Q2 2024 Veritex Holdings Inc Earnings Call
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Unknown Executive: Good morning and welcome to the Veritex Holdings 2nd quarter 2020. Before we get started, I would like to remind you that this presentation may include more looking statements, and those statements are subject to risk and uncertainties that could cause actually an anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statement.
Operator: Good morning, and welcome to the Veritex Holdings second quarter 2024 earnings conference call and webcast. All participants will be in a listen-only mode. Please note this event will be recorded. I will now turn the conference over to Will Holford, CEO of Veritex. Thank you.
Good morning and welcome to the Veritex Holdings Second Quarter 2024 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. Please note, this event will be recorded. I will now turn the conference over to Will Holford with Veritex.
Will Holford: Before we get started, I would like to remind you that this presentation may include forward-looking statements, and those statements are subject to risk and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statement. If you are logged into our webcast, please refer to our slide presentation included in our Safe Harbor Statement beginning on slide 10. For those on the phone, please note that the Safe Harbor statement and presentation are available on our website, veritexbank.com. All comments made today are subject to our Safe Harbor Statement.
Will Holford: Thank you.
Will Holford: Before we get started, I would like to remind you that this presentation may include forward-looking statements.
Speaker Change: and those statements are subject to risk and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statement. If you are logged into our webcast, please refer to our slide presentation included on our Safe Harbor Statement beginning on slide 2.
Unknown Executive: If you are logged into our webcast, please refer to our slide presentation included on our Safe Harbor statement, beginning on slide 2. For those on the phone, please note that the Safe Harbor statement and presentation are available on our website, VeritexBank.com. All comments made today are subject to our Safe Harbor Statement. Some financial metrics discussed will be on a non-GAAP basis, which management believes better reflects the underlying core operating performance of the business. Please see the reconciliation of all discussed non-GAAP metrics and file the 8-K you're having to release.
Will Holford: For those on the phone, please note that the Safe Harbor Statement and Presentation are available on our website veritexbank.com
Will Holford: All comments made today are subject to our Safe Harbor Statement. Some financial metrics discussed will be on a non-GAAP basis, which 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 8K earnings release.
Will Holford: Some financial metrics discussed will be on a non-GAAP basis because Management Beliefs Better Reflects the Underlying Core Operating Performance of the Business. Joining me today are Malcolm Holland, our Chairman and CEO, Terry Earley, our Chief Financial Officer, and Curtis Anderson, our Chief Credit Officer. I will now turn the call over to them.
Unknown Executive: Joining me today is Malcolm Holland, our Chairman and CEO, Jerry Earley, our Chief Financial Officer, and Curtis Anderson, our Chief Credit Officer.
Speaker Change: Joining me today are Malcolm Holland, our Chairman and CEO , Terry Earley, our Chief Financial Officer, and Curtis Anderson, our Chief Credit Officer. I will now turn the call over to Malcolm.
Malcolm Holland: I'll now turn the call over to Malcolm. Good morning, everyone, and welcome to our second quarter earnings call. Our clear focus on reposition our ballot sheet continues with positive trends in virtually all categories. The second quarter reported to pop grade in our native 28.3 million, or 52 cents per share. All components of the PNL are shown positive trends, with the exception of our government guaranteed fee business. We've made some announcements in this area, and that should start producing results in the back half of the year and beyond. Namely stabilizing and expenses today are better than initially budgeted.
Charles Malcolm Holland: Morning, everyone, and welcome to our second quarter earnings call. Our clear focus on repositioning our balance sheet continues with positive trends in virtually all categories. In the second quarter, we reported operating earnings of $28.3 million, or $0.52 per share.
Charles Malcolm Holland: Good morning everyone and welcome to our second court earnings call. Our clear focus on repositioning our ballot sheet continues with positive trends in virtually all categories.
Speaker Change: For the second quarter, we reported operating earnings of $28.3 million or $0.52 per share. All components of the P&L are showing positive trends with the exception of our government guaranteed fee business.
Charles Malcolm Holland: All components of the P&L are showing positive trends with the exception of our government guaranteed fee business. We made some enhancements in this area and should start producing results in the back half and beyond. NIMA is stabilizing, and expenses today are better than initially budgeted. Our balance sheet continues to transform. And on slide three, our loan-deposit ratio, excluding mortgage warehouse, continues to decline, sits below 86%, and the dependence on wholesale funding has declined to 19%.
Speaker Change: We've made some enhancements in this area and that should start producing results in the back half of the year.
Speaker Change: and beyond. NIMA stabilizing and expenses today are better than initially budgeted.
Malcolm Holland: Our ballot sheet continues to transform. As seen on slide three, our loan deposit ratio, excluding mortgage warehouse, continues to climb, and it sits below 86%. And the dependence on wholesale funding has declined at 19%. Both of these metrics are down measurably over the last 12 months. Angible book value continues to grow, currently at $20.62 of $1.21 since June 2023. Growth for the quarter was virtually nil on both sides of the ballot sheet as we continue to bolster our ballot sheet and shift the mix of our liabilities with lower cost funding. Although loan growth absent mortgage warehouse has been flat for the year, our pipelines are building in our small business and CNI areas.
Speaker Change: Our balance sheet continues to transform as...
Speaker Change: As seen on slide 3, our loan-to-deposit ratio, excluding mortgage warehouse, continues to decline.
Speaker Change: and it sits below 86 percent and the dependence on wholesale funding has declined to 19 percent. Both of these metrics are down measurably over the last 12 months.
Charles Malcolm Holland: Both of these metrics are down measurably over the last 12 months, but tangible book value continues to grow currently at $20.62, up $1.21, June 2023. Growth for the quarter was virtually nil on both sides of the ballot, to bolster our balance sheet and shift the mix of our liabilities with lower cost funding.
Speaker Change: Tangible book value continues to grow, currently at $20.62, up $1.21 since June 2023.
Speaker Change: Growth for the quarter was virtually nil on both sides of the balance sheet as a result.
Speaker Change: We continue to bolster our balance sheet and shift the mix of our liabilities with lower cost funding.
Charles Malcolm Holland: Although loan growth absent mortgage warehouse has been flat for the year, our pipelines are building in our small business and C&I areas. Although these areas are slower to move the growth needle, there are clients that provide full relationships with both deposits and, Anticipate loan growth for the back half of the year in the mid single digits, Participate, deposit growth will be in the high single digits. Moving to credit, Curtis Anderson, our Chief Credit Officer, and his entire team had a very productive quarter with all trends moving in a positive direction. In general, criticized and classified totals were stable, but trending down compared to the previous quarter. However, the underlying portfolio is dynamic and reflects the ongoing work to prudently manage risk.
Speaker Change: Although loan growth absent mortgage warehouse has been flat for the year, our pipelines are building in our small business and C&I areas. Although these areas are slower to move the growth needle, there are clients that provide full relationships with both deposits and fees.
Malcolm Holland: Although these areas are slower to move the growth needle, their clients that provide full relationships with both deposits and fees. We anticipate loan growth for the back half of the year in the mid-single digits and anticipate deposit growth will be in the highest thing.
Speaker Change: We anticipate loan growth for the back half of the year in the mid-single digits and anticipate deposit growth will be in the high single digits.
Curtis Anderson: and Michael Piggins. Moving to credit, Curtis Anderson, our chief credit officer, and his entire team have had a very productive quarter, with all trends moving in a positive direction. In general, criticize some classified totals were stable, but trending down compared to the previous quarter. However, the underlying portfolio is dynamic and reflects the ongoing work to prudently manage risk. Our NPAs reduced 20% for 21 million for the quarter. 65 basis points of total assets. Multiple factors played into the reduction, with the biggest drivers being a restructured Houston data center property to a new owner who substantially paid down the loan.
Charles Malcolm Holland: Our NPAs reduced 20% or 21 million for the quarter, 65 basis points of total assets. Multiple factors played into the reduction with the biggest drivers being a restructured Houston Data Center property to a new owner who substantially paid down the loan while we took a 1.5 million charge that was previously reserved against. This restructured loan is now a pass rating credit.
Curtis Anderson: Moving to credit, Curtis Anderson, our Chief Credit Officer, and his entire team have had a very productive quarter with all trends moving in a positive direction.
Curtis Anderson: In general, criticized and classified totals were stable, but trending down compared to the previous quarter. However, the underlying portfolio is dynamic and reflects the ongoing work to prudently manage risk.
Curtis Anderson: Our NPAs reduce 20% or $21 million for the quarter to 65 basis points of total assets.
Curtis Anderson: Multiple factors played into the reduction with the biggest drivers being
Curtis Anderson: and restructured Houston Data Center property.
Curtis Anderson: What we took a 1.5 million charge that was previously reserved against this restructured loan is now a pass rating credit. Additionally, we had a sale before closed property that was sold at a gain. Net charge drops were 6.9 million, a slight increase from the first quarter, but in line on a year-to-date basis with full-year expectations. 60% of the net charge off total is a problem seeing on credit that is near its final resolution. As you know, we foreclosed a student housing project in Q1. This property is now under contract and is scheduled to close this quarter at a price that has no material P and L effect.
Curtis Anderson: to a new owner who substantially paid down the loan while we took a $1.5 million charge.
Curtis Anderson: that was previously reserved against. This restructured loan is now a pass rating credit. And additionally, we had a sale of a foreclosed property that was sold at a gain.
Charles Malcolm Holland: And additionally, we had a sale of a foreclosed property that was sold at a gain. Net charge-offs were $6.9 million, a slight increase from the first quarter but in line on a year-to-date basis with full-year expectations. 60% of the net charge-off total is a problem C&I credit that is near its final resolution. As you know, we foreclosed on a student housing project in
Curtis Anderson: Net charge-offs were $6.9 million, a slight increase from the first quarter, but in line on a year-to-date basis with full-year expectations. 60% of the net charge-off total was a problem C&I credit that is near its final resolution.
Charles Malcolm Holland: Properties are now under contract and are scheduled to close this quarter at a price that has no material P&L. Past dues to total loans continue to improve to $0.16 down, uh, down from.29 in the first quarter of 2024. Credit loss reserves now sit at 1.16 of total, up 11 basis points. All in all, we continue to make great strides in improving our credit rating. There is more to do, but we're encouraged by the positive trends. Now I'll turn the call over to Terry. Thank you, Malcolm.
Curtis Anderson: As you know, we foreclosed on a student housing project in Q1. This property is now under contract and is scheduled to close this quarter at a price that has no material P&L effect.
