Q1 2022 Veritex Holdings Inc Earnings Call
Good day and welcome to the vertex.
Holdings' first quarter 2022 earnings conference call and webcast all participants will be in a listen only mode. Please note. This event is being recorded I went out to turn the conference over to MS. Susan Caudle Investor Relations Officer, and Secretary to the board of vertex Holdings.
Thank you before we get started I would 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 at this time, if you're logged.
Into our webcast. Please refer you refer to our slide presentation, including our Safe Harbor statement beginning on slide two for those of you joining us by phone. Please note that the safe Harbor statement and presentation are available on our website Xyratex Bank Dot com.
All comments made during today's call are subject to that safe Harbor statement.
The financial metrics discussed will be on a non-GAAP basis, which our 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 8-K earnings release.
Joining me today are Malcolm Holland, our chairman and CEO , Terry Earley, our Chief Financial Officer, and Clay Riebe, Our Chief Credit Officer, I'll now turn the call over to an outcome.
Good morning, everyone I'm pleased to bring to you our first quarter financial results operating net income was 66 or $34 million and a pre tax pre reserve of $1, 71%.
The quarter had many positive attributes that continued to set us up for long term success and increasing earnings growth.
As I think about our growth during the quarter, both loan and deposit growth exceeded our expectations yet the majority of the loan growth came late in the quarter.
Our average loan growth from Q4 to Q2 was only a 107 million producing less than expected revenue for net interest income, but our ending loan balance was 362 million greater than Q4, ending balance, resulting in a 21% annualized growth quarter.
A great starting point for Q2.
The growth came in C&I $87 million.
Sorry of $222 million in residential was $61 million.
<unk> is encouraging was our deposit growth of 29% with the majority being non interest bearing DDA, which grew $225 million during the quarter.
The loan pipelines have actually increased and remained robust and should set us up for a similar to higher loan growth for the next several quarters.
The why behind our growth profile continues to be the same for things.
One.
Focus on constant upgrade and hiring of experienced and proven talent to operating in the strongest growth markets in the country.
<unk> continued market disruption and four our commitment for my team that strong risk focused growth is a pathway to enhancing our company's value.
On the credit side, we find all of our metrics continued to trend in a very positive direction.
N P. A's have declined for the fifth consecutive quarter moving down to four 6% of assets from five one the previous quarter criticized assets decreased 21% year over year.
Past dues remain in an acceptable range, while total charge offs were $4 8 million centered in two acquired credits which were previously reserved.
I'd like to spend a few minutes discussing the talent, we continue to track to our company.
As you are aware, we have made it a major priority to invest in top notch talent, both on the client facing and non client facing side for the quarter. We hired 47, new people 20 of which are new position ads.
In 27 replacement ads of the 20, new ads 10 or on the production side.
This does not include the three seasoned lenders, we hired in Houston and the Houston market.
A couple of weeks ago. These three hires and the teams they will assemble make a major statement to the Houston market that vertex is committed and positioned very well to continue.
Organic growth in this market.
Our focus on talent and finding the right people and most importantly that fit our culture and shared dedication to quality growth will continue to drive our value proposition with that I'll turn it over to Terry. Thank you Malcolm before I get into specific pages and results I wanted to make a few general comments Q4 'twenty one.
One was an amazing quarter at 84 operating EPS during Q4, everything fell our way, including bond prepayment income collection of non accrual interest boley proceeds and the nature of oil reserve release.
We adjust Q4 EPS for those things plus first quarter day, count and share Count then we're right on top of our Q1 'twenty. Two operating result of 66 in EPS as.
As you think about Q1 'twenty two please keep the following in mind first the timing of the mismatch when we raise capital until we until when we can get it fully deployed next period end of period in loan growth drives the perception of business performance the growth in average loans, just what drives our earnings performance and our growth.
Came late in the quarter.
Business momentum is building this is true across our spread businesses and our fee businesses.
Finally, we continue to invest in talent to drive future growth when making talent investments there isn't inherent revenue expense mismatch that occurs at inception that we're willing to accept given the expected returns.
Starting on page four we are pleased with the continued strong financial metrics, even with the additional capital our operating return on average tangible common equity remained strong in the first quarter at 16, 1% and 17, 2% over the last four quarters.
Beer taxes pretax pre provision operating return on average assets was $1 71 for the first quarter and has averaged one 8% for the last year, reflecting a growing but very efficient company.
