Veritex (VBTX) - 2022 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements Unaudited consolidated financial statements show significant asset and deposit growth, stable net income, and a strong capital position, despite an other comprehensive loss from rising interest rates Consolidated Balance Sheets Total assets increased by 15.8% to $11.30 billion, driven by loan and investment growth, funded by deposits and FHLB advances, with AOCI decreasing significantly Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $11,304,811 | $9,757,249 | +15.8% | | Total LHI, net | $8,471,846 | $7,307,269 | +15.9% | | Total Investments | $1,557,088 | $1,243,085 | +25.3% | | Total Deposits | $8,517,706 | $7,363,615 | +15.7% | | Advances from FHLB | $1,000,000 | $777,562 | +28.6% | | Total Stockholders' Equity | $1,429,442 | $1,315,079 | +8.7% | | AOCI | $(21,416) | $64,070 | -133.4% | Consolidated Statements of Income Net income remained stable at $29.6 million for Q2 2022, driven by increased net interest income, offset by higher credit loss provisions and noninterest expenses Key Income Statement Data (in thousands, except EPS) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $84,480 | $67,131 | $157,520 | $132,766 | | Provision for Credit Losses | $9,000 | $0 | $8,500 | $0 | | Noninterest Income | $10,378 | $12,456 | $25,475 | $26,628 | | Noninterest Expense | $48,153 | $41,717 | $94,725 | $81,314 | | Net Income | $29,626 | $29,456 | $63,096 | $61,243 | | Diluted EPS | $0.54 | $0.59 | $1.19 | $1.22 | Consolidated Statements of Cash Flows Operating activities provided $99.2 million cash, while investing used $1.57 billion for loans and securities, largely funded by $1.51 billion from financing activities - Significant cash was used for organic growth through net loan originations ($1.20 billion) and investment portfolio expansion ($432.7 million in AFS purchases)[20] - Growth was funded by a substantial increase in deposits ($1.15 billion), FHLB advances ($221.1 million), and proceeds from a common stock public offering ($153.9 million)[20] Notes to Consolidated Financial Statements Detailed notes cover securities portfolio unrealized losses, loan growth, stable credit quality, strong capital ratios, and specifics on business combinations and compensation plans - On January 1, 2022, the company transferred 25 AFS debt securities with a fair value of $117.0 million to the Held-to-Maturity (HTM) category[41] - In March 2022, the company completed a public offering of common stock, raising net proceeds of approximately $153.8 million to support continued growth and for general corporate purposes[37] - The company's loan portfolio is geographically concentrated in the Dallas-Fort Worth metroplex and the Houston metropolitan area, subjecting it to the economic conditions of these regions[52] Capital Ratios as of June 30, 2022 | Ratio (Company) | Actual | For Capital Adequacy | To Be Well Capitalized (Bank) | | :--- | :--- | :--- | :--- | | Total capital (to RWA) | 11.95% | 8.0% | 10.0% | | Tier 1 capital (to RWA) | 9.52% | 6.0% | 8.0% | | Common equity tier 1 (to RWA) | 9.25% | 4.5% | 6.5% | | Tier 1 capital (to average assets) | 10.14% | 4.0% | 5.0% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q2 2022 net interest income growth and margin expansion, asset growth to $11.3 billion, stable credit quality, and funding from deposits and equity offering Results of Operations Q2 2022 net income was $29.6 million, driven by a 25.8% increase in net interest income and a 3.42% net interest margin, offset by credit loss provisions and higher expenses Net Interest Margin Analysis (Q2 2022 vs Q2 2021) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net Interest Income | $84,480 thousand | $67,131 thousand | | Average Interest-Earning Assets | $9,893,829 thousand | $8,659,059 thousand | | Net Interest Margin | 3.42% | 3.11% | | Net Interest Spread | 3.21% | 2.90% | - The provision for credit losses was $9.0 million for Q2 2022, compared to zero in Q2 2021, primarily due to loan growth[182] - Noninterest income decreased by 16.7% in Q2 2022 compared to Q2 2021, mainly due to a $2.7 million (77.1%) drop in government guaranteed loan income, net[185][186] - Noninterest expense increased by 15.4% in Q2 2022, largely due to a $3.5 million (14.8%) increase in salaries and employee benefits from investment in talent and higher stock-based compensation[189] Financial Condition Total assets grew 15.8% to $11.30 billion, with loans increasing 15.6%; nonperforming assets decreased to 0.40% of total assets, and deposits rose 15.7% Loan Portfolio Composition (in thousands) | Loan Type | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Commercial | $2,450,403 | $2,006,876 | | Non-owner Occupied CRE | $2,203,970 | $2,120,309 | | Construction and land | $1,532,997 | $1,062,144 | | 1-4 family residential | $765,260 | $542,566 | | Total LHI (amortized cost) | $8,560,115 | $7,341,143 | Nonperforming Assets (in thousands) | Metric | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total nonperforming loans | $43,995 | $49,922 | | Total nonperforming assets | $45,027 | $49,922 | | Ratio of nonperforming assets to total assets | 0.40% | 0.51% | - Total deposits increased by $1.15 billion (15.7%) since December 31, 2021, primarily from growth in interest-bearing transaction and savings deposits (+$730.9 million) and noninterest-bearing deposits (+$437.1 million)[241] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate volatility, managed by the Asset-Liability Committee through simulation models, with the balance sheet positioned to benefit from rising rates Interest Rate Sensitivity Analysis (as of June 30, 2022) | Change in Interest Rates (bps) | % Change in Net Interest Income | % Change in Fair Value of Equity | | :--- | :--- | :--- | | +300 | 15.02% | 7.62% | | +200 | 10.01% | 5.57% | | +100 | 4.99% | 3.10% | | -100 | (5.06)% | (4.15)% | - The company manages interest rate risk by structuring its balance sheet and does not use leveraged derivatives or other complex instruments for this purpose, though it does enter into swaps and caps as an accommodation for customers[273] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[279] - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2022[280] PART II — OTHER INFORMATION Legal Proceedings The company is subject to various claims and litigation in the ordinary course of business, with management deeming a material adverse effect on financials as remote - In the opinion of management, the likelihood is remote that the impact of current legal proceedings would have a material adverse effect on the company's financial position[283] Risk Factors No material changes have occurred in the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes have occurred in the risk factors since the filing of the Annual Report on Form 10-K for the year ended December 31, 2021[285] Other Items This section covers standard disclosures, reporting no unregistered sales of equity securities, no defaults on senior securities, and no other material unreported information - The company reported no activity under Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), or Item 5 (Other Information)[286][287][289]