Veritex Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 23, 2025
Skip to Participants
Operator

Good morning and welcome to the Veritex Holdings First Quarter twenty twenty five Earnings Conference Call and Webcast. All participants will be in a listen only mode. Please note this event will be recorded. I will now turn the conference over to Will Halford with Veritex.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Thank you. Before we get started, I'd 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 statement. If you're logged into our webcast, please refer to our slide presentation, including our Safe Harbor statement beginning on Slide two. For those on the phone, please note that the Safe Harbor statement and presentation are available on our website, ferritexbank.com.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

All comments made today are subject to that Safe Harbor statement. Some financial metrics discussed will be on a non GAAP basis, which 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 eight ks earnings release. Joining me today are Malcolm Holland, our Chairman and CEO Terry Early, our Chief Financial Officer and Curtis Anderson, our Chief Credit Officer. I'll now turn the call over to Malcolm.

Malcolm Holland
Malcolm Holland
Chairman, President & CEO at Veritex

Thank you, Will. Good morning and welcome to our first quarter earnings call. For the quarter, we reported net operating profit of 29,000,000 or $0.54 per share. Pretax pre provision earnings were 43,400,000.0 or 1.41%. Overall, Veritex had a very good quarter.

Malcolm Holland
Malcolm Holland
Chairman, President & CEO at Veritex

Our balance sheet remains in a very strong position with capital continuing to grow. Our continued pursuit to achieve a ROA exceeding 1% in the back half of the year is very much in focus and realistic. Our challenge, much like the rest of the industry, remains disciplined loan growth. For the quarter, we saw a decrease in loans of 125,000,000 or 5% annualized, while our average balances were down 135,000,000 over Q4. Payoffs over the last four quarters were 1,500,000,000.0, while payoffs for the four quarters previous were 1,300,000,000.0, a 17% increase year over year.

Malcolm Holland
Malcolm Holland
Chairman, President & CEO at Veritex

Although these payoffs continue to put pressure on our loan totals, it validates the credit worthiness of our loan book. Despite loan totals lagging, we're very encouraged by our bank wide loan production. For Q1, we had $750,000,000 in gross production, although only 31% or $237,000,000 of that production was funded. The last four quarters, our production exceeded 2,800,000,000.0, while the fourth quarter previous production equal 1,200,000,000.0, a 130% increase year over year. That bodes well for our future loan growth over the next several years.

Malcolm Holland
Malcolm Holland
Chairman, President & CEO at Veritex

From a deposit growth standpoint, we had another solid quarter bringing in lower price relationship dollars and moving out higher price non relationship dollars. For the quarter, we moved out over 440,000,000 in wholesale funding. Continued great work by the team to move our deposit costs down. More from Terry and Will in a moment on that topic. Credit continues to remain stable with positive trends in almost all categories, with lots of work being accomplished by the team below the surface.

Malcolm Holland
Malcolm Holland
Chairman, President & CEO at Veritex

I'll now turn the call over to Curtis for his credit comment.

Curtis Anderson
Curtis Anderson
Chief Credit Officer at Veritex

Thank you, Malcolm. We continue to make progress in managing credit risk as reflected in our first quarter results. Our relationship teams are focused on risk identification and managing cycle times to resolution. In the quarter, we realized a net decrease in past dues and criticized loans. Our charge offs are below forecast, and NPAs reflect our focus on moving names to final resolution.

Curtis Anderson
Curtis Anderson
Chief Credit Officer at Veritex

Moving to page five. Non accruals increased $17,000,000 from year end as we took targeted action on select names to bring them to final resolution. Accordingly, nonperforming assets increased from $79,000,000 at year end to $97,000,000 at the end of the first quarter. The increase was primarily from two loans representing retail and office exposures. We expect resolution on a majority of our current non accrual exposure by early third quarter.

Curtis Anderson
Curtis Anderson
Chief Credit Officer at Veritex

Property and sales agreements are in place with buyers on a number of these assets. Past due loans reflect strong oversight and management by the team and declined from $31,000,000 at year end to $11,000,000 at the end of the first quarter. Net charge offs totaled $4,000,000 for the quarter, primarily reflecting loss exposure on commercial office and retail real estate loans with final resolution. Our twenty twenty five full year charge off forecast of 20 basis points has not changed. Moving to page six.