On slide five Malcolm has already mentioned our loan growth for the quarter. This loan growth includes the March purchase of a $49 million <unk>.
Owner occupied mortgage portfolio loan.
Loan growth on a year over year basis is 19, 5% and this is the third quarter in the last year, where it has exceeded 20% loan.
Loan payoffs were a big part of the back half of 2021 growth story payoffs in the first quarter declined meaningfully from Q4 levels, but are still well above the level seen in the first half of 2021.
The level of unfunded commitments in the ADC portfolio increased to almost $2 billion.
Current quarterly loan fundings from the ADC portfolio are approximately $500 million every quarter.
Q2 growth has started strong much better early quarter performance than what we saw in Q1.
Average mortgage warehouse balances decreased 12, 8% in the first quarter. We're certainly pleased with these results given what's going on in the mortgage space and seeing the portfolio changes for some of our competitors. This portfolio now sits at about five 8% of average loans.
Moving on to slide six.
Loan production remained robust with good production from each of our lines of business Q1 is typically weaker than our other quarters, but does reflect an increase of 23% on a year over year basis note that we've not included the mortgage portfolio purchase in our production results.
Q2 loan production has started stronger and is tracking ahead of Q1 production at the same stage of the last quarter on page seven earning assets ended the quarter at $9 6 billion as <unk> executed on our stated goal to build more on balance sheet liquidity cash and investments now composed 25.
<unk> of earning assets up from 18% at the end of Q4 and expect this trend to continue throughout 2022, as we work to get our loan to deposit ratio, excluding mortgage warehouse down into the mid eighties.
Net interest income decreased $3 $7 million from Q4 to $73 million in Q1, two items accounted for $3 $1 million of this decline.
These were the $2 1 million in Q4 prepayment income from a debt security and $1 million from the Q4 collection of non accrual interest the other.
The driver in the decline in net interest income was day count, which represents $1 6 million. These items were offset by 1 million increase in net interest income from growth and 400000 from some savings on the sub debt that was repaid late in Q4.
The net interest margin decreased 15 basis points from Q4 to $3 two 2% the debt prepayment in the collection of the non accrual interest accounts for all but one basis point of the decline.
Average liquidity was approximately $355 million higher than our normal target level and this increased liquidity is primarily a function of strong deposit growth and had the effect of depressing the NIM by 12 basis points.
As you look to model net interest income in future periods remember the following.
First the fed bid rate hike in March had minimal impact since the bulk of our one month LIBOR and super loans at a rate reset date of the first day of April 2nd average loans for the first quarter were 380 million below the ending balance on March 31, creating a significant positive jump ball.
Third vertex is asset sensitivity has increased since Q4 and with market expectations of additional fed rate hikes in 2022 or 200 basis.
<unk> points this will add significantly to net interest income.
Finally, while we did not show data on the loan floors, but please know that was 75 bips in additional fed rate increases virtually all the loans will be above the floor rate.
Moving to slide eight North Avenue capital continues to settle into vertex and become more comfortable with our culture processes et cetera. The pipeline remains strong Q1 revenue could have been higher but a couple of closing slipped to Q2.
Net income forecast that we published when we announced the transaction remains on track and so.
So.
It's everything is going according to management expectations moving to drive their results have certainly been impacted by seasonality as well as the competitive pressures brought on by pricing and higher mortgage rates origination volume was down 18, 3% and gain on sale declined slightly as well where express.
<unk> better results in Q2 did they are aggressively managing cost and staffing levels levels, coupled with the successful hiring the significant origination team in Arizona. This should add meaningfully to forecasted volumes on.
On slide nine noninterest income totaled $15 1 million results for SBA and swap fees deposit fees syndication fees were all in line with management expectations operating expenses on slide 10 increased $1 6 million from Q4 salaries and employee benefits were the largest component of the increase.
<unk> is head count grew almost 4% during the quarter also impacting personnel expenses, where FICO levels 401, K match on cash incentive payments and $960000 and costs related to 2019 performance share unit grants.
That vested at 150% of target due to our top quartile GSR performance.
Over the last three years.
Looking forward Q2, marketing expenses will be elevated due to the cost related to the vertex Bank championship a corn period tournament held in Arlington, Texas during the month of April .
