Veritex (US:VBTX)2022-07-27 19:08Financial Data and Key Metrics Changes - For Q2 2022, the company reported net operating income of $30 million or $0.55 per share, with a pretax pre-provision operating income of $46.7 million or $0.85 per share, marking an increase of $5.1 million over the previous quarter despite lower non-interest income [9][10] - Net interest income surged by over $11 million, driven by strong loan growth, resulting in a total of $84.5 million for the quarter, a 16% increase from Q1 [10][25] - The net interest margin (NIM) increased by 20 basis points from Q1 to 3.42%, with further strengthening observed in July [26][27] Business Line Data and Key Metrics Changes - Loans net of mortgage warehouse grew by $791 million or 44% annualized in Q2, totaling $1.16 billion for the first half of the year, representing a 35% annualized growth [11][15] - Non-interest income declined by $4.7 million to $10.4 million for the quarter, primarily due to a decrease in gain on sale income and a write-down on servicing assets [28][30] - The average mortgage warehouse balances increased by 13.6% in Q2, contributing positively to the overall loan growth [24] Market Data and Key Metrics Changes - Texas sales tax revenue was up 16% year-over-year, with total sales tax revenue exceeding $35 billion for the first 10 months of the fiscal year, indicating strong economic performance in the region [14] - The company noted that its credit metrics continued to improve, with non-performing assets (NPAs) falling to 40 basis points, down from a high of 111 basis points in Q3 2020 [16] Company Strategy and Development Direction - The company remains focused on hiring top-quality talent, having added 65 new employees in the quarter, with a commitment to developing future banking leaders through various programs [41][42] - The management emphasized a strategic approach to loan growth, with expectations of a slowdown in the back half of the year to a range of 16% to 18% [15][96] - The company is evaluating a credit risk transfer on its mortgage warehouse portfolio to lower risk-weighted assets, which is expected to enhance capital ratios [39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the Texas economy, stating that it continues to outperform national averages, and noted that while some projects have been paused, overall client distress has not been observed [13][15] - The management anticipates a strong back half of the year for loan funding, particularly with the USDA securing additional funding for its programs [31][59] - There is an expectation for fee income to improve in Q4, although Q3 is anticipated to be weaker [61][64] Other Important Information - The company reported a capital growth of $36 million during the quarter, bringing total capital to $1.3 billion, with CET-1 ratios expanding by 22 basis points year-over-year [38] - Operating expenses increased by $2 million from Q1, primarily due to marketing costs associated with a golf championship event [36] Q&A Session Summary Question: Impact of government guaranteed loans on expenses - Management indicated that the current situation is temporary and they remain committed to investing in talent and building the business despite rising rates and funding challenges [46] Question: Marketing expenses and their benefits - The company plans to continue its marketing efforts, particularly in the golf industry, despite changes in the market [48] Question: Gain on sale premiums and future expectations - Management noted that rising interest rates and economic uncertainty have impacted gain on sale premiums, with expectations for them to remain weak through the year but improve in 2023 [56][58] Question: Loan growth funding strategies - The company plans to fund growth through a combination of InterLink, core deposit growth, and community bank initiatives, with expectations of significant contributions from these sources [75][78] Question: Future loan-to-deposit ratio targets - Management confirmed that they aim to achieve a loan-to-deposit ratio in the low to mid-80s, with confidence in meeting growth targets [99][101] Question: Expense growth and efficiency ratio improvements - Management expects meaningful improvements in the efficiency ratio over the next four to six quarters, driven by revenue growth outpacing expense growth [110][112]