Curtis Anderson
Curtis Anderson
Chief Credit Officer at Veritex

Criticized assets were down 4.3% or $18,000,000 from year end and down 26% or 135,000,000 from the first quarter in twenty twenty four. CRE criticized totals continue to show meaningful reduction. In summary, we're pleased with the risk management discipline of our relationship teams. As Malcolm noted, their focus in partnership with special assets delivers results that are not fully evident in the top line numbers. These results include criticized payoffs and pay downs, restructurings resulting in positive grade changes, and early risk identification that ultimately mitigates further downgrade and loss.

Curtis Anderson
Curtis Anderson
Chief Credit Officer at Veritex

We are committed to this continued focus. I'll now turn the call over to Terry.

Terry Earley
Terry Earley
CFO at Veritex

Thank you, Curtis. Starting on page seven. When I look at the results since the end of twenty two, I'm encouraged. The balance sheet is in a good place. Liquidity is strong.

Terry Earley
Terry Earley
CFO at Veritex

Reliance on wholesale funding is down under 14%. Capital and reserves are up, and CRE concentration levels are right where we want them, just below the regulatory guidelines. Moving to Page eight. Capital ratios held relatively steady quarter over quarter, except for the total capital ratio. The decline in total capital is a function of a $75,000,000 tranche of sub debt that was repaid in the middle of the quarter after the rate converted to SOFR plus three forty seven basis points.

Terry Earley
Terry Earley
CFO at Veritex

Over the last two years, a significant contributor to the expansion in the capital ratios has been a $700,000,000 decline in risk weighted assets. Tangible book value per share is 22.33 up from $21.61 at year end and a 13.8% increase on a year over year basis, including the dividends we paid. It's worth noting since Veritex went public in 2014, its compounded tangible book value per share at a rate of 11.5%, including the dividends that have been paid to shareholders. Considering our growth outlook, organic capital generation and risk profile, the bank has increased its quarterly dividend by 10% to $0.22 per share per quarter. Finally, Veritex repurchased 377,000 shares during the quarter.

Terry Earley
Terry Earley
CFO at Veritex

The tangible book value dilution was minimal and the earn back is just over two years. We have $37,000,000 remaining on the authorization, which at the current stock price is sufficient to repurchase just over 3% of the company. We intend to be opportunistic in its use. Moving to Page nine. The allowance now sits at 119 basis points, up significantly in the last eight quarters.

Terry Earley
Terry Earley
CFO at Veritex

Additionally, when you exclude the mortgage warehouse, the ACL coverage rises to 127 basis points. Our general reserves comprised 95% of the total allowance. We continue to use conservative economic assumptions in the CECL modeling with 65% of the weighting on downside scenarios. In Q1, we shifted the weighting toward the most pessimistic scenario. Part of the weighting we shifted towards the most pessimistic scenario.

Terry Earley
Terry Earley
CFO at Veritex

This seems reasonable considering all the economic uncertainty from tariffs, interest rates, reduction in government spending. I could go on and on. Bottom line, the combination of the key factors in the economic forecast weighting gives Veritex a very conservative allowance result. Moving to page 10. As Malcolm said, total loans declined 1.3% during Q1 and 3% on a year over year basis.

Terry Earley
Terry Earley
CFO at Veritex

We made significant progress in reducing our CRE and ADC concentrations and ended the quarter at two ninety seven and eighty five, respectively. The significant decline during Q1 in CRE and ADC can be seen in the top right graph. As shown in the bottom right, loan production has increased by $1,600,000,000 from the four quarters ending Q1 'twenty four to the four quarters ending Q1 'twenty five, a meaningful part of the increased productions in the ADC area. Funding on these two loans lags for several quarters as the borrower's equity goes into the projects first. Loan growth will remain muted in 2025 due to higher than normal payoffs, but this production over the last several quarters will translate into loan growth as we move into 2026 and beyond.

Terry Earley
Terry Earley
CFO at Veritex

On slide 11, provides some details on the term CRE and ADC portfolios by asset class, including what is out of state. Also shown is the breakdown of our out of state loan portfolio, including the significant impact of our national businesses and mortgage. The true percentage of the out of state portfolio was only 10.7%, and this is predominantly where we have followed Texas real estate clients to other geographies. On to page 12, our strong deposit growth and low loan growth has allowed Veritex to reduce its loan to deposit ratio from 104% to 89% over the last two plus years. We intend to remain below 90% going forward.

Terry Earley
Terry Earley
CFO at Veritex

Please note the loan to deposit ratio would be 82.8 if you exclude mortgage warehouse. Deposit growth has also allowed us to reduce our wholesale funding reliance to 13.7%, and it was over 24% the same period of the last couple of years. As you can see from the bottom left graph, we've kept the time deposit portfolio short and have 1,900,000,000 in CD maturities over the next two quarters with an average rate of 4.57%. A short maturity profile helps us to manage the interest rate risk given the floating rate nature of the loan portfolio. On the bottom right, we show the monthly cost of total deposits.

