price maker, and so we're going to have to deal with that. The thing we can't do is misprice, or not misprice risk, but misanalyze risk. We cannot take risk on the credit side. Mispricing alone, you can see it. You kind of feel like you hit your thumb with a hammer, but if you show up on the credit side... the consequences are much more painful. That's where we are. We're going to compete on price. We're not going to compete on credit terms.
spk03: Great. Appreciate all the color. Thank you, Brett.
spk08: Our next question will come from Gary Tender from DA Davidson. Your line is open.
spk04: Thanks. Good morning. I think you've probably address this a couple of ways, even during your prepared remarks. But, you know, as you think about just the kind of broader national economic uncertainty, you know, are you seeing any impression at all that customers are kind of thinking differently about investing in their business at all? You know, as you look at to the pipeline, the back half of the year and kind of what the opportunities are there, obviously, you know, Texas is uh, you'd expect to outperform, you know, the national economy, but just, you know, curious for any, any insights there.
spk02: You know, candidly, I know y'all don't like the answer, um, but no, we're, we're not, we're not seeing anything here. Um, you know, the immigration of people continues and it's just, it's a super strong economy. I thought that the housing market would start slowing down a little bit, you know, but, but, I can, from personal experience, if people were hiring, they're coming from out of town, they can't find places to live. And these are places 30 minutes from headquarters. So, you know, I read an article, I think it was Monday of this week, about our housing inventories in Texas. And it's incredibly low. And so, anyway, I want to tell you there's some slowdown. I want to tell you there's just not the pent-up demand. And then the travel piece of it, I mean, our motel portfolio has held up exceptionally strong, way better than we – I mean, these people are doing really well. So, no, I'm not seeing any of it right now. Maybe different in 90 days, but not today. Well, certainly no reason to apologize for it. Yeah, I almost feel like I have to apologize because of what's going around in the country. But Texas is, you know – Our problem seems to be south on the border that everyone talks about and hears about.
spk04: Right. In terms of the increase in rate sensitivity since year end, is it primarily the additional kind of cash position and then growth in ADC balances that are driving that kind of quarter-by-quarter delta or something else?
spk01: No, no, I would agree with that. I mean, look, our mix of production between floating and fixed has not changed. It just – There have been times over the past three and a half years I've tried to change it, and I haven't been very successful. So it is what it is, and we're just floating rate lenders. And so it's primarily liquidity because of the makeup of the balance sheet. The floating fixed rate makeup of all the items on the balance sheet really hadn't changed materially in terms of their relative contribution, if you will. Great. And then the next question. I would say that I think another big driver of that is asset sensitivity is what's going on in the DDA book. Malcolm talked about the growth. You can see it's 35%, 36%. And that drives asset sensitivity given that, I mean, look, non-maturity deposit assumptions are the single most important input or judgment in the whole model of interest rate risk for any bank. And the growth there would be having an impact. Okay, thank you. Thank you.
spk08: Our next question will come from Brady Gailey from KBW. You may begin.
spk00: Hey, thanks. Good morning, guys. Hi, Brady. Hey, Brady. I was just curious, the purchases of the mortgage pools, were those purchased from Thrive or is that purchased from some other source?
spk01: They were purchased from another source. Look, we have a desire for high-quality jumbo mortgages, both arm and fixed rate, and Thrive's just not – not a real house. It's not yet. I hope they get there. I mean, we're buying some CRA loans from them and we've tried to buy jumbo arms, but one, there's not a lot of, hadn't been a lot of demand for that in the market. Hopefully that's going to change, but they're just not a jumbo lender. And so it was not from Thrive.
spk00: Okay. And then I think I read in the release, y'all, expect to continue to purchase some of these mortgage pools? How active do you think you'll be purchasing that loan type?
spk01: Well, you know, one of the things that, as I talked about earlier, was the downside risk to rates down. And we're at, you know, for the 100 basis points in rates down, we are at a negative 7.8%. Well, you know, I'd like to get that inside of five. inside of four. And it takes about $300 million in mortgages to move at 1%. So you will see us doing similar things to what we did in Q1 through each quarter of this year. One, I want to deploy liquidity. Two, it's got very efficient capital allocations and implications. And three, I want to reduce down rate exposure for back half of 23 and beyond. Okay.
spk00: And then how does that play into your loan growth guidance? I know last quarter we talked about kind of a, I think, 14% to 16% level of loan growth. I know that's changed just because now you have, you know, the new interleague. interlinked deposit vertical. I know that deal wasn't closed yet, but it's coming up. So with that new flexibility on the funding side, how should we think about loan growth? And obviously, y'all did over 20% this quarter, so that's pretty strong. How should we think about loan growth from here?