Curtis Anderson: As due to total loans continued improved to 0.16, down from 0.29 in the first quarter of 2024. Credit loss reserves now sit at 1.16 of total, up 11 basis points on the last 12 months. All in all, we continue to make great strides in improving our credit metrics or to do who are encouraged by the positive trends.
Curtis Anderson: Past dues to total loans continue to improve to $0.16 down.
Curtis Anderson: down from .29 in the first quarter of 2024. Credit loss reserves now sit at 1.16 of total, up 11 basis points over the last 12 months. All in all, we continue to make great strides in improving our credit metrics.
Terry Earley: Now I'll turn the ball over to Terry.
Curtis Anderson: All to do who are encouraged by the positive trends.
Terry Earley: Thank you, Malcolm. When I look at the results for the second quarter, I'm pretty encouraged, especially about the credit trim trends, NIM expansion and expense levels. As I say every quarter, I'm thankful for the progress, but there's more work ahead of us starting on page seven. The allowance for credit loss coverage now sits at 1.16%. Up significantly from six quarters ago, as we've increased the reserve almost 25% or over 22 million dollars, excluding our mortgage warehouse portfolio, which we have not recognized a loss on since inception. The allowance for credit loss coverage is 1.23%. It's important to note that the total allowance for credit losses is 96%, comprised of general reserves.
Terry S. Earley: When I look at the results for the second quarter, I'm pretty encouraged, especially about the credit trends, NIM expansion, and expense levels. As I say every quarter, I'm thankful for the progress, but there's more work ahead of us. Starting on page 7, the allowance for credit loss coverage now sits at 1.16%, up significantly from six quarters ago as we've increased the reserve by almost 25% or over $22 million. Excluding our mortgage warehouse portfolio, which we have not recognized a loss on since inception, the allowance for credit loss coverage is 1.23%.
Curtis Anderson: Now I'll turn the call over to Terry. Thank you, Malcolm. When I look at the results for the second quarter, I'm pretty encouraged, especially about the credit trends, NIM expansion, and expense levels.
Terry: As I say every quarter, I'm thankful for the progress, but there's more work ahead of us.
Terry: Starting on page 7, the allowance for credit loss coverage now sits at 1.16%, up significantly from six quarters ago as we've increased the reserve by almost 25% or over $22 million.
Terry: Excluding our Mortgage Warehouse Portfolio, which we have not recognized a loss on since inception, the allowance for credit loss coverage is 1.23%.
Terry S. Earley: It's important to note that the total allowance for credit loss is 96% comprised of general reserves. We continue to use conservative economic assumptions in our credit loss model with 75% of the weighting on downside scenarios. We deem this reasonable given the level of economic uncertainty coupled with significant geopolitical risk.
Terry: It's important to note that the total allowance for credit losses
Terry Earley: We continue to use conservative economic assumptions in our credit loss model, with 75% of the weighting on downside scenarios. We date this reasonable given the last level of economic uncertainty coupled with significant geopolitical risk. Moving to page eight, over the last six quarters, total capital grew approximately $145 million. The CET will want one ratio expanded by 12 basis points during the quarter in about 73 basis points year over year, and stands at 10.49%. A significant contributor to the expansion in the capital ratios has been a $550 million decline in risk weighted assets since the end of 2022.
Terry: is 96% comprised of general reserves. We continue to use conservative economic assumptions in our credit loss model with 75% of the weighting on downside scenarios.
Terry: We deem this reasonable given the level of economic uncertainty coupled with significant geopolitical risk. Moving to page eight. Over the last six quarters total capital grew approximately a hundred and forty five million dollars.
Terry S. Earley: Moving to page eight, over the last six quarters, total capital grew approximately $145 million. The CET1 ratio expanded by 12 basis points during the quarter and by 73 basis points year over year and stands at 10.49%. A significant contributor to the expansion in the capital ratios has been a $550 million decline in risk-weighted assets since the end of 2022. Tangible book value per share increased to $20.62, which is a 12.7% increase on a year-over-year basis.
Terry: The CET1 ratio expanded by 12 basis points during the quarter and by 73 basis points year over year and stands at 10.49%.
Terry: The significant contributor to the expansion in the capital ratios has been a 550 million dollar decline in risk-weighted assets since the end of 2022.
Terry Earley: Tangible look value for share increased to $20.62, which is a 12.7% increase on a year-over-year basis, including the shareholder dividends. It's worth noting that since Meritex went public in 2014, it has compounded tangible look value for share at a rate of 11.1%, including the dividends that have been paid to shareholder. Finally, Veritex was opportunistic, and it's used as a buyback during the quarter. We spent 7% of the authorized amount and bought back approximately 178,000 shares at an average price of $19.91 for 96.6% of current tangible book value. On the pace 9, our strong deposit growth and low loan growth allow Veritex to reduce its London deposit ratio.
Terry: Tangible book value per share increased to $20.62, which is a 12.7% increase on a year-over-year basis.
Terry S. Earley: It's worth noting that since Veritex went public in 2014, it has compounded tangible book value per share at a rate of 11.1%, including the dividends that have been paid to shareholders. Finally, Veritex was opportunistic in its use of the buyback during the quarter. We spent 7% of the authorized amount and bought back approximately 178,000 shares at an average price of $19.91, or 96.6% of current tangible book value. Now on to page nine.
Speaker Change: It's worth noting that since Veritex went public in 2014, it has compounded tangible book value per share at a rate of 11.1%, including the dividends that have been paid to shareholders.
Speaker Change: Finally, Veritex was opportunistic in its use of the buyback during the quarter. We spent 7% of the authorized amount and bought back approximately 178,000 shares at an average price of $19.91 or 96.6% of current tangible book value.
Terry S. Earley: Our strong deposit growth and low loan growth allowed Veritex to reduce its loan to deposit ratio from 105.4% at June 30, 2023 to 91.8% at June 30, 2024. Our target remains to have this ratio below 90% by the end. Please note that the loan to deposit ratio is 85.9% if you exclude mortgage warehouse. This seems to be a more relevant metric when you consider the short duration of time mortgages stay on these warehouse lines. Deposit growth also allowed us to reduce our bank's wholesale funding reliance to 18.9% and 29.2% at June 30, 2023.
Speaker Change: On to page 9. Our strong deposit growth and low loan growth allowed Veritex to reduce its loan-to-deposit ratio.
Terry Earley: From 105.4% at June 30, 2023, to 91.8% at June 30, 2024, our target remains to have this ratio below 90% by the end of 2024. Please note that the loan to deposit ratio is 85.9% if you exclude mortgage warehouse. It seems to be a more relevant metric when you consider the short duration of time mortgage is stayed on these warehouse lines. Deposit growth also allowed us to reduce our banks' wholesale funding reliance at 18.9% at June 30, 2023. As you can see in the bottom left graph, we kept the time deposit portfolio short and have 2.3 billion in CD maturities over the remainder of 2024 with an average rate of 5.18%.
Speaker Change: from 105.4% at June 30, 2023 to 91.8% at June 30, 2024. Our target remains to have this ratio below 90% by the end of 2024.
Speaker Change: Please note that the loan-to-deposit ratio is 85.9% if you exclude mortgage warehouse. This seems to be a more relevant metric when you consider the short duration of time mortgages stay on these warehouse lines.
Speaker Change: Deposit growth also allowed us to reduce our bank's wholesale funding reliance to 18.9 percent, 29.2 percent at June 30, 2023.
Terry S. Earley: As you can see in the bottom left graph, we've kept the time deposit portfolio short and have 2.3 billion in CD maturities over the remainder of 2024 with an average rate of 5.18%. I'm glad to have this maturity profile given the potential for two Fed rate cuts before year end. On the bottom right, the monthly cost total deposits show a pretty steep rise up through September of 2023. However, since then, it has largely leveled out. Slide 10.
Speaker Change: As you can see in the bottom left graph, we've kept the time deposit portfolio short and have $2.3 billion in CD maturities over the remainder of 2024 with an average rate of 5.18%.
Terry Earley: I'm glad to have this maturity profile given the potential for two fifth-rate cuts before you're in. Bottom right, the monthly deposit showed a pretty steep rise up through September of 2023. However, since then, it has largely leveled out. On slide two, loan growth was approximately 2.9%. It was driven by multi-family Cree and mortgage warehouse. We continue to make progress on reducing our Cree concentrations and remain committed to getting our Cree concentrations under 300% at ADC concentrations under 100% by the end of the year. Cree maturity profile is shown in the bottom right graph. We have approximately 350 million dollars in fixed rate maturities and an average rate of 5.50% over the next four quarters.
Speaker Change: I'm glad to have this maturity profile given the potential for two fed rate cuts before year end.
Speaker Change: Bottom right, the monthly cost of total deposits show a pretty steep rise up through September of 2022.
Terry S. Earley: Loan growth was approximately 2.9% and was driven by multifamily CRE and mortgage warehouse. We continue to make progress on reducing our CRE concentrations and remain committed to getting our CRE concentrations under 300% and ADC concentrations under 100% by the end of the year. The CRE maturity profile is shown in the bottom right graphs.
Speaker Change: [inaudible]
Speaker Change: I'll slide to you.
Speaker Change: Loan growth was approximately 2.9% and was driven by multifamily CRE and mortgage warehouse. We continue to make progress on reducing our CRE concentrations and remain committed to getting our CRE concentrations under 300% and ADC concentrations under 100% by the end of the year.
Terry S. Earley: We have approximately $350 million in fixed-rate maturities at an average rate of 5.50% over the next four quarters. The average loan size for these maturities is $3.1 million. As shown on the bottom left, loan production picked up considerably in the second quarter. So did loan payoff, and payoff activity reflects the bright, vibrant economic activity in the Texas market. But it does make organic loan growth challenging. The office portfolio continued to decline by 150 million, 140 million in the last year, or 22%.
Speaker Change: The CREAM maturity profile is shown in the bottom right graphs. We have approximately $350 million in fixed-rate maturities at an average rate of 5.50% over the next four quarters. The average loan size for these maturities is $3.1 million.
Terry Earley: The average loan size of these maturities is 3.1 million dollars. As shown on the bottom left, loan production picked up considerably in the second quarter; so did the loan payoffs. This payoff activity reflects the bright, vibrant economic activity in the Texas market, but it does make organic loan growth challenging. The office portfolio continued to decline down 150,140 million in the last year, or 22%. This portfolio now comprises 5.2% of total loans. Slide 11 provides the detail in the CRE and ADC portfolios by asset class, including what is out of state. Slide 12 illustrates a breakdown of our out-of-state unportfolio, including the significant impact of our national businesses and mortgage.