Terry Earley
Terry Earley
CFO at Veritex

Note the 63 basis point decline since the month of June 2024, including 24 basis points since year end. If you look at interest bearing deposits, they declined 37 basis points in Q4, and we follow that up with another 33 basis points of decline in Q1 of 'twenty five. Veritex is very focused on reducing deposit pricing where possible on existing accounts. Q1 twenty twenty five was another successful quarter of deposit remixing. Growth from our core lines of business allowed us to reduce our reliance on unattractively priced deposits like brokered or public.

Terry Earley
Terry Earley
CFO at Veritex

These unattractive deposits carry a cost that's approximately 185 basis points above our core business deposits. I'll now turn it over to Will for commentary on net interest income, investments and liquidity.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Thanks, Terry.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Slide 13 reflects a NIM increase of 11 basis points to three thirty one in Q1, which is slightly higher than the previously guided range of three twenty five to three thirty. The primary driver of the NIM increase is a result of continued repricing and remixing efforts within the deposit portfolio Terry mentioned on the previous slide.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

The cost of interest paying liabilities declined 33 basis points in Q1, while the yield on earning assets only declined 12 basis points. On a dollar basis, net interest income was down $700,000 for the quarter, driven by two fewer days in the quarter, lower earning asset volume, and the full quarter impact of rate cuts late in 2024 on loan yields, which were mostly offset by interest expense savings from deposit repricing efforts and lower interest bearing average deposits. On a go forward basis, we expect NIM to return to the 3.25% to 3.3% range for the remainder of the year absent outsized or accelerated rate cuts. As we mentioned in previous quarters, a $250,000,000 pay fixed balance sheet swap matured in late Q1, which will be partially offset by the interest savings from paying back the $75,000,000 tranche of sub debt that Terry mentioned. We expect continued deposit remixing and repricing efforts against muted loan growth to result in a relatively stable NIM throughout 2025.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Slide 14 shows certain key metrics of our investment portfolio. Key takeaways. It's only 11.6% of total assets. The effective duration is three point six years, and 88% of the portfolio is held in AFS. Total available liquidity sits at $7,200,000,000 as of threethirty one.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

The decline in available liquidity since Q3 twenty twenty four is a result of the decision to tighten wholesale liquidity policy limits in the fourth quarter, reflecting a lower liquidity risk appetite. Finally, please note the economics of the BOLI exchange trade completed in the first quarter in which we exchanged an 18,100,000 portion of our existing BOLI policy at a 2.76% yield for a new investment yielding 4.73%. We took a $517,000 1 time loss on the transaction, which equates to an annual pickup of $356,000 equating to a one point four year earn back. I'll now turn the call back over to Terry.

Terry Earley
Terry Earley
CFO at Veritex

On slide 15, operating non interest income increased 2.4% to $14,800,000 on a linked quarter basis.

Terry Earley
Terry Earley
CFO at Veritex

Fee income as a percentage of total revenue has increased to 13.4% in Q1 twenty twenty five from 12.3% in Q1 twenty twenty four. The goal is to drive fee income above 15% of total revenue. Operating non interest expense declined $2,800,000 for the quarter with a good execution across all the categories. The operating efficiency ratio declined 2.5% to 60.4%. To wrap up my comments, I see a lot of positives.

Terry Earley
Terry Earley
CFO at Veritex

The balance sheet continues to strengthen with more available liquidity, lower CRE and ADC concentrations, less reliance on unattractively priced deposits and higher capital levels. Q1 earnings were in line with internal expectations. The NIM expanded by 11 basis points to 3.31% driven by deposit cost. Fee income continues to build momentum across every category. Increased attention to expenses is showing encouraging results, and loan production has increased meaningfully.

Terry Earley
Terry Earley
CFO at Veritex

The negatives I see are the lack of loan growth driven by elevated payoffs and elevated deposit cost from overreliance on expensive funding sources in earlier higher growth periods. We're working hard to address these negatives. With that, I'd like to turn the call back over to Malcolm.

Malcolm Holland
Malcolm Holland
Chairman, President & CEO at Veritex

As you've heard, the Veritex team continues to manage our balance sheet, capital, deposit costs, and earnings to add additional value to our company. We obviously have no control over the national economy and the various decisions made in Washington.