spk02: You know, loan growth is really strong. I think I go back to my economy statement just a second ago. There's real commerce being done here. I think my remarks had something about look for us to duplicate what we did in the first quarter, maybe a little better. There's some real opportunities here. And this goes back to a year and a half to two years worth of hiring focus. And these are just the benefits of hiring some really good people. I just told you we hired four new people in the last 30 days that are going to be gangbuster producers. We want to keep that going. We've also got a back room that we've got to make sure they can produce it. We've got to make sure we have the right credit people that are analyzing it. It's a team effort, top to bottom. I think you can expect our loan growth to look a lot like it did in the first quarter for probably the rest of the year.
spk01: You know, Brady, we've grown $1,162,000,000 in the last four quarters. We've only bought one mortgage pool of $49,000,000 in that. Right. We're going to keep buying mortgage pools. Our pipelines are stronger. In my comments, I said our production... And our growth is running well ahead of where we were in Q1. And that 1 billion won was 19 and a half.
spk02: And there's so many levers, Brady. I mean, the other lever is, and we haven't talked about it, but North Avenue Capital getting into the LEAP side, which is a renewable energy program. I mean, those are loans you put on your books. You don't sell those. And so that's another lever. I mean, we just have a whole bunch of levers to keep loan growth at a certain level. And listen, that's who I am. I'm a growth guy. And there's not a lot to buy out there. Or let me just say this. There's not a lot for sale that would make sense for us. And so organic growth, which is the best growth, is where we focused. And this didn't happen overnight. I've been telling the market for a year and a half what we've been trying to do. And so this is just some of the efforts that we've put forth that are starting to pay off.
spk00: Okay. And Malcolm, maybe on that point, historically you guys grew the company through Bank M&A. You don't need that anymore just given the growth profile. But more recently, you did Thrive to add to fee income. You did North Avenue to add to fee income. You did Interlink to help on the funding side. So you've done a decent amount of kind of non-bank acquisitions. Do you see any other sorts of companies or verticals that would be attractive, whether it's on the fee income or funding or any other side of the bank that you would like to see via an acquisition? Or are you kind of set with what you have at this point?
spk02: So I'm really happy with where we are. So I think it's an execution story. Unfortunately or fortunately, however you want to look at it, we've always been a prove-it-out story since we went public in 2014, and so far we've been able to prove it out every time. I think that's where we find ourselves again, which is fine. But I don't have this strong need and desire to go fill a bucket that I don't think we have. Are we going to be opportunistic if something shows up and makes sense? Sure, we'll take a look at something. But we can be, you know, we've been disciplined over the life of our company. We can even be more disciplined. And so we think we have something special, and now we just have to execute and prove it out. So I don't really have the strong desire to go out and find something other than there's one thing I would like to do. And that's to put the third leg of the stool in Texas and have a presence in central Texas. And so how does that fit in and how does that look? I'm not sure. But that is a geography that I think is important to have if we're going to be the Texas bank, which I think that's what we want to be. Got it.
spk00: Okay. Thanks for the call, guys. Thanks, Brett.
spk08: Once again, that's all. Next question comes from Matt Olney from Stevens. Your line is open.
spk07: Hey, thanks, guys. I'll take the mortgage warehouse question. We were down a little bit this quarter, but on a relative basis, much better than your peers out there. What can you point to in the quarter, and what's in the outlook? Thanks.
spk02: Hey, Matt. You know, I go back to it's probably a little bit of a broken record. We have a really, really solid leader in that vertical for us. She is a seasoned veteran. I think we've answered a couple times that even though we'll always, don't ever say always or never, but I think we'll pretty much always outperform the market because she's that good. She's added to her team. She's changed out the clientele that we had. and upgraded our clientele. We're looking at top-notch national mortgage companies that she has relations with. So I would point to our leadership in that area, probably more than anything. And I always feel like we'll outperform the markets. Even though we're down a little bit, we're pretty good as it relates to the rest of the industry. And operationally, we have a really strong team that delivers day in, day out for our mortgage warehouse clients. It's highly relational. You think it's just transactional, but it's really not. There's a relationship factor. And Terry's right. The folks in the back room are exceptional.
spk07: Okay. Thanks for that. And then I guess switching gears, I'm also curious about the deposit pricing strategy for the year. Have you made any tweaks or changes yet to deposit pricing? Are you seeing any movement from competitors? And I think what's unique about Veritex this year is going to be the interlink deal and the timing of that. And with that, do you think you can lag more on deposit costs until that deal closes over the next few months? Thanks.