Speaker Change: As shown on the bottom left, loan production picked up considerably in the second quarter and so did loan payoffs. This payoff activity reflects the bright, vibrant economic activity in the Texas market, but it does make organic loan growth challenging.
Speaker Change: The office portfolio continued to decline, down $150 million to $140 million in the last year, or 22%. This portfolio now comprises 5.2% of total loans.
Terry S. Earley: This portfolio now comprises 5.2% of total loans. Slide 11 provides the detail in the CRE and ADC portfolios by asset class, including what is out of state. Slide 12 illustrates a breakdown of our out-of-state loan portfolio, including the significant impact of our national businesses and mortgage. The true percentage of the out-of-state portfolio is only 10%, down from 11.3% last quarter.
Speaker Change: Slide 11 provides the details in the CRE and ADC Portfolios by Asset Class, including what is out of state.
Speaker Change: Slide 12 illustrates a breakdown of our out-of-state loan portfolio, including the significant impact of our national businesses and mortgage. The true percentage of the out-of-state portfolio is only 10%, down from 11.3% last quarter.
Terry Earley: The true percentage of the out-of-state portfolio is only 10%, down from 11.3% last quarter. This is predominantly where we have followed Texas rule of state clients to other geographies. On the slide 13, an interest income increased by 3.4 million to just over 96 million in Q2. The biggest drivers of the increase for lower non-accrual entry traversals, the impact of higher loan rates, and the impact of higher security yield. This is partially offset by slightly higher deposit yields and that interest margin increased 5 basis points from Q1 to 3.29% in Q2. We believe the NIM will remain in the range of 3.25% to 3.30% over the remainder of 2024, obviously depending on what the Fed does with record.
Terry S. Earley: This is predominantly where we have followed Texas real estate clients to other geographies, on slide 13, at interest income increased by $3.4 million to just over $96 million in Q2. The biggest drivers of the increase were lower non-accrual interest reversals, the impact of higher loan rates, and the impact of higher security, partially offset by slightly higher deposits. The net interest margin increased five basis points from Q1 to 3.29% in Q2. We believe the NIM will remain in the range of 3.25% to 3.30% over the remainder of 2024, obviously depending on what the Fed does with interest rates.
Speaker Change: This is predominantly where we have followed Texas real estate clients to other geographies.
Speaker Change: On slide 13.
Speaker Change: Head interest income increased by $3.4 million to just over $96 million in Q2. The biggest drivers of the increase were lower non-accrual interest reversals, the impact of higher loan rates, and the impact of higher security yields. This was partially offset by slightly higher deposit yields.
Speaker Change: The net interest margin increased five basis points from Q1.
Speaker Change: to 3.29% in Q2.
Speaker Change: We believe the NIM will remain in the range of 3.25% to 3.30% over the remainder of 2024, obviously depending on what the Fed does with rates.
Terry Earley: Slide 14 shows certain metrics on our investment portfolio. Key takeaways are it's only 10.6% of assets. The duration is 3.8 years, and 87% of the portfolio is held in AFS. On the only slide, you see a snapshot of our cash borrowing capacity at June 30, 2024, and the trend since Q1 of 2023. The current available liquidity represents 2.0 times the level of uninsured or uncollateralized deposits. Slide 15, operating non-interest income declined to 10.6 million. This decrease is driven by the lack of gain on sale revenue in our USDA business. Other parts of our fee revenues are performing in line with expectations.
Terry S. Earley: Slide 14 shows certain metrics on our investment portfolio. Key takeaways are that it's only 10.6% of assets, the duration is 3.8 years, and 87% of the portfolio is held in AFS. Finally, on this slide, you see a snapshot of our cash and borrowing capacity at June 30, 2024 and the trend since Q1 of 2023. Current Available Liquidity represents 2.0 times the level of uninsured or uncollateralized deposits. Slide 15, Operating non-interest income declined to $10.6 million. This decrease is driven by the lack of gain-on-sale revenue in our USDA business.
Speaker Change: Slide 14 shows certain metrics on our investment portfolio. Key takeaways are, it's only 10.6% of assets, the duration is 3.8 years and 87% of the portfolio is held in AFS.
Speaker Change: Finally on this slide, you see a snapshot of our cash and borrowing capacity at June 30, 2024, and the trend since Q1 of 2023. The current available liquidity represents 2.0 times the level of uninsured or uncollateralized deposits.
Speaker Change: Slide 15. Operating non-interest income declined to $10.6 million. This decrease is driven by the lack of gain-on-sale revenue in our USDA business. Other parts of our fee revenues are performing in line with expectations.
Terry S. Earley: Other parts of our fee revenues are performing in line with expectations. Operating non-interest expenses were flat quarter over quarter, and we're very satisfied with our expense management effort. To wrap up my comments, I see a lot of positives. First, credit. NPAs are down, criticized assets are stable, and debt charge-offs are in line with expectations.
Terry Earley: Operating non-interest expenses were flat quartered over quarter and were very satisfied with our expense management efforts in 2024.
Speaker Change: Operating non-interest expenses were flat quarter over quarter and we're very satisfied with our expense management efforts in 2024.
Terry Earley: To wrap up my comments, I feel a lot of positives in the quarter. First, credit. NBAs are down. Criticized assets are stable and then charge also in line with expectations. Second, an expanded five base points and funding costs are relatively stable. Three, capital ratios move higher. Four, the allowance of credit losses to total loan coverage increased. Five, loan production is up and pipelines are increasing.
Speaker Change: To wrap up my comments, I see a lot of positives in the court.
Speaker Change: First, credit. NPAs are down, criticized assets are stable, and debt charge offs are in line with expectations.
Terry S. Earley: Second, NM expanded by five basis points, and funding costs are relatively stable. Three, capital ratios moved higher. 4. The allowance for credit losses to total loan coverage increased.
Speaker Change: Second, the NEM expanded five basis points and funding costs are relatively stable. Three, capital ratios moved higher. Four, the allowance for credit losses to total loan coverage increased. Five, loan production is up and pipelines are increasing.
Terry S. Earley: 5 on production is up, and pipelines are. There's still a lot of things we need to work on. First, continuing to reduce the credit risk profile. Second, continuing to reduce funding costs. And three, improving USDA revenue. With that, I'd like to turn the call over to Michael for his concluding comments. Thank you, Terry.
Terry Earley: There's still a lot of things we need to work on. First, continuing to reduce the credit risk profile. Second, continuing to reduce funding costs. Three, improving USDA revenue reform too.
Speaker Change: But there's still a lot of things we need to work on. First, continuing to reduce the credit risk profile. Second, continuing to reduce funding costs. And three, improving USDA revenue performance. With that, I'd like to turn the call over to Malcolm for his concluding comments.
Malcolm Holland: With that, the lack of time to call over the mouth will be included.
Malcolm Holland: Thank you, Terry. As you can see, much progress may yet much to do. I want to mention the progress we're also making on the way we're pursuing our new client acquisition. Under Dom's leadership, new client identification and follow-up is seeing some very positive results. Our commitment to the small business and community bank areas remains a focus in building and retaining long-term clients. Those markets provide us with granularity and full relationships. They'll make us much more balanced and less susceptible to market swings. While these areas build our assets at a slower rate due to their size, they're foundational.
Michael: As you can see, much progress has been made yet much to do. I want to mention the progress we're also making in the way we're pursuing our new client acquisition. Under Dom's leadership, new client identification and follow-up, achieving some very positive results. Our commitment to the small business. Community Bank areas remain a focus in building and retaining long-term clients. Those markets provide us with granularity and full relationships that will make us much more balanced and less susceptible to market disruptions. While these areas build their assets at a slower rate due to their size, they are the foundation of a diverse, sound, and regional bank.
Malcolm: Thank you, Terry. As you can see, much progress made, yet much to do. I want to mention the progress we're also making on the way we're pursuing our new client acquisition.
Malcolm: Under Dom's leadership, new client identification and follow-up is seeing some very positive results. Our commitment to the small business and community bank areas remain a focus in building and retaining long-term clients.
Malcolm: Those markets provide us with granularity and full relationships that will make us much more balanced and less susceptible to market swings.
Malcolm: While these areas build their assets at a slower rate due to their size, they are a foundation of a diverse, sound, and regional bank.
Malcolm Holland: They're our foundation of a diverse sound and regional bank.
Malcolm Holland: Finally, I'd like to acknowledge our 800-plus baritites team members on being named with the best companies to work for by U.S. News and World Report, and congratulations team.
Michael: Finally, I'd like to acknowledge our 800 plus Veritex team members on being named one of the best companies to work for by U.S. News & World Report. Congratulations. Operator will now take a question.
Speaker Change: Finally, I'd like to acknowledge our 800 plus Veritex team members on being named one of the best companies to work for by U.S. News & World Report. Congratulations, team.
Operator: Operator will now take a question. Thank you as a reminder to ask a question. Please press star 1-1 on your telephone and wait for your name to be announced.
Speaker Change: Operator will now take any questions.
Operator: Thank you. As a reminder to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment while we compile our Q&A roster. And our first question is going to come from the line of Stephen Scouten with Piper Sandler Companies. Your line is open.
Operator: To withdraw your question, please press star 1-1 again. One moment when we compile our Q&A roster.
Stephen Scouten: And our first question is going to come from the line of Stephen Scouten with Piper Sampler Companies. Your line is open. Please go ahead.
Speaker Change: And our first question is going to come from the line of Stephen Scouten with Piper Sandler Companies. Your line is open.
Unknown Executive: Thanks, guys.
Stephen Kendall Scouten: Thanks, guys. Good morning. Can you talk a little bit about what you're seeing on the government lending side? I know you said there were some [inaudible]
Malcolm Holland: Good morning. Or I guess can you talk a little bit about what you're seeing on the government lending side. I know you said there were some enhancements that you've kind of put into place that should reflect in the second half. How's the funding dynamic in that business today, and kind of what do you think we could expect to see from a prospect perspective in that back half? Yeah, so we kind of as first quarter for first half of the year, we kind of reset that business a little bit. But the person that we kind of put over that business and job to Spider is done a really good job to go down there and really get into the business, figure out the ways that we could be most successful in it.