Malcolm Holland
Malcolm Holland
Chairman, President & CEO at Veritex

Uncertainty has once again entered the system, but we remain focused and committed to our shareholders, team members, community to bring the best Veritex we can. Operator, we'll be happy to answer a few questions.

Operator

Thank you. To ask a question, you will need to press 11 on your telephone and wait for a name to be announced. To withdraw your question, please press 11 again. Please stand by while we can play the q and a roster. One moment for our first question.

Operator

Our first question will come from the line of Brett Rabatin from Hovde. You're now open.

Brett Rabatin
Director of Research at Hovde Group

Hey, good morning, guys. Wanted to start with the hey, wanted to start with deposits and just obviously strong core deposit growth and just wanted to wanted to see if that DDA was was sticky and just, what the success of that was mostly related to. And then on the CDs that are repricing in the next two quarters, the $1,900,000,000 at $457 what level you think those might go to?

Terry Earley
Terry Earley
CFO at Veritex

Think Brett, it's Terry. I think on the deposit side, some of this is seasonality and some of it is new customer attrition on the DDA side. One of the things that's in DDA is our mortgage escrow, and Q4 is historically, especially with the T and I escrows, there's a lot of outflows during that period. So that's a contributor and then just some good work by the banking teams on bringing in and allowing us to remix. Regarding the question on deposits, $4.57 so far in the second quarter, we're originating in the $4.15 to $4.25 range.

Terry Earley
Terry Earley
CFO at Veritex

So there's definitely as you think about the NIM and we'll factor this into his comments. Yeah, you've got the hedge rolling off, but we still got opportunity to help compensate for that from the hedge rolling off is this repricing opportunity.

Brett Rabatin
Director of Research at Hovde Group

Okay. That's helpful. Then obviously strong performance on managing expenses. What do you guys think the expenses do from here? And are there any initiatives that would grow expenses relative to the first quarter?

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Yeah, Brad, I'll just say on the expense side, it's been a hot topic for the last couple of quarters to say the least amongst my team. And we talk about expenses often. One of the things I would mention is that we're still investing in people. We made some really key hires that you all know about in the third quarter last year, some leadership hires. Those hires are going to be filling their teams.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

So there will be some investments that we make in people. In fact, we have three pretty serious commercial bankers that are all starting with either started the last thirty days or going to be started in the next thirty days. And so we're working really hard on the expense side, knowing that we have some investments coming on the people side. So we're doing a good job of trying to manage the poor performers, but also invest in the ones coming. I'm being a little evasive just to say that expenses are not going to go down from where they are, and we do have some folks coming on.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Terry, you might want Yeah.

Terry Earley
Terry Earley
CFO at Veritex

I would I would add two things. One, I don't think the attention to expenses in the history of Veritex have ever been greater. Secondly, I'm gonna make three points. I think I think Dom has done a really good job of moving out unproductive or not attractive result bankers and replacing them in a good way with people who I think are gonna drive this business model where we want it to go.

Terry Earley
Terry Earley
CFO at Veritex

And third, you can't I wouldn't annualize where we are in Q1 and say that's a good estimate for the quarter. It's going to go up a little, but I don't think you're going to see it get back to the levels you saw in Q4.

Brett Rabatin
Director of Research at Hovde Group

Hopefully that Yes,

Brett Rabatin
Director of Research at Hovde Group

that's really helpful. And then if I could sneak in one last one, you mentioned commercial bankers and new hires. It sounds like given the payoffs that maybe you're backing off loan growth expectations for the year. Maybe Malcolm, do you think loans are flat this year with the first half being down and then the second half you grow Or what's your updated thoughts maybe on loan pipeline relative to the loan growth?

Malcolm Holland
Malcolm Holland
Chairman, President & CEO at Veritex

Yes, you nailed it. I think we're looking for flat from year over year, Obviously down the first quarter, second quarter, we're hoping it's going to be about flat, maybe a little down. But the back half certainly, I mean, we could see it in our pipelines. I mean, you don't grow pipelines 130% without getting some benefit of that down the road. So I think you nailed it flat for the year and '26 looks pretty good.

Terry Earley
Terry Earley
CFO at Veritex

Yeah, we the pipelines and given the production, it's already on the books. The outlook for loan growth in '26 is more in the mid to high single digits, like that.

Malcolm Holland
Malcolm Holland
Chairman, President & CEO at Veritex

Correct.

Brett Rabatin
Director of Research at Hovde Group

Okay. That's great.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

All

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

that being said, it could change tomorrow if the wrong week gets posted on Proof Social.