spk01: Man, that's a good question and what I would give to have a crystal ball on that one because I actually believe There's so many factors at play here, both rates and what does the Fed do with the size of their balance sheet in terms of quantitative tightening. And I'm in the camp that they're going to tighten pretty hard there to suck liquidity out of the system. But it certainly hasn't shown up yet, but let's see what they do with their May meeting. You know, to me, the interlink deposits give us optionality. There's a lot of liquidity still in the market, and I turned down a lot of money earlier this week, late last week, just on pure pricing. In the past, Veritex virtually always had to say yes to the pricing I just turned down because they didn't have this optionality related to things like interlinking And I think our banking teams are better at gathering deposits today than they have been to include you know, our C&I teams and our community bank team. So, you know, so far we're not seeing really any meaningful movement from anybody. I don't think, you know, you've always heard me say that I think DFW is the most irrational deposit pricing market I've ever worked in in 40 years, but it's not, it's pretty, and that's true today on the loan side to a degree, but it's not true today on the deposit side. So far, that's been pretty rational. I expect it to continue for a while. But I do think, you know, you get a couple of 50-point Fed moves, and the customer's awareness of what's going on with rates is going to just spike. And then it'll be interesting to see. I think it's going to be a function of the liquidity that the Fed leaves in the markets that's going to drive banks to move rates. Customer awareness is going to be up. But if they've got the excess liquidity they're sitting on, I just don't think banks are going to bite so much. So I think my belief and my hope standing here today is Veritex is going to meaningfully outperform how it has done comparing this uprate cycle to prior ones. Time will tell.
spk07: Yep. Okay. Thanks for that. And just lastly, any update on Interlake itself since we last spoke and the timing of the closing of that transaction?
spk02: No, I'm just going through the regulatory process. We've had a couple of conversations with the state and FDIC and just headed down into the process. We're still hoping that we can close it beginning of the third quarter, but really have not had much decisiveness on the regulatory side yet.
spk01: I think the most exciting development there is the proposed merger of Total Bank Solutions and Raishan Tang. Hope I said that right. which were, you know, there's really only four competitors in this space nationally, and those are two of them along with us and one other. And so those two combined, and so now there's three, and the other two are significantly better than we are, bigger than we are. Much bigger. Much, much, much bigger by... Tenfold. Yeah. Not more. Yeah. And so I think our value proposition for that space is only going to be strengthened by what's going on around us. We've benefited tremendously from merger disruption in the Texas markets. And here's merger disruption showing up again. And we think it bodes well for us in terms of our entry into that space.
spk07: Okay, great. Thanks for taking my questions.
spk01: Thanks, Matt.
spk08: Our next question will come from the line of Graham Dick from Piper Center. You may begin.
spk05: Hey, good morning, guys.
spk00: Hey, Graham.
spk05: Just don't have much for you all today, but just wanted to hear a little bit about your all's plans for the bond portfolio for the rest of the year? It looks like it was about $200 million. Just wondering what kind of pace you all think you'll take it from here, and then also how much of that portfolio is floating or would reprice with rate hikes?
spk01: Yeah, I mean, you can expect to see our bond portfolio continue to grow along similar paths. You know, it grew about 17% or so, I think, in the quarter, a couple hundred million dollars. Look, this is all part of our strategy with Interlink to create a fortress balance sheet because one of the knocks on Veritex has always been we ran with such tight liquidity. And so we're trying to intentionally change that by bringing on more securities into the portfolio and driving down that loan-to-deposit ratio. I'm glad we started our expansion of the portfolio in 22 versus earlier, although that's still painful for everybody given the volatility of rates we've seen. But, look, we're not trying to go all in in one quarter. We're moving in slowly. And you will see as we put some in HTM, we may put more in HTM as we buy. But it's just a part of the strategy, again, to strengthen the balance sheets, and help give us protection for rates down for the back half of 23-24. So, the portfolio has performed well. We expect to keep the duration, the price vol, et cetera, et cetera, in line with what you've seen us do in the past. Mix will probably be relatively the same, but it's just a part of building this balance sheet to get it to where we want to be.
spk05: All right, great. That's helpful. And then I guess just on the AFCI, impacts we've seen. You all don't, I guess, back that into your all's capital planning process, do you, given it doesn't impact regulatory capital ratios? That's correct.
spk01: You know, Certainly, we're mindful of it and the effect it has on TCE. But, you know, as I look across the landscape, we have one of the best TCE ratios of our peer group anyway. And so, but no, we don't, you know, I'm not trying to forecast AOCI. But, you know, anyway, that's a hard one. We certainly think about price vol when we're buying TCE. but we don't try to forecast it since it doesn't impact capital. Right.
spk05: All right. Thanks, guys. That's all from me. Thank you. Thank you.
spk08: Thank you. I'm not showing any further questions in the queue. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.

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