Stephen Kendall Scouten: Thanks, guys. Good morning. Morning. Morning. I guess, can you talk a little bit about what you're seeing on the government lending side? I know you said there were some
Speaker Change: enhancements that you've kind of put into place that should should reflect in the second half. How's the funding dynamic in that business today and kind of what do you think we could expect to see from a prospect perspective in that in that back half?
Charles Malcolm Holland: So we kind of first quarter, or first half of the year, we kind of reset that business a little
Speaker Change: Yeah, so we kind of, first quarter, or first half of the year, we kind of reset that business a little bit.
Charles Malcolm Holland: Unknown Speaker, Unknown Speaker, Unknown Speaker That we kind of put over that business. And Jonathan Snyder has done a really good job of going down there and really getting into the business, figuring out the ways that we could be most successful in it. And one of the key things that we did is we found that although USD and SBA are different government loan businesses.
Snyder: I'm a person that we kind of put over that business and jobs and started.
Speaker Change: He's done a really good job to go down there and really get into the business, figure out the ways that we could be most successful in it. And one of the key things that we did is we found that, you know, although USC and SBA are different government organizations,
Malcolm Holland: And one of the key things that we did is we found that, although you see an SBA are different government loan businesses, there are quite a bit of similarities, and their similarities really come up in the broker markets because they control most of that business. And so, over the last four months, Jonathan, along with Joseph, figured out how to put that business, that SBA business, into the USDA business. Not that we put them together; it's just that we're enhancing what our USDA folks can check. And so we've seen in a very short period of time; I think it's been online for 30 days, a bunch of activity there.
Charles Malcolm Holland: There are quite a bit of similarities in there. Similarities really come up in the insurance and the broker markets because they control most of that business. So, over the last four months, Jonathan, along with Joseph, have figured out how to put that business, that SBA business, into the USDA business. Not that we put them together; it's just that we're enhancing what our USDA folks can check. So we've seen a lot of activity there in a very short period of time, I think it's been online for 30 days.
Speaker Change: , and other loan businesses. There are quite a bit of similarities in there. Similarities really come up in the broker markets because they control most of that business.
Speaker Change: And so over the last...
Speaker Change: Four months, Jonathan, along with Joseph, have figured out how to put
Speaker Change: that business, that SBA business.
Speaker Change: into the USDA business. Not that we put them together, it's just that we're enhancing what our USDA folks can chase.
Speaker Change: And so we've seen in a
Speaker Change: Very short period of time. I think it's been online for 30 days a bunch of activity there So what you're going to see is you're going to see some enhanced SBA business
Malcolm Holland: And so what you're going to see is you're going to see some enhanced SBA business in addition to our USDA space. Now listen, USDA is down for this year, over last year. We still anticipated having a fairly decent back half of the year, but I know you guys were probably tired of us saying that, and I understand that. But we do have a good pipeline. We have two or three deals that we are feeling very certain they're going to close; they're going to move the needle on the backside. So it's a little bit more attention, it's a little bit more focused, and the bigger market for the USDA business development team to be able to capture.
Charles Malcolm Holland: So what you're going to see is some enhanced SBA business in addition to our USDA space. Now, listen. USDA is down this year over last year. We still anticipate it having a. I know you guys are probably tired of us saying that, and I understand that, but we do have a good pipeline. We have two or three deals that we, I feel very certain they're going to close.
Speaker Change: in addition to our USDA space. Now listen, USDA is down for this year over last year. We still anticipate it having a
Speaker Change: Fairly decent back half of the year, but I know you guys are probably tired of us saying that, and I understand that, but we do have a good pipeline. We have two or three deals that we...
Charles Malcolm Holland: They're going to move the needle on the expense side. So it's just a little bit more attention. It's a little bit more focused. It's a bigger market for the USDA business development team to be able to penetrate.
Speaker Change: I feel very certain they're going to close, they're going to move the needle on the expat side. So it's just, it's a little bit more attention, it's a little bit more focus, and it's a bigger market for the USDA business development team to be able to capture.
Stephen Scouten: Okay, great. That's helpful, Malcolm. And then maybe thinking about the CRE concentration, it feels like that's an increasing focus from regulators, rating agencies, and the like. And I know you said you want to get below 300, 100 by year, and that's just going to be letting pay off the curve and growing other lines of business. Or is there something there's going to be coming more wholesale on sales things of that nature to get those numbers there by you? So it's strictly organic, Steven. You know, our pay off outside of one quarter in the past six quarters have been pretty, pretty stable, and they were pretty happy actually in the second quarter.
Stephen Kendall Scouten: Okay, great. That's helpful, Malcolm.
Malcolm: Okay, great. That's helpful, Malcolm. And then maybe thinking about the CRE concentration, it feels like that's an increasing focus from regulators, rating agencies, and the like. And I know you said you want to get below 300, 100 by year end.
Charles Malcolm Holland: And then maybe thinking about the CRE concentration, it feels like that's an increasing focus from regulators, rating agencies, and the like. And I know you said you wanted to get below 300, and 100 by year end. Is that just going to be, you know, letting payoffs occur and growing other lines of business? Or is there some need for something more wholesale, loan sales, things of that nature to get those numbers there? It's
Speaker Change: Is that just going to be, you know, letting payoffs occur and growing other lines of business or is there some there's there need to be something more wholesale, loan sales, things of that nature to get those numbers there by you?
Charles Malcolm Holland: It's strictly organic, Stephen. You know, our payoffs outside of one quarter in the past six quarters have been pretty, pretty stable, and they were pretty heavy, actually, in the second quarter. We anticipate that happening in the third and fourth as well. And these are sales, these aren't refinances; things are actually happening. And so just through our real estate council that we have in our forecast, we will be under those numbers by year end. You know, unless something crazy happens, I actually think annually. If you get a rain counter, too, it could actually accelerate.
Speaker Change: It's strictly organic, Stephen. You know, our payoffs outside of one quarter in the past six quarters have been pretty
Malcolm Holland: We anticipate that happening that third and fourth as well. And these are sales; they don't need finance. These things are actually happening. And so, just through our real estate council that we have at our forecast, we will be under those numbers by year end. You know, unless something crazy happens, I actually think, if you get a rate counter to, it could actually accelerate it. So, you know, we're going to manage the company to, you know, $2.99 and $2.99. That's where we're going to manage it, but that's going to be somewhat difficult if rates go down quickly.
Stephen Kendall Scouten: pretty stable and they were pretty heavy actually in the second quarter. We anticipate that happening in the third and fourth as well. And these are sales. These aren't refinances. Things are actually happening. And so just through our Real Estate Council that we have at our
Stephen Kendall Scouten: Forecast
Speaker Change: We will be under those numbers by year end, you know, unless something crazy happens. I actually think, if you get a rain cut or two, it could actually accelerate it. So, you know, we're going to manage the company.
Charles Malcolm Holland: So, you know, we're going to manage the company to, you know, 299 and 99. That's where we're going to manage it. But that's going to be somewhat difficult if rates go down quickly. And, you know, keeping up with that volume could be difficult.
Speaker Change: to, you know, $299 and $99. That's where we're going to manage it. But that's going to be somewhat difficult if rates go down quickly. And, you know,
Terry Earley: To keep up with that volume could be difficult. So we're less concerned about getting under 300 and 100, and probably more concerned about it going down a little bit farther long-term. Let me add to Stephen. When you look at the payoff on slide 10 and then 550 million or so, between 40 and 50% of that activity was in the crease space. So I mean, it's, it's, it's meaningful. The pipeline for payoffs, the forecast for payoffs is very consistent. I mean, we're looking at hundreds of millions of dollars in the third quarter in forecasted payoffs by our bankers.
Terry S. Earley: So we're less concerned about getting under 300 and 100 and probably more concerned about it going down a little bit farther long term. Let me add to Stephen, when you look at the payoff on slide 10, 550 million or so, between 40 and 50% of the activity of that activity was in the crease space. So, I mean, it's meaningful. The pipeline for payoffs, and the forecast for payoffs, is very consistent. I mean, we're looking at hundreds of millions of dollars in the third quarter in forecasted payoffs by our bankers. Malcolm's right; it's going to be organic. Boring as a surprise.
Speaker Change: to keep up with that volume could be difficult. So we're less concerned about getting under 300 and 100, and probably more concerned about it going down a little bit farther long-term.
Speaker Change: Let me add too, Stephen, when you look at the payoffs on slide 10, the $550 million or so, between 40 and 50% of that activity was in the Cree space.
Speaker Change: So, I mean, it's meaningful, the pipeline for payoffs, the forecast for payoffs is very consistent. I mean, we're looking at hundreds of millions of dollars in the third quarter in forecasted payoffs by our bankers.
Terry Earley: So, it's a mountain's ride. It's going to be, it's going to be organic and boring. A surprise will be there.
Speaker Change: Malcolm's right, it's going to be it's going to be organic and boring a surprise will be there.
Stephen Kendall Scouten: Okay, that's great. And then, just last for me, kind of on the deposit mix shift, saw nice growth in non-interest bearing deposits, and really, it's moved kind of nicely year over year. Is that something you think you could expect to continue and is that a function of kind of some of these customer acquisition efforts that you referenced as well, or what's kind of driving that experience?
Stephen Scouten: Okay, that's great.
Malcolm Holland: And then just last for me, kind of on the deposit makeshift, saw all nice growth and non-interesting. And really, it's moved kind of nicely year by year. Is that something you think you could expect to continue? And is that a function to kind of some of these customer acquisition efforts that you referenced as well? Or what's kind of driving that expansion there? It goes here. Yeah. It's absolutely a function of, it's being certainly being held materially by the workdom and the business bankers and our community bankers, etc., are doing. Our business bankers for an initiative that really just got kicked off late last year, I would say, have had a just a stellar first half of the year.
Speaker Change: Okay, that's great. And then just last for me, kind of on the deposit mix shift, saw nice growth in non-interest bearing and really it's moved kind of nicely year over year. Is that something you think?
Speaker Change: You could expect to continue and is that a function of kind of some of these customer acquisition efforts that you referenced as well, or what's kind of driving that that expansion there?
Unknown Speaker: Who is here? Yeah, it's absolutely a function of it's being held materially by the work Dom and the business bankers and their community bankers, etc., are doing. Our business bankers, for an initiative that really just got kicked off late last year, I would say, have had a stellar first half of the year. They're growing deposits, they're very granular, and their cost of deposits is in the low 2% range. We need more of that.