Moving forward to slide 10, and a great quarter on the deposit front with growth of 29% for the quarter and 14, 3% for the last year total deposit costs continued to trend down and ended the quarter at 17 basis points non.
Noninterest bearing deposits now represent 35% of the deposit book and time deposits were down to 18% of the total got to admit that I'm glad to have both of these in the current rising rate environment on.
On slide 12, all capital ratios improved with the common stock offering we completed in Q1 <unk>.
Tangible book value per share declined two 5%, excluding the impact of the capital raise this decline reflects the impact of rising interest rates on the <unk> portion of the investment portfolio. We did move $117 million from a S. S into HTM during the quarter vertex grew tangible.
Book value per share, 3% over the last year after adding back the impact of quarterly dividends and backing out the impact of the capital raise TBB growth has been and remains an important priority for our management team our capital deployment priorities given the current valuation of our stock or organic growth.
Dividends strategic growth and lastly share repurchases with that I'd like to turn the call back over to Mel.
Thank you Terry the year has started out well for vertex with the announced acquisition of Interlink from stone Gaslog partners the.
The 154 million capital raise and our continued organic growth we are well positioned for continued success as.
As we think through the prospect of our partnership with with with Interlink. We are increasingly more excited about the numerous revenue opportunities and options on how to deploy these core deposits, while the additional capital will provide supplemental fuel and stability to help us execute our strategies.
We say often we have the right team the right geographies and this is the right time for vertex. Thank you to my team for dedicated and our dedicated staff who continue to produce incredible results.
One last comment I would like to make.
We couldn't be prouder of one of our brand Ambassador Scotty Schaeffler that 2022 Master champion a number one ranked golfer in the world is humbleness and down to Earth personality is so pleasing to be around and we are grateful for our partnership we have been committed to the game of golf for many years.
We love it still a community and camaraderie, while displaying its principles of integrity commitment and truth, which represent what we aim to be every day for our clients and our communities.
Brad now like.
To open the line for any questions.
To ask a question you will need to press star one on your telephone to withdraw your question just press the pound key.
Please standby, we compile the Q&A roster.
Our first question comes from the line of Michael Rose from Raymond James Your line is open.
Hey, good morning, everyone. Thanks for taking my questions.
Wanted to start on the margin. So obviously a lot of moving pieces here Terry.
I guess, how should we think about.
You know kind of a starting point like obviously, there's a lot of items on the slide what what should we be backing out or adding back and how should we think about.
About a starting point ex rates.
The margin thanks.
Oh I think the 322 was a good starting point.
Last last quarter 337 was just.
Unusually unusually high so if youre not thinking about I think you start with $3 22, and then it's whatever you assume about.
The the changing asset mix are we can we get the six less liquidity down as I said, that's 12 points.
There's a lot of liquidity in the market all banks have a lot of liquidity.
Certainly there have been quarters, where we've been closer to our target levels, but it's been a few so I would start there.
And I think I think the biggest thing for net interest income growth.
It's just you know knowing that that.
To reach 75 basis points of moves and we're off the floors.
Our asset sensitivity is.
And our growth profile and I know this is not in the transition to net interest income and then it's all about growth for us and getting liquidity.
Existing liquidity deployed as well as what we know will be bringing on in the back half of the year with the interlink opportunity that Malcolm mentioned.
Yeah.
Very helpful. And then obviously you guys have been very active on the hiring front and if I look at expenses and I kind of exclude the FICA and it looks like you were kind of flattish just how should we think about just.
Expenses, we'd move forward balancing.
The people that youre, adding.
Along with our expense control efforts. Thanks.
Yeah. I mean, you know we gave this pretty broad expense range to start the year and you know I would say, we're still we're still in that range and we're not near the top of that range in our minds right now.
Again, as you think about Q1.
You know you do have normal first quarter biker stuff.
You know benefits.
Things like that but for US. We also had that $960000 expense item that I mentioned related to the psus.
That item is one one times one time I mean, you know.
We will have that.
We may be talking about a much smaller adjustment in Q1 of 'twenty three but you just can't accrue that because you don't know, it's where your TFR performance and you don't know how you're going to perform and how all your peers are going to perform.
And let me just add one thing Terry just about.
Not the actual number but.
The reason were somewhat flattish Michael I think we do a really good job of moving people out as we bring people in so yes head counts are moving up the bank is growing we do have more employees, but we've done a pretty good job of Manning managing out folks when we when we need to.