Brett Rabatin
Director of Research at Hovde Group

It's a volatile environment. Appreciate the color, guys.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Yeah, thank you.

Operator

Thank you. One moment for our next question. Our next question will come from line of Steven Scouten from Piper Sandler. Your line is open.

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

Hey, good morning guys. So just maybe staying on that loan growth topic, is there kind of a high level number that you guys think about in terms of the CRE headwind in terms of what you think you might face and pay down throughout the rest of the year? Just kind of trying to frame that up versus the $2,800,000,000 in production you gave over the last four quarters. And just maybe if you have any numbers on where that unfunded book is today and kind of where that's been trending?

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

May not be able to give you exact numbers.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

I can give you some directionally accurate comments. We're gonna manage, I think as Terry says, we're gonna manage that CRE number at the high two ninety's, two ninety's and the ninety's of the ADC.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

The ADC stuff is paying off quickly. I think at the end of the quarter we had 85. We're not going to exceed that the next quarter.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

We're going to see that number start to grow, hopefully in the back half. Now we'll see it grow in the back half, but it probably isn't going to see any real growth until you hit '26. It's just those things have a long funding time, but we're going to work. Our real estate team is doing an incredible job. They kept the pricing at a really nice pricing.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

They deal with the best clients in the state of Texas, and it just takes a while to fund that stuff. The payoffs candidly have been pretty. They've been pretty stable over the past couple of quarters. We expect that to continue through the next couple of quarters for sure. And the back half could see a little bit of a raise, but not grossly over what we've already done.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

So the goal is to keep this a steady business instead of the wide fluctuations up and down and try to manage it right under the 301 buckets. And we have a great core discipline in it. You can tell by our payoffs, but that's gonna be a focus. We don't teams are doing exactly what we want them to do on that side of it. The investments we're talking about making are all in the commercial and industrial space.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

So in the C and I space, and that's the area we're really placing the emphasis and the investment dollars.

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

Okay, really helpful color there. Appreciate that. And then obviously can see in the presentation where the asset sensitivity of the balance sheet has been reduced fairly significantly. Just kind of curious how you think that plays out in practice if we get, I don't know, what the expectations are for today, two cuts, four cuts, who the heck knows, but kind of how you think the balance sheet will respond, especially as there continues to be room on funding side to lower cost?

Terry Earley
Terry Earley
CFO at Veritex

Sure. No, great question. And that's definitely been a big area of emphasis with us. If you look at where we stood a year ago, take the down 100 case, for example, it was over double what it stands right now. And so we really look at our profile as pretty rate neutral, with the caveat that it takes us three to four months to catch up when we get a rate cut, because of our loan book being so variable rate.

Terry Earley
Terry Earley
CFO at Veritex

76% of our loans are floating. And so when we get a rate cut, loans immediately price down, and it takes us three months, three to four months for the CD book to catch up, which that's why you've seen the NIM expansion in Q1, because we've had three months of stable rates. If we get if the dot plot's correct and we get two cuts, one per quarter in the back half of the year, I think the NIM remains in that range that we guided. If we get three or four and they start coming back to back, I think you'll see a little bit of NIM pressure in the short run and then should stabilize and return to that range. Really, that's where we see it unless we see something outside of expectation, which is entirely possible.

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

Definitely. Anything is possible. No, that's helpful. And then maybe just last thing for me on the share repurchase. I know you said, I think opportunistic was the verbiage used there.

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

Even with the snapback today, which we all hope holds for the group, it looks like the repurchase this quarter was done around like twenty five point two zero dollars if my math is correct. So would it be fair to assume that at or below that kind of level from the first quarter, you guys would continue to be fairly aggressive around the repurchase?

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

I would say that that if it's below tangible book value, see where the limit of our activity is, and we're gonna stay close.

Terry Earley
Terry Earley
CFO at Veritex

Aggressive is not strong enough for Because it's accretive immediately and they'll earn back and etcetera, etcetera, etcetera. But no, I mean, look, we we know what we've got left.

Terry Earley
Terry Earley
CFO at Veritex

I I wouldn't expect that the share buyback, 377,000 shares, I wouldn't expect that to go down. And if it's bull if it's trading anywhere, know, if if it were to be below tangible book, it's I bet you over.

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

Yep. That makes sense. I appreciate it, guys.

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

Thanks for the time.

Terry Earley
Terry Earley
CFO at Veritex

Alright. Thanks, Steven.