Speaker Change: It's absolutely a function of, it's being certainly being held materially by the work DOM and the business bankers and their community bankers, etc. are doing.
Speaker Change: Our business bankers, for an initiative that really just got kicked off late last year I would say, have had just a stellar first half of the year. They're growing deposits, they're very granular, and their cost of deposits is in the low 2% range. We need more of that.
Malcolm Holland: They're growing deposits; they're very granular, and their cost of deposits is in the low 2% range. We need more of that. What's their lowly deposit? Is it a 10 to 1? So, they're bringing a 10 to 1 deposits to low in that category. Now, as I said in my comments, those are small numbers. And so, it takes a lot of those accounts to get to where you want to get to. But from a percentage basis, it's super, super encouraging. So, we're going to actually, I think we have 10 business bankers or something around there. You know, candidly, we'd like to have 20 to 30.
Unknown Speaker: What's their loan to deposit ratio? Is it 10 to 1? So they're bringing in 10 to 1 deposits to lend in that category. Now, as I said in my comments, those are small numbers. And so it takes a lot of those accounts to get to where you want to get. But from a percentage standpoint, it's super, super encouraging.
Speaker Change: What's their loan to deposit? Is it 10 to 1? So they're bringing in 10 to 1 deposits to loan in that category.
Speaker Change: Now, as I said in my comments, those are small numbers, and so it takes a lot of those accounts to get to where you want to get to.
Unknown Speaker: So we're going to actually, I think we have 10 business bankers or something around there, you know, candidly, we'd like to have 20 to 30. And so that's an area where we're investing in, and think that that is a real place for the future to get this granularity and lower cost funds. That's the way we increase the value of this deposit franchise, Stephen, the lifetime value when you think about the spread of those business deposits over the expected life of those deposits. That's value in hand.
Speaker Change: But from a percentage basis, it's super, super encouraging. So we're going to actually...
Speaker Change: I think we have 10 business bankers or something around there, you know, candidly, we'd like to have 20 to 30. And so that's an area where we're investing in and think that that is a real place to for the future to get this granularity and lower cost funding.
Malcolm Holland: And so, that's an area where we're investing in and think that that is a real place for the future to get this granularity and lower cost funding. That's the way we increase the value of this deposit franchise, Steven. The lifetime value, when you think about the spread of those business deposits over the expected life of those deposits, that's value enhancing. Absolutely. Can you agree more?
Speaker Change: That's the way we increase the value of this deposit franchise, Stephen. The lifetime value, when you think about the spread of those business deposits over the expected life of those deposits, that's value enhancing.
Stephen Kendall Scouten: Absolutely. Couldn't agree more.
Operator: Thanks for all the color, guys. Appreciate it. Thank you. And one moment for our next question.
Speaker Change: Yeah.
Stephen Kendall Scouten: Great. Thanks for all the color guys. I appreciate it.
Stephen Kendall Scouten: Absolutely, couldn't agree more. Great, thanks for all the color guys, appreciate it.
Michael Rose: And our next question is going to come from a line of Michael Rose with Raymond James.
Operator: Thank you. And one moment for our next question. And our next question is going to come from the line of Michael Rose with Raymond James. Your line is open. Please go ahead.
Speaker Change: Thank you and one moment for our next question.
Unknown Executive: Your line is open. Please go ahead.
Speaker Change: And our next question is going to come from the line of Michael Rose with Raymond James. Your line is open. Please go ahead.
Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Just following up on Steven's questions on deposits. Do you guys, you know, now that the loaner deposit ratio is kind of in line with where you wanted to be, I think, around 85% x warehouse. And, you know, where do you think that NIB mix, you know, can get to over time, and are there other opportunities to kind of shed some higher cost deposits? You know, outside of CDs that are scheduled for mature, you know, as we kind of move forward, if that DDA growth kind of keeps up, just trying to get a sense for, you know, if deposit costs of, you know, maybe reach the peak here, and then, you know, what we could expect, you know, on the downside. Thanks.
Michael Edward Rose: Hey, good morning, guys. Thanks for taking my questions. Just following up on Stephen's questions on deposits. Do you guys know now that the loaner deposit ratio is kind of in line with where you wanted to be? I think around 85% x warehouse. You know, where do you think that NIB mix can get to over time? And are there other opportunities to kind of shed some higher cost deposits?
Michael Edward Rose: Hey, good morning, guys. Thanks for taking my questions. Just following up on Stephen's questions on deposits. Do you guys, you know, now that the loaner deposit ratio is kind of in line with where you wanted to be, I think, around 85% X warehouse.
Speaker Change: You know, where do you think that NIB mix, you know, can can get to over time and are there other opportunities to kind of shed some some higher cost deposits?
Michael Edward Rose: Outside of CDs that are scheduled to mature, you know, as we kind of move forward, if that DBA growth kind of keeps up, just trying to get a sense for, you know, if deposit costs have, you know, maybe reached a peak here, and then, you know, what we could expect, you know, on the downside. Thanks.
Speaker Change: you know, outside of CDs that are scheduled to mature, you know, as we, as we kind of move forward, if that DBA growth kind of keeps up, just trying to get a sense for, you know, if
Speaker Change: deposit costs have, you know, maybe reached a peak here. And then, you know, what we could expect, you know, on the downside. Thanks.
Michael Rose: Michael, we certainly think deposit costs are at or very close to the peak. And, you know, because when we look at where we're pricing new business and the production that they're doing, it's good that we're focusing. What we're bearing is what we did last year to move this low deposit ratio so quickly down, the mainly the work in Q2 and Q3 of 23. You know, and so that's since then, and we told you, you know, at the end of Q3 that we're going to slow the change, and we have. To me, now where we are is the focus is kind of shifting from all the deposit production and growth funding, long growth, to a big part of this focused on changing the deposit mix and shifting out of some of those higher cost deposits while still maintaining decent long growth.
Terry S. Earley: Michael, we certainly think deposit costs are at or very close to the peak. And, you know, because when we look at where we're pricing new business and the production that they're doing, it's just it's it's good that we're focused. What we're bearing is what we did last year to move this loan to deposit ratio so quickly down to mainly the work in Q2 and Q3 of 23. But, you know, and so since then, and we told you at the end of Q3 that we're going to slow the change.
Speaker Change: And, you know, because when we look at...
Speaker Change: where we're pricing new business in the production that they're doing.
Speaker Change: It's just, it's good that we're focused.
Speaker Change: What we're bearing is what we did last year to move this loan-to-deposit ratio so quickly down.
Terry S. Earley: And we have to me now where we are, the focus is kind of shifting from all the deposit production and growth funding loan growth to a big part of this focused on changing the deposit mix and shifting out of some of those higher cost deposits while still maintaining decent loan growth. Nothing's going to affect the revenue of this company and the earnings more than deposit funding costs. It's way more impactful than loan growth right now. So we have multiple clients with significant balances, not in the CD space where we're looking to price down or move out.
Speaker Change: the work in Q2 and Q3 of 23. Since then, and we told you at the end of Q3, that we're gonna slow the change, and we have. To me, now where we are, the focus is kinda shifting.
Speaker Change: from all the deposit production and growth funding, loan growth.
Speaker Change: to a big part of this focused on changing the deposit mix.
Speaker Change: and shifting out of some of those higher cost deposits while still maintaining decent loan growth. Nothing's going to affect the revenue of this company and the earnings more than deposit funding costs. It's way more impactful than loan growth right now. So we have multiple clients.
Malcolm Holland: Nothing's going to affect the revenue of this company, and the earnings more than deposit funding cost is way more impactful than long growth right now. So we have multiple clients with significant balances not in the city space where we're looking to price down or move out. And that's, you know, execution is going to be the key, but we're working on it hard every day. We know who they are. We know why we brought them in, but now it's the time where we really don't need these high price deposits. So stay tuned, but we do believe with that work, that's assuming rates stay flat. Obviously, rates go down, you know, deposit costs are going to go down. But, yeah, this is a big focus for us over the balance of 24 going into really properly through the end to 25 is remixing this deposit base.
Speaker Change: with significant balances not in the CD space where we're looking to price down or move out.
Terry S. Earley: And that's, you know, execution is going to be the key. But we're working on it hard every day. We know who they are. We know why we brought them in.
Terry S. Earley: But now's the time where we really don't need these high-priced deposits. So stay tuned. But we do believe with that work, that's assuming rates stay flat; obviously, rates go down, you know, deposit costs are going to go down. But Yeah, this is a big focus for us over the balance of 24 going into, probably through the end of 25, refining this deposit.
Speaker Change: And that's, you know, execution is going to be the key, but we're working on it hard every day. We know who they are. We know why we brought them in. But now is the time where we really don't need these high-priced deposits. So stay tuned, but we do believe with that work, that's assuming rates stay flat. Obviously, rates go down.
Speaker Change: You know, deposit costs are going to go down, but yeah, this is a big focus for us over the balance of 24 going into really probably through the end of 25 is remixing this deposit base.
Michael Rose: Yeah, totally get it. That's a, that's great commentary.
Michael Edward Rose: Yeah, totally get it. That's a great color, Terry.
Curtis Anderson: And then really nice to see, you know, some of the accelerated, you know, this position of some of the non performers, this quarter. I expect that would continue kind of as we move forward. You know, I know the reduction that you had worked tied up in a few credit. Can you just give us a flavor of kind of what's in kind of the non accrual bucket at this point. And, you know, if we should expect to continue to see criticized classified come down. Thanks.
Michael Edward Rose: And then, really nice to see some of the accelerated, you know, disposition of some of the non-performers this quarter. I expect that to continue kind of as we move forward. You know, I know the reductions that you had were tied up in a few credits. Can you just give us a flavor of kind of what's in kind of the non-accrual bucket at this point? And, you know, if we should expect to continue to see classifieds come down, thanks.
Speaker Change: Yeah, I totally get it. That's great color, Terry. And then, really nice to see, you know, some of the accelerated, you know, disposition of some of the non-performers this quarter. I expect that would continue kind of as we move forward.
Speaker Change: You know, I know the reductions that you had were tied up in a few credit. Can you just give us a flavor of kind of what's in kind of the non-accrual bucket at this point? And, you know, if we should expect to continue to see criticized classifieds come down, thanks.