So the net number.
Growth number is lower than you might expect and so that'll keep the salary number down just a smidge yet so.
Michael I think for the year I think we're still going to be.
Pretty.
Yeah pretty pretty right now I'd say close to the middle part of that range. We gave you but that obviously depends on a lot of things are certainly salary pressure, we're all feeling and.
And we have a lot of a lot of open positions, especially in the back office, but you're always trying to get feel but but.
For US. This was this is all about revenue right now the expenses are pretty well behaved.
And and.
It's really about getting familiar on the revenue side, it's about if in Q1. It was all about the timing of growth.
And better and we've always said our fees are going to be lumpy and they certainly.
Case, but the expense side is doing really from my chair, we're doing really well there and very much in line with what we thought when we started the year.
That's very helpful. Maybe just just one final one for me just on credit you know as I look at the past couple of quarters that the charge off ratio has been a lot higher than I think I would've thought I know these these charge offs have been kind of a full reserve for.
But how do we think about.
Whats kind of happened you know why those loans have gone bad and then just more broadly how do you think about credit and the reserve here.
Is a little over 1%.
Criticized and classifieds are down.
Which has been really good to see but you know just given some concerns out there on the horizon.
How should we think about no credit for you guys and maybe future provision trends. Thanks.
Yep.
We feel we feel really good about where our credit is I mean, you gotta take take us back to when Covid started.
Everybody was running around pulling their house thinking the world is going to come to an end and we purposely kind of loaded up because we could and we did and so we feel really good about where R. R.
Loan loss reserve is today.
There's been a few of these acquired credits candidly that were still working through we've got a couple a couple more that will get resolved in the back half of the year, we believe.
And we don't charge things off until we know we've lost I mean, there I can give you. There is an example, or two in the last past year, where we thought we are going to lose and we ended up collecting and so we're pretty diligent on our collection efforts.
But I don't see any deterioration in our portfolio haven't seen any any trends that are concerning.
As the as we as we fight the Moody's forecast about how good things are it's going to be more and more difficult to keep our reserved where we at where we have them and so we work at that and.
It's odd because the markets are saying in that everyone is saying recession. This recession that yet you get moody forecasts and shows the Texas, GDP and unemployment pretty darn stable and positive. So those are things that are just challenges for us, but they are all first world challenges, but we have.
To work to keep it where it is but overall I feel really good about our credit portfolio and don't see any trends today now 30 to 90 days from now we're doggone in July that that May change, but.
Michael I, just I don't I don't see it in clay didn't see it.
Michael I would add one thing it looks like the reserve it looks like it went down a fair amount, which it did but we took the negative bias in the Moody's scenarios from 20% to 30% just to just out of a dip.
Because a lot happened from when Moody's released their data to the end of the quarter certainly a lot changed in the shape of the yield curve inversion et cetera, but do know we made the model.
More conservative than it otherwise would've been and we'd probably we could have been looking at a little bit of a reserve release, if we had not made it more conservative. We just didn't think that was the thing to do and I totally agree with Malcolm as you dissect them.
Slice and dice our reserve keeping it keeping it here is not going to be easy but.
But that's our that's our intent.
Okay, Great I appreciate you taking all my questions.
Thanks, Bob.
Our next question from the line of Brett Robertson from.
Oh.
All right.
You may now be human now beginning.
Hey, guys good morning.
Hey, Brett.
Wanted to first talk about fee income for a second and make sure I understood the expectations.
For thrive in North Avenue in and obviously mortgage is a little more challenged.
This year, but just wanted to make sure I understand your expectations for for both of those businesses and then are there you talked about the hires that you made or are any of the hires that you're making.
And some of the fee income businesses.
What what are you anticipating to.
Maybe invest in some of those fee income.
Initiatives this year.
Yes.
I'll start let's start with thrive.
You know drive over 2021 and for the first quarter of 2022 has outperformed the MBA results.
Consistently in this quarter I believe Q1 production was down 23% versus Q4, and Theyre down to 18, and a half so and that was true that outperformance was true in 2021 versus EMEA. So I expect that that that's likely to continue but by some level.
And I mentioned, the hiring they've done in Arizona for a team that's pretty significant coming on there, but you know internally I'm forecasting it along the lines of the MBA forecast.
