Veritex (VBTX) Q2 Earnings call transcript Jul 24, 2024

Veritex Holdings, Inc. (Veritex) recently reported its second quarter 2024 earnings, highlighting a number of positive trends and strategic initiatives aimed at strengthening its financial position and enhancing its future growth prospects. The company's management provided an insightful analysis of its performance, focusing on key themes such as credit improvement, deposit growth, and strategic repositioning.

Credit Improvement and Loan Growth

The company reported a solid operating earnings of $28.3 million or $0.52 per share for the second quarter, with all components of the Profit & Loss statement showing positive trends, except for the government guaranteed key business. Veritex's management has emphasized its commitment to repositioning its balance sheet, with a focus on reducing its loan-to-deposit ratio and dependence on wholesale funding. The loan-to-deposit ratio, excluding mortgage warehouse, has declined below 86%, and the dependence on wholesale funding has dropped to 19%.

Despite a flat loan growth rate for the year, Veritex's pipelines in small business and C&I areas are building, with a mid-single digit loan growth anticipated for the back half of the year. The company's credit performance has also been encouraging, with criticized and classified totals remaining stable, but trending down compared to previous quarters. The NPAs have reduced by 20% or $21 million, driven by a restructured Houston Data Center property and a sale of a foreclosed property. The company also reported a net charge-off of $6.9 million, in line with full year expectations.

Deposit Growth and Strategic Focus

Veritex's deposit growth has been a significant highlight, with high single digit growth anticipated for the back half of the year. The company's focus on enhancing its deposit franchise and reducing its funding costs has been a strategic priority, with an emphasis on shifting the deposit mix towards lower-cost deposits. Terry Earley, the Chief Financial Officer, noted that deposit costs are at or very close to the peak, and the company is actively working on remixing its deposit base to reduce high-priced deposits.

The company's efforts to diversify its loan portfolio have also been noteworthy, with a focus on reducing CRE concentrations and improving USDA revenue performance. The management team has expressed optimism about the potential for enhanced SBA business, given the integration of SBA into the USDA business.

Outlook and Challenges

Looking ahead, Veritex Holdings appears poised for continued improvement, with a focus on enhancing credit metrics, reducing funding costs, and growing its deposit base. The company's strategic initiatives, coupled with a positive outlook for the back half of the year, suggest that Veritex is well-positioned to capitalize on opportunities in the evolving banking landscape.

However, challenges remain, particularly in the area of credit risk management and the need to adapt to a potentially changing interest rate environment. The company's management has emphasized its commitment to prudently managing credit risk, with a focus on enhancing credit metrics and improving credit quality.

In conclusion, Veritex Holdings' second quarter earnings call provided a comprehensive overview of the company's financial performance and strategic initiatives. With a focus on credit improvement, deposit growth, and strategic repositioning, Veritex is well-positioned to navigate the evolving banking landscape and capitalize on opportunities for growth.