Curtis Anderson: First, you want to take that. So, yeah, thank you. Yeah, but there's a pretty good mix in our non-accrual bucket. We have got strategies, of course, on each of those names. We have a pretty good outlook for the third quarter. Malcolm mentioned the student housing deal; we've got strategies emerging on other names. So the outlook at this point in time is stable to positive, I would say, is how I'm looking at it. Yeah, I think it's favorable. I mean, the work they're doing.
Unknown Speaker: The telephone number. Would you like to take that? Sure. Yeah. We have a pretty good mix in our non-accrual buckets. We have got strategies, of course, on each of those names. We have a pretty good outlook for the third quarter. Malcolm mentioned the student housing deal.
Charles Malcolm Holland: We've got strategies emerging on other names. So, the outlook at this point in time is stable to positive, I would say. That's how I'm looking at it. Yeah, I think it's favorable. I mean, the work they're doing, the Team, Donald Pershbacher, Michael Carpenter, just a really, really yeoman's effort getting their arms around this stuff. And so, listen, something can always jump up and grab you that we don't know about, but the visibility that we have into our criticized classifieds and even our past watch categories, which we've done a whole detailed deep dive into, the visibility is unbelievable. And so, yes, something can grab you, but I'd be surprised if NPAs didn't take a pretty good dip in the third quarter. Criticizing classified debt
Speaker Change: Chris, you want to take that? Sure, yeah. Thank you.
Chris: We have a, there's a pretty good mix in our non-accrual buckets. We have got strategies, of course, on each of those names. We have a pretty good outlook for the third quarter. Malcolm mentioned the student housing deal. We've got strategies emerging on other names. So,
Speaker Change: The outlook at this point in time is stable to positive, I would say, is how I'm looking at it. Yeah, I think it's favorable. I mean, the work they're doing, they...
Unknown Executive: Curtis and his team on First Book or Michael Carp and done just a really, really Yomans effort get their arms around this stuff and so listen to something you know always jump up and grab me that we don't know about the visibility that we have into our criticized classifieds and even our our past watch categories, which we've done a whole detailed deep dive into. The visibility is unbelievable and so yeah something can grab you but my glad be surprised if NPAs didn't take a pretty good dip in the third quarter, criticizing classified that what you see is the top line and yes it is trending down what you don't see is the massive work that goes on with things coming in and going out and re looking at and retesting and so there's a lot of effort going on there for the positive thing for me is it is trending down and we anticipate trending down but there's a lot of effort there and I think you know this back after the year you're going to see us continue moving the right direction very helpful maybe just finally for me any any thought given to any additional securities restructuring at this point or are you guys kind of at where you want to be because obviously in the the down 100 BNI guys down you know about four and a half percent so just just want to get any thoughts there.
Speaker Change: and his team.
Speaker Change: Donald Persbacher, Michael Carpenter, just a really, really yeoman's effort.
Speaker Change: Get their arms around this stuff. And so, listen, something can always jump up and grab you that we don't know about.
Speaker Change: Visibility that we have into our...
Speaker Change: Criticized, Classifieds, and even our Past Watch Categories, which we've done a whole detailed, deep dive into. The visibility is unbelievable, and so, yes, something can grab you.
Speaker Change: Michael, I'd be surprised if NPAs didn't take a pretty good dip in the third quarter.
Charles Malcolm Holland: What you see is the top line. And yes, it is trending down. What you don't see is the
Speaker Change: Criticizing Classified. What you see is the top line, and yes, it is trending down. What you don't see is the...
Charles Malcolm Holland: The massive work that goes on with things coming in and going out and re-looking at and re-testing and so there's a lot of effort going on there. The positive thing for me is it is trending down, and we anticipate it trending down, but there's a lot of effort there. And I think, you know, this back half of the year, you're going to see us continue moving in the right direction.
Speaker Change: The massive work that goes on with things coming in and going out and re-looking at and re-testing and so there's a lot of effort going on there. The positive thing for me is it is trending down and we anticipate it trending down but there's a lot of effort.
Speaker Change: There, and I think, you know, this back half of the year, you're going to see us continue moving in the right direction.
Michael Edward Rose: Very helpful. Maybe just finally for me. Any thoughts given to any additional securities restructuring at this point, or are you guys kind of at where you want to be? Because obviously, in the down 100, the NII is down, you know, about 4.5%. So just just wanted to get any thoughts there. Thanks.
Speaker Change: Very helpful, maybe just finally for me
Speaker Change: Any thought given to any additional securities restructuring at this point, or are you guys kind of at where you want to be, because obviously in the down 100, the NII is down, you know, about four and a half percent. So just just wanted to get any thoughts there. Thanks.
Unknown Executive: Thanks. I mean it's something, Michael, that we look at on a pretty regular basis. We did certainly do one lady to play into one, and then you look at where a yield is on the portfolio. I think it was 468 at, you know, so the yield is really good. The duration is relatively short at 3.8.
Terry S. Earley: I mean, it's something, Michael, that we look at on a pretty regular basis. We certainly did one late into..., late in Q1. If you look at where our yield is on the portfolio, I think it was 468. You know, so the yield is really good. The duration is relatively short at 3.8. That's just one thing we've never done, which is gone long for yield. It doesn't help you go long given the inverted curve.
Speaker Change: I mean, it's something, Michael, that we look at on a pretty regular basis. We did, certainly did one late into
Speaker Change: [inaudible]
Speaker Change: If any of you look at where our yield is on the portfolio, I think it was $4.68.
Unknown Executive: That's just one thing we've never done is going along for yield doesn't help you along giving the inverted curve, but I don't think there's much more to really be done in the investment portfolio.
Speaker Change: So the yield is really good, the duration is relatively short at 3.8, that's just one thing we've never done, it's gone long for...
Speaker Change: for YIELD, it doesn't help you get along given the inverted curve. But I don't think there's much more to really be done in the investment portfolio.
Unknown Executive: One thing we are looking at, especially given the strength in our capital ratios and ongoing profitability, with pretty, you know, mild to moderate growth, if you will, is we're looking at a boldly restructured. But that's something we've been thinking about, but that's not going to affect the near, but it's going to affect profitability, and but that's just something that's the only other restructured thing we're really looking at right now. So very helpful. I'm pretty sure you guys take my question. Thank you so much. Thank you in one moment as we move on to our next question.
Terry S. Earley: But I don't think there's much more to really be done in the investment portfolio. One thing we are looking at, especially given the strength in our capital ratios and ongoing profitability with pretty, you know, mild to moderate growth, if you will, is a Boley restructure. But that's something we've been thinking about, but that's not going to affect NIM, but it's going to affect profitability, and that's just something that's the only other restructuring thing we're really looking at right now.
Speaker Change: One thing we are looking at, especially given the strength in our capital ratios and ongoing profitability with pretty, you know, mild to moderate growth, if you will, is we're looking at a BOLI restructure.
Speaker Change: But that's something we've been thinking about, but that's not going to affect the NIM, but it's going to affect profitability. And but that's just something that's the only other restructure thing we're really looking at right now.
Terry S. Earley: So... Thank you.
Michael Edward Rose: Very helpful. Appreciate you guys taking the time to answer my question. Thanks, Mark.
Speaker Change: Very helpful. Appreciate you guys taking my questions.
Operator: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Brett Rabatin with Hovde Group. Your line is open. Please go ahead.
Mark: Thanks, Mark.
Fat Rubber Tin: Then our next question is going to come from the line of fat rubber tin with a host D group.
Speaker Change: Thank you and one moment as we move on to our next question.
Fat Rubber Tin: Your line is open. Please go ahead.
Speaker Change: And our next question is going to come from the line of Brett Rabatin with Hovde Group. Your line is open. Please go ahead.
Brett D. Rabatin: Hey guys, good morning.
Fat Rubber Tin: Hey guys, good morning. I got disconnected for a minute, so you may have talked about this a little bit, but if I heard correctly, the margin guidance from here, or at least for the back half of the year, is 325 or 330. Just want to make sure I heard that correctly. And then within that, I'm looking at slide 9 on the maturity schedule for deposits. I assume that includes CDs and other things. I'm just looking at this and thinking, hey, you know what's repricing in the next three quarters. is over 5% and just wanted to get an idea of one, if you think you can replace that any lower than current levels and then secondly, how does that fit in with your guidance on the margin.
Unknown Speaker: Hey, Brett. Hey, Brett.
Brett D. Rabatin: I got disconnected for a minute, so you may have talked about this a little bit, but if I heard correctly, the margin guidance from here, or at least for the back half of the year, is 325 or 330. I just want to make sure I heard that correctly.
Brett Robertson: Hey guys, good morning.
Speaker Change: Hi, Brett. Hey, Brett.
Brett Robertson: I got disconnected for a minute, so you may have talked about this a little bit, but if I heard correctly, the margin guidance from here, or at least for the back half of the year, is 325 or 330. Just want to make sure I heard that correctly.
Brett D. Rabatin: And then within that, I'm looking at slide 9 on the maturity schedule for deposits. I assume that includes CDs and other things. I'm just looking at this and thinking, hey, what's the repricing in the next three quarters? It's over 5%, and just wanted to get an idea of one if you think you can reprice that any lower than current levels. And secondly, how does that fit in with your guidance on the margin? Thanks.
Speaker Change: And then within that, I'm looking at slide nine on the maturity schedule for deposits. I assume that includes CDs and other things. I'm just looking at this and thinking, hey, you know, what's repricing in the next three quarters?
Speaker Change: is over 5% and just wanted to get an idea of one, if you think you can reprice that any lower than current levels. And then secondly, how does that fit in with your guidance on the margin?
Terry Earley: Thanks.
Terry S. Earley: You were right on the margin guidance of 325 to 330. The term maturity schedule is $2.4 billion, give or take. Unknown Speaker.
Terry Earley: You were right on the margin guidance, 325 to 330. The maturity schedule is 2.4 billion dollars, give or take, 2.3, 2.4. For the back half of the year, at a 518 average rate, we absolutely think we can reprise that down. That's factored in to that, you know, the, the, the, the name guidance is also assuming we're using in, you know, the Fed dot plot with one Fed cut in the back half of the year. So that's also factored in. You know, so if you look at our new production spreads and on the loads of deposits, it's over 400 basis points or 40, I believe, something in that range.
Speaker Change: You were right on the margin guidance 325 to 330. The term maturity schedule is, you know, $2.4 billion, give or take.
Speaker Change: 2.3, 2.4, for the back half of the year at a 5.18 average rate, we absolutely think we can reprice that down. That's factored in to that, you know, the NIM.