Yeah, you know I, just think it's I'd, rather I think they will outperform it but I think thats the right way to model it and forecast it right now and I think gain on sale margins down 15 bps or so for them I mean, that's that's.
Not huge and it seems to be but it is competitive you know Brent it really really is out there and as I made comments I mean, they were being like all the mortgage companies.
Very good.
<unk> on managing cost as you would expect when you are in that business.
Looking fourth Avenue their pipelines are great I'm excited about Q2, our expectations for the full year have not changed but the revenue that we thought were going to do a little better when we started the quarter, even midway in the quarter, but they just split over gas. We've always said this is a lumpy business and.
But.
We have hired and.
In North Avenue capital to people I think on the production side.
So yes. So we are trying to actively grow that business, they're doing good I mean, they go through a lot of change they went from being a private company to a part of a $10 billion bank.
But it's a it's a good team they are engaged.
Courage by the pipeline progress I see week to week and I'm still bullish on the year, Although I wish Q1 had been a little better.
And one other fee higher just we've hired a guy that's focusing.
Strictly on the swap business now.
Now the swap business markets are masked because nobody wants to take on the other side of the trade, but that'll that'll settle down at some point. So that's another one of our efforts from the hiring side to focus on the fee side.
Okay, Great that's great color on slide 14 by the way I appreciate that.
Given given the color there.
And then wanted just to follow up on the margin.
I wanted to make sure I understood.
With the pending deal.
Is that baked into the static shock impact on NII or then would that be different once that transaction is closed.
Yes.
It's not built in because we don't have them on our core.
And the deal Hasnt closed.
Do I think it will make us a little bit asset sensitive I do but.
But actually I'm, okay with that because I am turning to that slide with the interest rate.
Slide seven.
I mean, I love the upside asset sensitivity from a 100 200 300 shock, but I'm also looking at the down 100 shock and you know when you look at the forward rate curve.
<unk> peak in mid 'twenty, three and start down.
And so you know.
I'm trying to figure out ways to take downside rate risk off the table should that occur and that's certainly one of the things that will help along with what we're doing in the investment portfolio.
With the mortgage side of the business that we're building the portfolio there as well so.
But no the answer to your question, it's not built in it will take some sensitivity up sensitivity off the table, but it will also take some down sensitivity off the table.
It will reprice down quickly.
Okay.
And then maybe just lastly, as it relates to that.
On slide six you got that Great chart that shows the 13 months.
Yield trend for for loan production and <unk>.
Was just curious if youre starting to see stuff on with solid four handles these days or what the competitive landscape is maybe down to.
Sprouts is rates are moving higher.
Uh huh.
There's a lot there has been talk about it we haven't I mean, we.
We push it certainly.
But pricing will be the last thing to move.
Theres still some competitiveness in the marketplace, mainly in the lower end on the very low rate on the very high end.
It could be a rational and as Terry always says you get what you Miss Bryce and so theres some of that going on in the market, but listen.
Our pipelines are as full as they've ever been our second quarter.
If you liked our first you'll probably love our second.
So.
We're getting what we want and it is a little bit lower than we'd like but.
We're okay with that we like the volume.
Yes spread look I think.
If you were to look back we're typically and I always think of spreads not rates fixed or variable. It's all about spread and do I think that that spreads are going to compress a little bit on new origination, we yes, theres too much liquidity and too much capital and we're definitely seeing that especially in the term Kris space and <unk>.
I agree with Malcolm on the high end.
Theres some theres some.
Way too skinny pricing look our industry is moving into a phase where its going to mispriced risk for a while.
That's what's going to happen.
And we're not we're not we're a price taker not a price maker and so we're going to have to deal with that the thing. We can't do is mispriced or not mispriced risk, but mis mis analysed risk we cannot take risk on the credit side Mispricing alone you can see it you kind of feel like.
You hit your thumb with a hammer, but if you strip credit side.
The consequences are much more painful so that's where we are we're going to compete on price, we're not going to compete on credit terms right.
Okay, Great appreciate all the color.
Thank you Brett.
Our next question will come from the line of Gary Tenner from D. A Davidson your line is open.
Thanks, Good morning.
I think he I think he probably addressed this a couple of ways. Even during your prepared remarks, but you know as you think about just the kind of a broader national economic uncertainty.
Are you seeing.
Any impression at all that customers are kind of thinking differently about investing in their business at all.