Operator

Thank you. One moment for our next question. Our next question will come from the line of Michael Rose from Raymond James. Your line is open.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

Hey, good morning guys. Thanks for taking my questions. Just wanted to get some color and visibility, just given some of the uncertainty in Washington just around the North Avenue Capital business, the government guaranteed business. Any sort of outlook there that may be different from a couple months ago, just from what you're seeing here? Thanks.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

No, in fact, we're probably as bullish on that business as any business that we have at the company.

Terry Earley
Terry Earley
CFO at Veritex

Government guarantee.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Yeah. Yeah. Yeah.

Terry Earley
Terry Earley
CFO at Veritex

He said North Avenue.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Oh, he said, I'm talking about full government. I just want to know.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

Okay. Sorry.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Yeah. And we put them again, we put them all in one basket. I know they're different, but our reliance is more on the SBA side than it is on the NAC side. And so, yeah, branded it Veritex government lending, but I understand your question. But we're still seeing some USDA opportunities, actually some really good ones.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

We had our first approval through the Veritex system, if you will, because now it's running through Veritex and not through NAC anymore. So we're pretty encouraged that we don't we're not going to have the volumes at one time that we had, but what's happened is those folks that were at North Avenue Capital are now into the SBA space and they have a huge pipeline. It's you're dealing with the similar type folks out there, whether it's a broker community or what have you that have been able to produce some nice volume. We've made some substantial investments in government guaranteed and just as recently as this week. And when I say substantial, I mean substantial people across the country.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

And so it's going to take them a little while to get ramped up. But I think you're going to see that business be an outperformer in the back half of this year and into '26.

Terry Earley
Terry Earley
CFO at Veritex

It's had the SBA businesses had two incredibly strong quarters in a row. And all indications are that's not slowing down even as these people come in and get on board.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

And economy that arguably may be going down a little bit.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

This is a space that actually gets more active.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

Helpful. And I know this is difficult question to ask, but you guys did about $10,100,000 in that line item last year. The year before was roughly double that. Any sort of outlook, just given what you laid out just in terms of some of the momentum in this quarter's start of where that could end up for the year?

Terry Earley
Terry Earley
CFO at Veritex

We're not to the point where we can get back to where we were two years ago, but we would also be very disappointed if we don't do materially better than last year.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

So in between the the the two numbers is a good place to be.

Terry Earley
Terry Earley
CFO at Veritex

Exactly.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

Okay. Helpful. Yeah. Just because it's it's pretty hard from the outside looking in to to kind of forecast that.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

So appreciate it.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

It is. And as we said, we're trying to flatten that out, Michael. You know, we know it's it's it's discouraging for you guys and it's discouraging for us to be able to forecast. And so we're working really hard to flatten that out. And that's why SBA is such a more a greater emphasis.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

It's more granular. Our average loan size is a million and a half dollars. And in the USDA space, the average loan size in 2023 was probably 18 to $20,000,000 or something like that. And so it's just way more granular. It's easier to forecast, and it's a more stable revenue stream that we can depend on.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

I totally get it. Terry, maybe just one on the warehouse outlook. Obviously, a step down this quarter, still up materially on an average basis year over year. Any sort of thoughts there? I know mortgage rates have remained particularly sticky.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

Then any sort of RWA relief that you guys are expecting just with some of the changes that are out there? Thanks.

Terry Earley
Terry Earley
CFO at Veritex

It's on our radar. That's something that over the balance of the year, etcetera, the RWA relief there and in NDFI are an important priority for us. Balances, Michael, it's so hard. I mean, last week, they were apps were down, what, 12 to 13% week over week. I saw and and it's so tied to rates.

Terry Earley
Terry Earley
CFO at Veritex

And yet, you know, a a month ago, they were having unbelievable volume. So we like the business. I'd like it even better with the RWA relief, but the risk adjusted returns are still really, really good. So I would expect there's a lot of seasonality, and hopefully with some clarity on the Washington economic front, if rates can come down, I like what they're doing today on the long end, then then hopefully volumes pick up and averages get I I would love to see averages 100 to $150,000,000 higher than they are, but it's a function of rates.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Did you just ask for clarity in Washington?

Terry Earley
Terry Earley
CFO at Veritex

Everyone's got a prayer every now and then.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

Well,

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

that's all I had guys. Thank you. And Terry, I think this is your last earnings call. So I just want to say congrats on a great career. Thanks for all the help along the way.

Terry Earley
Terry Earley
CFO at Veritex

Thank you, Mike. Very kind. Thank you.

Operator

Our next question will come from the line of Kathryn Miller from KBW. Your line is open.

