Veritex Holdings, a regional bank operating in Texas, reported its third-quarter earnings for 2024, showcasing a transformative period in its financial health and strategic direction. The earnings call, led by CEO Malcolm Holland, CFO Terry Earley, and Chief Credit Officer Curtis Anderson, provided insights into the company's financial performance and outlook.
Operational Highlights and Financial Performance
Veritex Holdings reported operating earnings of $32.2 million or $0.59 per share, with pretax pre-provision earnings at $44.6 million or 1.38%. The net interest margin (NIM) has shown a slight increase, while capital continues to grow, with CET1 now at 10.86%. Deposits have grown by $311 million, highlighting the company's strategy to attractively priced deposit funding sources. However, loan growth has been hindered by large payoffs, resulting in a decrease of $126 million quarter-over-quarter.
The company's credit profile has shown significant improvements, with criticized totals lower for the quarter, reflecting successful payoffs and restructurings. The bank has also managed to reduce its non-performing assets (NPAs) from $83 million to $67 million, now at 0.52% of assets. Charge-offs were nominal, with recoveries offsetting a long-standing credit problem. The company's credit team's efforts to early surveillance and move undesirable loans out of the portfolio have produced positive results, although more work is needed.
Balance Sheet Transformation and Capital Management
The call emphasized the company's focus on balance sheet transformation, with a commitment to move its 1% ROAA higher. Veritex has been dedicated to this journey, which has led to a stronger balance sheet through focused deposit gathering and client selection efforts. The loan-to-deposit ratio has decreased from almost 95% a year ago to 88%, and the company aims to remain below 90% going forward. The loan-to-deposit ratio, excluding mortgage warehouse, would have been just under 82%, highlighting the short amount of time mortgages stay on the warehouse lines.
Capital ratios have expanded significantly, with total capital growing approximately $132 million over the last six quarters. The CET1 ratio has expanded by 75 basis points year-over-year, now standing at 10.86%. This growth in capital has been achieved through a $450 million decline in risk-weighted assets over the same period. The company's tangible book value per share has increased by 15.8% on a year-over-year basis, demonstrating the success of its capital management strategies.
Looking Ahead: Challenges and Opportunities
The call also touched upon the challenges and opportunities facing Veritex Holdings. The company is still experiencing some large payoffs, which has kept loan growth down, but the pipelines are building, specifically in the C&I side. However, these payoffs reflect a positive sign of a healthy loan portfolio. The mortgage warehouse has been strong for the company, and they expect it to remain strong in the fourth quarter.
The company is focused on revenue growth, disciplined loan growth, and efficiency, shifting from getting liquidity to repositioning the balance sheet. This focus is evident in the company's deposit growth and attractively priced deposit production, which has allowed it to reduce reliance on wholesale funding. The NIM has expanded led by good execution when the Fed reduced rates, but there are areas for improvement, particularly in credit risk profile and USDA revenue performance.
Conclusion
Veritex Holdings' third-quarter earnings call provided a comprehensive overview of the company's financial performance and strategic direction. The company has made significant strides in balance sheet transformation and capital management, positioning itself for future growth. However, challenges remain, particularly in managing credit risk and USDA revenue performance. The company's focus on revenue growth, disciplined loan growth, and efficiency, along with its commitment to attractively priced deposit funding sources, sets the stage for a promising future. As Veritex Holdings continues to navigate the evolving financial landscape, its strategic initiatives and financial health will be closely watched by investors and analysts alike.
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