You know as you look at the pipeline in the back half of the year and kind of what the opportunities are there obviously, Texas.
You would expect to outperform the national economy, but just curious for any any insights there.
You know <unk>.
Candidly I know yellow like the answer but no we're not we're not seeing anything here.
Now the in migration of people continues and it's just it's a super strong economy I thought that the housing market would start slowing down a little bit.
But I can from personal experience of people, we're hiring there coming from out of town. They can't find places to live and these are places 30 minutes from headquarters.
So.
I read an article I think it was.
Monday of this week about our housing inventories in Texas and it's.
It's incredibly low and so anyway.
I wanted to tell you there is some slowdown I want to tell you. There is there is just not the pent up demand and then the travel piece of it I mean, our our motel portfolio is held up exceptionally strong way better than we I mean these people are doing really well so.
No I'm, not saying I'm, not saying any of it right now maybe different 90 days, but not today.
Well certainly no reason to apologize for it.
Yeah, Bill I, almost feel like I have to apologize because whats going around in the country, but Texas as you know.
Our problem seems to be south on the border that everyone talks about and hears about.
Alright.
In terms of the increase in rate sensitivity since year end or is it primarily the additional kind of cash position and our growth in ADC balances.
Driving that kind of quarter over quarter delta or something else.
No no I would agree with that I mean look our our mix of production between floating and fixed has not changed.
There have been times over the past three and a half years I've tried to change it I hadn't been very successful.
So it just kind of it is what it is and we're just floating rate lenders.
And so it's primarily primarily liquidity.
Because of the makeup of the balance sheet. The floating fixed rate makeup of all the items on the balance sheet really hasn't changed materially in terms of their relative contribution if you will.
Great and then last question.
So I would say that the I think another big driver of that is asset sensitivity. So what's going on in the DDA book Malcolm talked about the growth you can see it's $35, 36% and that that drives asset sensitivity given that I mean look non maturity deposit assumptions are the single most important.
Input or judgment in the whole model of interest rate risk for any bank and the growth. There is it would be having an impact.
Okay. Thank you.
Thank you.
Our next question will come from Brady Gailey from K B W.
Again.
Hey, Thanks, good morning, guys.
Hey, Brady.
Was just curious the purchases of the mortgage pools.
Were those purchase from thrive or exact purchase from some other source.
They were purchased from another source, we look we have a desire for <unk>.
For high quality jumbo mortgages, both arm and fixed rate and.
It's just not.
Not a down there real house, it's not not yet I hope they get there I mean, we're buying some CRA loans from them and we've tried to buy jumbo arms, but one there's not a lot of it hasn't been a lot of demand for that in the market hopefully that's going to change, but theyre just not a jumbo lender and so it was not from thrive.
<unk>.
Okay, and then I think I read in the release you all expect to continue to purchase some of these mortgage pools, how active do you think youll be deep.
Purchasing that loan type.
Well.
One of the things that as I talked about earlier was the downside risk to rates down and we were at.
For 100 basis points and rates down.
A negative seven 8%.
Well I'd like to get that inside of five inside of four and it takes about $300 million in mortgages to move it 1%.
So.
What you will see us be a.
Doing similar things to what we did in Q1 through each quarter of this year.
One I wanted to deploy liquidity to it's got very efficient capital allocation and implications and three I want to reduce down rate exposure for back half of 'twenty three and beyond.
Sure. Okay, and then how does that play into your loan growth guidance I know last quarter, we talked about.
The effect of 14% to 16% level of loan growth I know that's changed just because now you have.
The new.
And are like deposit vertical I know that deal closed yet, but it's coming up with that new flexibility on the funding side.
How should we think about loan growth obviously, you added over 20%. This year. This quarter. So that's pretty strong, but how should we think about loan growth from here.
You know.
It's.
Loan growth is really strong and I think I'd go back to my economy statement, just a second ago.
There's real commerce being done here.
I think my remarks, they had something about.
Look for us to duplicate what we did in the first quarter, maybe even a little better.
There are some real opportunities here and there.
This goes back to a year and a half to two years worth of.
Hiring focus.
These are just the benefits of hiring some really good people and I just totally we hired four new people in the last 30 days that are going to be gangbuster producers and so.
We want to keep that that going now.
We've also got a background that we got to make sure. They can produce it we got.
Make sure we have the right credit people that.