Speaker Change: The NIM guidance, it's also assuming we're using, you know, the Fed dot plot with one Fed cut in the back, in the back half of the year, so that's also factored in.
Terry S. Earley: You know, so in, if you look at our new production spreads on loans and deposits, it's over 400 basis points, 440, I believe, something in that range. So it's going well, you know, and so we, you know, but the other big thing is interest reversals. If credit stays good, given the current outlook, and we don't have significant interest reversals, that will help, too. With loans moving into non-accrual status, that will help, too.
Speaker Change: You know, so, it, it, it, it.
Speaker Change: You know, if you look at our new production spreads on loads and deposits, it's over 400 basis points. 440, I believe.
Terry Earley: And so that it's going, it's going well, you know, so we, you know, but the other big thing is interest reversals. If credit, if credit stays good given the current outlook and we don't have significant interest reversals, that's going to, with loads moving into not cruel status, that will help too. So, you know, we feel like, you know, we don't want to over-provise none to deliver. It said we feel like 325 to 330 is the right place to, you know, to give you that range, but we do see opportunity on the funding side to help with that.
Speaker Change: something in that range. So it's going well, you know, so we, you know, but the other big thing...
Speaker Change: Interest Reversals, if credit, if credit.
Speaker Change: Stay good given the current outlook
Speaker Change: and we don't have significant interest reversals.
Terry S. Earley: So you know, we feel like, you know, we don't want to over-promise and not deliver, and so we feel like 325 to 330 is the right place to give you that range, but we do see opportunity on the funding side to help with that.
Speaker Change: That's going to, with loans moving into non-accrual status, that will help too, so.
Speaker Change: You know, we feel like, you know, we don't want to over-promise none to deliver. It's that we feel like 325 to 330 is the right place to, you know, to give you that range, but we do see opportunity on the funding side to help with that.
Terry Earley: Okay, that's helpful, Terry.
Brett D. Rabatin: That's helpful, Terry. And then I just wanted to talk about the criticized assets for a second and was curious about one. I can't remember if you guys have disclosed it, but how much of that amount might have been previously acquired credit.
Michael Rose: And then just wanted to talk about the criticized assets for a second, and was curious. I can't remember if you guys have disclosed it, but how much of that, how much of that amount might have been previously acquired credit?
Speaker Change: Okay.
Terry: That's helpful, Terry. And then just wanted to talk about the criticized assets for a second and was curious one I can't remember if you guys have disclosed it, but how much of
Speaker Change: But how much of that amount might have been previously acquired credit? I can start with that one.
Curtis Anderson: I can start with that one. You know, we don't have that broken down; the only place we have that broken down is on the charge-off page. Okay, we don't have broken down within the criticized. I mean, we have it; I just don't have it figuratively. Okay, okay.
Unknown Speaker: You know, we don't have that broken down. The only place we have that broken down is on the charge-off page. Okay, we don't have it broken down
Speaker Change: We don't have that broken down. The only place we have that broken down is on the charge-off page.
Speaker Change: We don't have it broken down within the criticized, I mean we have it, I just don't have it anymore.
Brett D. Rabatin: Okay. Um, and then just related to that, to that, um, to that bucket, you know, if I'm hearing you correctly, it sounds like you're saying you can, you can work that down some from here. Um, you know, as that bucket kind of filled, where you guys, I assume you guys were kind of working on the hardest things or the things that were most pressing first. And so it seemed like, over the past few quarters, what could have been lost exposure, you know, in that bucket may have declined. Would you guys have any thoughts on that? It would seem like you'd have an easier time relative to maybe a few quarters ago with some of those credits that might still be in there.
Curtis Anderson: And then just related to that bucket, you know, if I'm hearing you correctly, it sounds like you're saying you can work that down some from here. You know, as that bucket kind of filled, where you guys, I've seen you guys were kind of working on the hardest things or the things that were most pressing first. And so it seemed like, you know, over the past few quarters, what could have been loss exposure, you know, in that bucket may have declined. Would you guys have any thoughts on that and just, you know, it seemed like you'd have an easier time relative to maybe a few quarters ago with some of those credits that might still be in there?
Speaker Change: Okay.
Speaker Change: Okay and then just related to that to that to that bucket you know if I'm hearing you correctly it sounds like you're saying you can you can work that down some from here you know as that as that bucket kind of filled
Speaker Change: Where you guys, I assume you guys were kind of working on the hardest things or the things that were most pressing first. And so it would seem like.
Speaker Change: You know, over the past few quarters, what could have been lost exposure, you know, in that bucket may have declined. Would you guys have any thoughts on that?
Speaker Change: It would seem like you'd have an easier time relative to maybe a few quarters ago with some of those credits that might still be in there.
Curtis Anderson: I wouldn't categorize it that way. I think we still have a lot of a lot of work to do there. But I will agree with you, go to the harder stuff first. The harder stuff first is MBAs, right? So you go attack that piece first because you're not a criminal anything, and they're the biggest problems. That's where you see the biggest move. We're still working within our criticizing classifieds. There's a lot of turbulence that's underneath the top line. You know, like I said, the trend is down, and I do believe the trend is going to be down.
Brett D. Rabatin: I wouldn't categorize it that way. I think we still have a lot of work to do there. But I will agree with you that go to the harder stuff first. The harder stuff first is MBAs, right?
Speaker Change: I wouldn't categorize it that way. I think we still have a lot of a lot of work to do there. But I will agree with you go to the harder stuff first. The harder stuff first is MBAs, right? So you go attack that piece first because you're not accruing anything and they're the biggest problems. That's where you see the biggest move.
Charles Malcolm Holland: So you go attack that piece first because you're not accruing anything, and they're the biggest problems. That's where you see the biggest move. We're still working within our criticized and classifieds.
Curtis Anderson: There's a lot of turbulence that's underneath the top line. You know, like I said, the trend is down. And I do believe the trend is going to be down. I just don't know how steep the curve is. Okay, Curtis, you may want to add.
Speaker Change: We're still working within our criticized and classifieds. There's a lot of turbulence that's underneath the top line. You know, like I said, the trend is down and I do believe the trend is going to be down. I just don't know how steep the curve is.
Curtis Anderson: I just don't know how steep the curve.
Curtis Anderson: Yeah, I'll reiterate what was said earlier. Each loan has a defined strategy. And yes, priority, of course, on NPAs, but everything in that category, every name by name, has a defined strategy and workflow around it. You look at a quarter, and you look underneath the total; you've got payoffs, you've got increases, you've got downgrades, you've got upgrades. It's a very dynamic process, name by name, every single quarter. That's going to continue, and we're not going to take our eye off the ball. So, we will probably see more payoffs, and we'll probably see more migration, and we we will work those names.
Curtis Anderson: Curtis, you may want to add, yeah, I'll reiterate what was said earlier, that each loaned has a defined strategy, an NDS priority of course on MBAs, but everything in that category, every name by name has a defined strategy and workflow around it. You've got upgrades; it's a very dynamic name-by-name approach every single quarter. That's going to continue, and we're not going to take our eye out of the ball, so we will probably see more payoffs, and we'll probably see more migration, and we rework those name-by-name. It's very strategic and granular.
Speaker Change: Curtis, you may want to add. Yeah, I'll reiterate what was said earlier.
Brett D. Rabatin: Name by name. Thanks.
Curtis Anderson: Each loan has a defined strategy.
Speaker Change: And yes, priority, of course, on MPAs, but everything in that category, every name by name has a defined strategy and workflow around it.
Curtis Anderson: You look at a quarter and you look underneath the total, you've got payoffs, you've got increases, you've got downgrades, you've got upgrades. It's a very dynamic.
Curtis Anderson: Name-by-name approach every single quarter. That's going to continue and and we're not going to take our eye off the ball. So you we will probably see more payoffs and we'll probably see more migration and and we work those name by name.
Curtis Anderson: It's very strategic and granular.
Michael Rose: Okay, that's helpful, and then I don't know if you covered this, so apologies if you did, but just on the buybacks, you know I know you use some of the authorization this quarter. Just wanted to see if you might continue to do some of that or if the stock moving iron might lead you to hold on to this capital. Yeah, Brent, you know, when we announced the buyback and talked about it last quarter, we said we would be opportunistic, and I think we have done that. We have, you know, we've been a buyer when the stock is below tangible book, and we'll continue to be that given where it is today.
Brett D. Rabatin: That's helpful. Um, and then I don't know if you covered this. So apologies if you did, but just on capital and the buyback, you know, I know you used some of the some of the authorization this quarter, just wanted to see if he might continue to do some of that or if the stock moving higher might I'll leave you to hold on to this, Capitol. Yeah.
Curtis Anderson: It's very strategic and granular.
Curtis Anderson: Okay.
Speaker Change: That's helpful. And then I don't know if you covered this, so apologies if you did. But just on capital and the buyback, you know, I know you used some of the authorization this quarter. Just wanted to see if you might continue to do some of that or if the stock moving higher might.
Brett D. Rabatin: Brent, you know, when we announced the buyback and talked about it last quarter, we said we would be opportunistic. And I think we have done that.
Speaker Change: I'll lead you to hold on to this capital.
Speaker Change: Yeah.
Speaker Change: Brent, you know, when we announced the buyback and talked about it last quarter, we said we would be opportunistic, and I think we have done that. We've been a buyer when the stock is below tangible blow.
Terry S. Earley: We have, you know, when you know, we've been a buyer when the stock is below tangible, and will continue to be that. Given where it is today, I wouldn't expect us to be, you know, wouldn't expect us to be in the market, so to speak, to buy back shares. So we have capital allocated for it, but I'm not expecting us to use much of it given what's been going on in the market with respect to Bankstop. So, I'm not sure I've modeled a lot of share buyback in the fully diluted share count into my model. Okay.
Terry Earley: I wouldn't expect us to be, you know, wouldn't expect us to be in the market, so to speak, to buy back share, so we have capital allocated for it.
Speaker Change: And we'll continue to be that. Given where it is today, I wouldn't expect us to be, you know, wouldn't expect us to be in the market, so to speak, to buy back shares. So we have capital allocated for it.
Michael Rose: But I'm not expecting us to use much of it given what's been going on in the market with respect to bank stock, so I'm not sure of a lot of share buy back in the fully diluted share count into my mom. Okay, all right, great. Appreciate all the fellow guys. Thanks, Brent.
Speaker Change: But I'm not expecting us to use much of it given what's been going on in the market with respect to bank stocks.