Catherine Mealor
Managing Director at Keefe, Bruyette & Woods (KBW)

Thanks, good morning. I just wanted to have a follow-up just on the growth outlook. Guess two questions. One is, I know a lot of the pipeline is built which is so great to see. Maybe the question is how much risk do you see in that pipeline maybe not following through just given the volatility that we're seeing in the market versus how much of that you feel like is money good and is loan commitments that will be falling through for the next couple of quarters?

Catherine Mealor
Managing Director at Keefe, Bruyette & Woods (KBW)

Then within that, my second question is just you talked about how a lot of your investments are in the C and I space. I'm curious how much of that pipeline is in CRE versus C and I? Thanks.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Yeah, I was just talking about the risk in that pipeline. Obviously, the answer for me is going to be, oh, it's great. We just approved it. But I guess if you pull back the sheets a little bit, the underwriting on that business is actually better than it's ever been. You've got huge amounts of equity, whether it's 40 to 50% in a couple of cases, you still got good rates.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

And at the end of the day, it's who the sponsor is. Our team has done a great job at dealing with the cream of the crop. And so when folks were still out of the space, and we've got in maybe the quarter or two before the rest of them, you could dictate the terms. Now the terms you could see they're starting to break down a little bit. When I say break down, I'm not talking about materially, instead of getting 45%, you make it 40%.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

And so we feel really, really strongly about the type of stuff we're putting on. We're not going to go, we're not going to put stuff on that we think we're going to have to deal with later.

Terry Earley
Terry Earley
CFO at Veritex

In terms of the percentages of that pipeline, I would say it's two thirds C and I, third Cree. I don't have it in front of me, but it's somewhere in that and and close to that. And I you you and I haven't talked about this, but my confidence is much greater in the Cree side because of all the in migration and all the things that are going on.

Terry Earley
Terry Earley
CFO at Veritex

On the C and I side, we've seen it in revolver utilization. It's come down some. So I think would say the risk of not getting the pull through is higher C and I than it is great right now. But I don't know if you

Terry Earley
Terry Earley
CFO at Veritex

agree.

Catherine Mealor
Managing Director at Keefe, Bruyette & Woods (KBW)

Yeah, that makes sense. Okay, great. Helpful follow-up. Thank you.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Thanks, Kathryn.

Operator

Thank you. One moment for our next question. Our next question will come from the line of Gary Tenner from D. A. Davidson.

Operator

Your line is open.

Gary P. Tenner
Managing Director and Senior Analyst at D.A. Davidson Companies

Hey, thanks. Good morning,

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

Good morning.

Gary P. Tenner
Managing Director and Senior Analyst at D.A. Davidson Companies

I wanted to ask a couple of questions. First, in terms of securities portfolio, I think you have highlighted $175,000,000 in cash flows expected the next twelve months. Are you currently reinvesting? Or are you kind of using that as a source of cash to further reduce wholesale funding?

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

We're targeting investments. I mean, we're picking up stuff if we see if there's market opportunity. But since loans had been viewed in the last couple of quarters, we've been using funds to pay down wholesale, as you saw. So once you see loan growth pick up, obviously, we have to fund the other side of that and to stay at our LDR target. So you'll see us be more active in the investment portfolio once earning asset growth picks up.

Gary P. Tenner
Managing Director and Senior Analyst at D.A. Davidson Companies

Okay, great. And then just a quick follow-up on the fee side. Know you've kind of talked about wanting a 60 handle on fees for the full year and on an operating basis, you're basically right at that run rate or a hair below it. Anything as you think about the pipeline and sounded very positive on government guarantee, anything that kind of increases that kind of baseline or too early to tell?

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

I I think, you know, I I the momentum I think is gonna build. I I I feel like that our customer swap income is a place that it it it's they're, you know, having a they had a good first quarter and I'm encouraged by how the second quarter has started. There's some things we got going in the card and this sponsorship space. We've got we did a treasury we've got a lot going on in treasury. So to me, it's really across the board syndications.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

As we've gotten more active in CRE and where the size of the projects and the ability for Andrew and his team to sell down and and it has been really strong too, and I'm expecting a strong year there. So that's what I said to me. It's it's you you don't see it all yet, but but you can feel the momentum. And We're not hanging on one area. Every single area is contributing.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

So that's where we get some pretty high confidence that the 60 annual is a pretty decent number.

Gary P. Tenner
Managing Director and Senior Analyst at D.A. Davidson Companies

Great, thanks. And just lastly, you've kind of noted the increased weighting to Moody's downside scenario. Can you just remind us where the weighting was last quarter?