Our analyzing it so it's a team effort.
Top to bottom but.
I think you can expect our loan growth to look a lot like it did in the first quarter for the next for the probably the rest of the year.
Brady, we've grown a billion $162 million in the last four quarters.
We've only bought one mortgage pool of 49 million Bucks in that right.
We're going to keep buying mortgage pools.
Our pipelines are stronger in my comments I said, our production and our growth is running well ahead of where we were in Q1, so and that was <unk> 1 billion. One was 19 and a half so and theres. So many levers Brady I mean, the other lever is and we haven't talked about it but this.
North Avenue capital getting into the leap side, which is a renewable energy program. I mean, those are blows you put on your books you don't sell those.
And so that's another lever I mean, we just have a whole bunch of levers to keep loan growth at a certain level.
With.
That's who I am I'm a growth guy.
Theres not a lot to buy out there are let me just say this there's not a lot for sale that would make sense for us and so organic growth, which is the best growth is where we focused and.
And this didn't happen.
Didn't happen overnight I've been telling the market for a year and a half what we've been trying to do and so this is just the you know.
Some of the efforts that we've put forth that are starting to pay off.
Okay.
So maybe on that point.
Storage really you guys grew the company through bank M&A, you don't need that anymore, just given the growth profile, but more recently so you did drive to add if you can call them you did north Avenue to add the fee income you did interlinked to help on the funding side. So you've done a decent amount of kind of non bank acquisitions.
Do you see any other.
Sorts of companies or verticals that would be attractive whether it's on the fee income or funding or any other side of the bank that you would like to see via an acquisition or are you kind of set with what you have at this point.
So I'm really happy with where we are and so I think it's an execution story you know unfortunately, or Fortunately however, you want to look at it we've always been approved it App story.
Since we went public in 2014, and so far we've been able to prove it out every time I think that's where we find ourselves again, which is fine.
But I don't have the I don't have the strong need and desire to go fill a bucket that I don't think we have.
Are we going to be opportunistic if something shows up and makes sense sure. We'll take a look at something but we can be and we've been disciplined over the life of our company, we can even be more disciplined.
And so we think we have something special and now we just have to execute and prove it out so I don't.
I don't really have the strong desire.
To go out and find something other than Theres, one thing that we'd like to do and that is to put the third leg of the stool in Texas and have a presence in central Texas.
And so how does that fit in and how does that look I'm not sure but that isn't that is a geography that I think is important to have if we're going to be the Texas Bank, which I think that's what we want to be.
Got it okay. Thanks for the color guys.
Thanks, Brett.
Once again it all.
Next question comes from the line of Matt Olney from Stephens.
Okay.
Alright, Thanks, guys I'll take the mortgage warehouse question, we were down a little bit this quarter, but on a relative basis much better than your peers out there what can you point to the quarter and then what's the what's in the outlook.
Hey, Matt.
I go back to it's probably a little bit of a broken record we have a really really solid leader in that vertical for us. She is a seasoned veteran.
I think we've answered a couple of times that even though we will.
Always still never say always or never but I think we'll pretty much always outperform the market because she's that good she's.
<unk> added to our team.
<unk> changed out the clientele that we had and upgraded our clientele, where looking at top notch national mortgage companies and she has relation with so I would really I would point to our leadership in that area probably more than anything.
And I always feel like we will outperform.
The market, even though we're down a little bit but we're.
Were pretty good as it relates to the the rest of the industry and operationally we had a really strong of a really strong team that delivers day in day out for our mortgage warehouse clients is highly relational you think it's just transactional but it's really not there's a relationship factor and Terry is right the folks in the background.
Exceptional.
Okay. Thanks for that and then I guess switching gears I'm also curious about the deposit pricing strategy for the year have you made any tweaks or changes yet to deposit pricing are you seeing any movement from competitors and I think what you would see.
Think about vertex this year is going to be the interlink deal and the timing of that and with that do you think you can lag more on deposit costs until that deal closes over the next few months.
That's a good question and what I would give to have a crystal ball.
On that one because I actually believe there's so many factors at play here both rates and what does the fed do with the size of their balance sheet in terms of quantitative tightening.
And so and I'm in the camp that theyre going to tightened pretty hard.
There to suck liquidity out of the system, but it certainly hasn't shown up yet, but let's see what they do with their may meeting.
Yes.
The interlink to me the interlink deposits gives us optionality.
We get it.
There is a lot of liquidity is still in the market and I turned down a lot of money earlier. This week late last week just on pure pricing just we don't have in the past vertex virtually always had to say yes.
So the pricing I just turned out.
Because they didn't have this optionality related to things like Interlink and I think our banking teams are better at gathering deposits today than they have been to include.
Our C&I teams in our community Bank team.
So far we're not seeing really any meaningful movement from anybody I don't think you've always heard me say that I think DFT idea is the most irrational deposit pricing market I've ever worked in 40 years, but it's not.
And that's true today.
To a degree but it's not true today on the deposit side. So far that's been pretty rational I expect it to continue for a while but I do think you know you get a couple of 50 point fed moves and the customers' awareness of what's going on with rates as kind of just spike and then it will be interesting to see.
I think it's going to be a function of the liquidity that the fed leaves in the market that's going to drive banks to move rates customer awareness is going to be up but if they've got the excess liquidity they are sitting on.
Banks are going to buy so much. So I think my belief and my hope standing here today is very taxes going to meaningfully outperform how it is done comparing this upgrade cycle to prior ones, Yeah, Tom will tell yes.
Okay.
Thanks for that and just lastly, any update on <unk> itself since we last spoke and the timing of the closing of that transaction.
No just going through the regulatory process, we've got a couple of conversations with the state.
FDIC and just just headed down into the process. We're still we're still hoping that we can close at the beginning of the third quarter.
But really have not had much.
Decisiveness on the regulatory side yet.
The most exciting development. There is the proposed merger of total bank solutions and <unk> Tang Hope I said that right.
Which we're there's really only four competitors in this space nationally and those are two of them along with us in one of the other and so those two combined and so now there is three and the other two are significantly better than we are bigger than we are but.
Much much much bigger BOP tenfold, yeah, not more money and so I think our value proposition for that space is only going to be strengthened by what's going on around us we benefited tremendously from merger disruption in the Texas markets and here's merger disruption showing up again, and we think it bodes well.
Well for us in terms of our entry into that space.
Okay, great. Thanks for taking my questions.
Thanks, Matt.
The next question comes from the line of Brian <unk> from Piper Sandler you may begin.
Hey, good morning, guys.
Hey, Graham.
Just don't have much reorganize, but just wanted to hear a little bit about.
Youre also plans for the bond portfolio for the rest of the year. It looks like it was about $200 million just wondering what kind of pace do you all think you'll you'll take it from here and then.
Also how much of that portfolio is floating or would reprice with.
Rate hikes.
Yeah I mean.
You can expect to see our bond portfolio continued to grow along similar paths.
It grew about 17% or so I think in the quarter couple of hundred million dollars look this is all part of our strategy with interlink to create a.
Fortress balance sheet becomes one of the knocks on vertex has always been we ran with such tight liquidity and so we're trying to intentionally change that but by bringing on more more more securities into into the into the portfolio and driving down that loan to deposit ratio.
I'm glad we.
Started hour.
Expansion of the portfolio in 'twenty two versus earlier, although that's still painful for everybody given the volatility of rates, we've seen but but look we're not trying to go all in in one quarter, we're moving slowly and.
And you will see as we put some in HTM, we may put more in HTM as we bought.
But it's just a part of the strategy again to strengthen.
The balance sheet and help give us protection for rates down for the back half of 'twenty three 'twenty four.
Net.
It's the portfolios performed well, we expect to keep the duration the price mall et cetera et cetera in line with what you've seen us do in the past mix will probably be relatively the same but its just.
Part of building this balance sheet to get it to where we want to be.
Alright, great. That's helpful. And then I guess just on the on the <unk>.
Hi impacts we've seen.
You all don't.
Just back on <unk> capital planning process to you given it doesn't impact regulatory capital ratios.
That's correct.
Yeah.
Yeah.
Certainly we're mindful of it and the effect it has on TCE, but.
As I look across the landscape, we have one of the best TCE ratios of our peer group anyway, and so but no we don't.
I'm not trying to forecast.
Forecast <unk>, but you know.
Okay.
The hard one we certainly think about price mall when we're buying.
But we don't try to forecast since it doesn't impact capital.
Alright, alright, thanks, guys Thats all from me.
Thank you.
Thank you.
Im not showing any further questions in the queue. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Okay.
[music].