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

It was at 65%, but we shifted some weight towards scenario four. Just Okay. Out of an abundance of caution. Yeah. You know?

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

We said that the overall downside stayed the same, but some of it went from, say, scenario two to scenario four.

Gary P. Tenner
Managing Director and Senior Analyst at D.A. Davidson Companies

Okay, got it. Appreciate the color there. Well, Terry, keep on praying. It seems to be working today.

Terry Earley
Terry Earley
CFO at Veritex

Good point. Thanks, Gary.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Matt Olney from Stephens. Your line is open.

Matt Olney
Managing Director at Stephens Inc

Hey, thanks. Good morning, guys. Just want to go back to the discussion around capital. And you mentioned you increased the dividend, really active buyback in the first quarter, and it sounds like you want to remain active on that buyback. Curious about the I think there's a sub debt instrument that becomes callable later on this year.

Matt Olney
Managing Director at Stephens Inc

Just curious if that's on the radar, if there's any appetite to pay this down later on in the year?

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

It's definitely on the radar. It's a $125,000,000 tranche. It's mid October. Don't we're certainly watching it, watching the market where you could refinance the debt, etcetera. I think the outlook or the probability of paying it all off is low.

Will Holford
Will Holford
Director of Strategic Corporate Development at Veritex

I think the probability of paying some of it off, which we can do, is very high. And some of this is gonna depend on what happens with our CRE payoffs. So I'm sorry, don't I mean, there's just it's there. We're watching it all the time, but we've decided we're not it's not the time to make a definitive decision till we see more we need to see things play out a little bit from an economic and rate perspective.

Terry Earley
Terry Earley
CFO at Veritex

The other thing, Matt, I mean, even is on the table is a complete refinance depending on what happens in the rate markets.

Terry Earley
Terry Earley
CFO at Veritex

You know, there there might be a place where we wanna go ahead and redo it and maybe even increase it because we could use some more of that, But it's all dependent on three or four factors and rates being the probably the greatest one as well as our, you know, our CRE forecast.

Matt Olney
Managing Director at Stephens Inc

Yep. Okay. Appreciate that.

Matt Olney
Managing Director at Stephens Inc

And then on the credit overall trends look good in the quarter, lower criticized loans. I think the only blemish that Curtis mentioned was some migration into the non accrual loan bucket. I think office and retail property was mentioned. Any more color on those migrations?

Curtis Anderson
Curtis Anderson
Chief Credit Officer at Veritex

They're long standing names that we've been working with. We're taking the action to move them through and move forward. So I would just say that there's strategies in place to have those moved off by the beginning of the third quarter, and we feel confident in our ability to do that.

Matt Olney
Managing Director at Stephens Inc

Perfect. Okay. Thank you, Curtis. And Terry, congrats and keep in touch.

Terry Earley
Terry Earley
CFO at Veritex

All right. Thank you, Matt. Appreciate you.

Operator

Thank you. This concludes the question and answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Operator

Everyone, have a great day.

Executives
    • Will Holford
      Will Holford
      Director of Strategic Corporate Development
    • Malcolm Holland
      Malcolm Holland
      Chairman, President & CEO
    • Curtis Anderson
      Curtis Anderson
      Chief Credit Officer
    • Terry Earley
      Terry Earley
      CFO
Analysts
Powered by Quartr

Key Takeaways

  • Veritex delivered a net operating profit of $29 million ($0.54 per share) in Q1, with pretax pre-provision earnings of $43.4 million and a net interest margin expanding to 3.31% driven by deposit repricing.
  • Loan balances declined 1.3% in the quarter as payoffs totaled $1.5 billion over the last four quarters, but gross loan production reached $750 million (up 130% YOY pipeline growth) supporting a flat loan outlook for 2025 and stronger growth in 2026.
  • Core deposit growth remained solid, with $440 million of higher-cost wholesale funding moved out, deposit costs down 33 basis points in Q1, and a loan-to-deposit ratio reduced to 89% (targeting < 90%).
  • Credit metrics improved as criticized assets fell 26% YOY, nonperforming assets stood at $97 million (with most expected to resolve by Q3), and the allowance coverage rose to 119 basis points under conservative CECL scenarios.
  • Capital and returns remain strong: tangible book value per share increased 13.8% YOY to $22.33, the dividend was raised 10% to $0.22 per share, and 377,000 shares were repurchased with $37 million (≈ 3% of shares) remaining under authorization.
AI Generated. May Contain Errors.
Earnings Conference Call
Veritex Q1 2025
00:00 / 00:00

Transcript Sections