Speaker Change: I'm not sure I've modeled a lot of share buyback in the fully diluted share count into my mom.
Brett D. Rabatin: All right, great. Appreciate all the tellers guys.
Speaker Change: Okay.
Speaker Change: All right, great, appreciate all the fellow guys.
Operator: Thank you, and one moment as we move on to our next question.
Operator: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Mark Shetley with KBW. Your line is open. Please go ahead.
Breb: Thanks, Breb.
Mark Shetley: And our next question is going to come from the line of Mark Shetley with KBW. Your line is open, please go ahead. Okay, thanks for taking my questions. Appreciate the margin guidance; just the fall off there. It sounds like a cause of mostly peaked. Where do you think loan yield can go, you know, near your end priority rate cuts? 75% of the loan portfolio time to prime and so forth. If we get said rate cuts, it's going to move, move down. Pretty meaningfully, it's, you know, obviously so for recess of the next month after that, you know, so that lags it's a little bit on the way down just like it lagged on the way up.
Speaker Change: Thank you and one moment as we move on to our next question.
Speaker Change: And our next question is going to come from the line of Mark Shetley with KBW. Your line is open. Please go ahead.
Mark Shetley: Hey, thanks for taking my questions. Appreciate the margin guidance. Just to follow up there, it sounds like housing costs have mostly peaked. Where do you think loan yields can go, you know, near year end prior to the right cut?
Mark Shetley: Okay, thanks for taking my questions. Appreciate the margin guidance. Just to follow up there, it sounds like positive costs have mostly peaked.
Mark Shetley: Where do you think loan yields can go, you know, near year-end prior to rate cuts?
Unknown Speaker: 75% of the loan portfolio tied to prime and SOFR. If we get said rate cuts, it's going to move down pretty painfully. Yeah, it's [inaudible] 70% of the floating rates so far versus prime.
Speaker Change: 75% of the loan portfolio tied to Prime and SOFR, if we get fed rate cuts, it's going to move down pretty meaningfully.
Speaker Change: you know obviously so for recess the next month after that you know so that lags it's a little bit on the way down just like it lagged on the way up but but you know you're going to see you know Prime certainly going to move past but we have
Terry Earley: But, but, you know, you're going to see, you know, prime certainly going to move fast, but we have 70% of the floating rates so for versus prime. The key for us is going to be our ability to adjust deposit pricing down as low as loan yields decline from fifth rate cuts. And we're certainly talking about that, working on that in anticipation of that. It's not your question, but that's where my head goes when you talk about Fed cuts. I know what's going to happen on the loan side. It's about what can we do on the deposit side, and we make one other comment on the rates go down depending on the shape of the curve, and people start wanting to refinance the importance of if we've got three pay protection and the loan documents importance of holding our borrowers to that.
Terry S. Earley: The key for us is going to be our ability to adjust deposit pricing down as loan yields decline from Fed rate cuts. And we're certainly talking about that, and working on that in anticipation of that. That's not your question, but that's where my head goes.
Speaker Change: 70% of the floating rates so for versus versus prime. The key for us is going to be our ability to adjust deposit pricing down as loan yields decline from Fed rate cuts.
Speaker Change: And we're certainly talking about that, working on that, in anticipation of that. That's not your question, but that's where my head goes when you talk about bid cuts. I know what's going to happen on the loan side.
Mark Shetley: When you talk about Fed cuts, it's I know what's going to happen on the loan side, but it's about what can we do on the deposit side. I would make one other comment on when rates go down, depending on the shape of the curve and people start wanting to refinance, the importance of if we've got prepaid protection in the loan documents and the importance of holding our borrowers to that to help with the loan yields and net interest margins as rates go down.
Speaker Change: It's about what can we do on the deposit side. I would make one other comment on when rates go down, depending on the shape of the curve and people start wanting to refinance, the importance of if we've got prepaid protection and the loan documents.
Terry Earley: So big to help with the loan yields and net interest margin is rates go down. God, that's helpful.
Speaker Change: importance of holding our borrowers to that.
Speaker Change: So I think to help with the loan yields and net interest margins as rates go down.
Terry S. Earley: Got it. That's helpful. And then maybe just switching gears, expenses were pretty well contained. Again, I was just wondering if this, you know, total expenses in a quarter, if that's a good run rate to think about for the remainder of 2024.
Terry Earley: And then maybe just switching gears, you know, expenses were pretty well contained again. I was just wondering if, you know, this, you know, total expenses in a quarter, if that's a good run rate to think about for the remainder of 2024. And if, you know, there are any, you know, expensive levers you see or an opportunity to gain efficiency anywhere. I think these are pretty good levels, you know. I would say this: if we get the revenue execution we're hoping for in our government guaranteed business, there will be some more incentives there. But I'm good with that expense given the revenue implications on.
Speaker Change: Got it. That's helpful. And then maybe just switching gears, you know, expenses were pretty well contained again.
Speaker Change: I was just wondering if, you know, this, you know, total expenses in a quarter, if that's a good run rate to think about for the remainder of 2024, and if, you know, there are any, you know, expense levers you see or an opportunity to gain efficiency anywhere.
Terry S. Earley: I think these are pretty good levels. You know, I would say this, if we get the revenue execution we're hoping for in our government-guaranteed business, there will be some more incentives there. But I'm good with that expense, given the revenue implications. So, I mean, you know, look, it's still a tight labor market. You have to, you know, it's, we've had to bring on a lot of very talented but not inexpensive people as we've gone over $10 billion and built out internal audit, enterprise risk management, financial stress testing, better information data security, et cetera, et cetera.
Speaker Change: I think these are pretty good levels. You know, I would say this, if we get the revenue execution we're hoping for in our government guaranteed business, there will be some more incentives there. But I'm good with that expense, given the revenue implications on it.
Terry Earley: So I mean, you know, look, it's still a tight labor market. You have to, you know, we've had that bring on a lot of very talented, but not, but not inexpensive people as we've gone over 10 billion and build out internal audit, enterprise risk management, financial stress testing, better information data security, et cetera, et cetera. So it's not going down, and we do want, as we've been talking about on the call, to find ways to invest more money into the business banking side. That's such a driver for us. That's probably the main reason why I wouldn't expect it to be going down.
Speaker Change: So, I mean, you know, look, it's...
Speaker Change: It's still a tight labor market. You have to...
Speaker Change: We've had that bring on a lot of very talented, but not inexpensive people as we've gone over $10 billion and built out.
Speaker Change: Internal Audit, Enterprise Risk Management, Financial Stress Testing, Better Information Data Security, etc., etc. So it's not going down and we do want, as we've been talking about on the call,
Terry S. Earley: So it's not going down, and we do want, as we've been talking about on the call, to find ways to invest more money in the business banking side. That's such a driver for us. That's probably the main reason why I wouldn't expect it to be going down at all. But we're going to do our best at holding it flat. I think it's a good run rate right now. I'm a believer that our earnings challenges are revenue-related and not expense-related. Veritex needs more scale.
Speaker Change: to find ways to invest more money into the business banking side. That's such a driver for us.
Terry Earley: We're going to do our best at all, and it's flat. I think it's a good run rate right now. I'm a believer that our earnings challenges are revenue related and not expensive related. Baratex needs more scale, but you can't get to save your way to prosperity here. This is about revenue generation. Yeah, but the primary driver being funding cost. Yeah, that makes sense. Well, thanks for taking my questions. Thank you, thank you. Thank you.
Speaker Change: So that's probably the main reason why I wouldn't expect it to be going down at all. But we're going to do our best at holding it flat. I think it's a good run break right now.
Speaker Change: I'm a believer that our earnings challenges are revenue-related and not expense-related. Veritex needs more scale, but you can't save your way to prosperity here. This is about revenue generation, with the primary driver being funding costs.
Mark Shetley: But you can't save your way to prosperity here. This is about revenue generation. Yeah, but the primary driver is funding costs.
Mark Shetley: Yeah, that makes sense. Well, thanks for taking my questions.
Operator: Thank you. Thank you.
Speaker Change: Yeah, that makes sense. Well, thanks for taking my questions.
Operator: Thank you, and one moment as we move on to our next question. And our next question comes from the line of: Ahmad Hasan with DA Davidson. Your line is open, please go ahead.
Operator: And one moment as we move on to our next question.
Speaker Change: Thank you.
Hamid Hassan: And our next question comes from the line of. Hamid Hassan with DA Davidson. Your line is open. Please go ahead. Good morning, guys. I'm on a phone on for Gary Tenor.
Speaker Change: Thank you and one moment as we move on to our next question.
Speaker Change: And our next question comes from the line of Ahmad Hasan with D.A. Davison. Your line is open. Please go ahead. Good morning, guys. I'm Ahmad Hasan on for Gary Tenner.
Ahmad Jamal Hasan: Good morning, guys. I'm Ahmad Hasan on for Gary Tenner.
Hamid Hassan: So you might guys might have covered this, but. How are you thinking about the mature in term funding in the third quarter? I think it's about 1.3 billion at 517. I'm thinking about we ought to reprise these things lower. We've intentionally tried to keep the funding profiles short because we thought that with the next move from the Fed was down, not. And so, you know, when you look at that on the margin where we're pricing deposits, you know, we. Is this these should roll down the roll down the price curve a little bit, you know.
Ahmad Jamal Hasan: So you guys might have covered this, but how are you thinking about the maturing term funding in the third quarter? I think it's about $1.3 billion at 517.
Ahmad Jamal Hasan: I'm thinking about whether we ought to reprice these things lower. We've intentionally tried to keep the funding profiles short because we thought the next move from the Fed was down, not up. And so, you know, when you look at that on the margin where we're pricing deposits, these should roll down the price curve a little bit, so I would expect that that's going to continue to be the case, and I think that will extend into the fourth quarter as well. Because we've got a little over a billion at $5.20 in the fourth quarter and almost a billion at $5.02, but when we're, Anything above We, if you notice, we don't have any FHLB advancements. So, you know, it should be coming down.
Speaker Change: I'm thinking about we ought to reprice these things lower.
Speaker Change: We've intentionally tried to keep the funding profiles short because we thought the next move from the Fed was down, not up. And so, you know, when you look at that on the margin where we're pricing deposits,
Speaker Change: You know, we, we, this, this.
Hamid Hassan: So I would expect that that's going to continue to be continue to be the case. And I think that will extend into the fourth quarter as well because, you know, we've got. We've got a little over a billion at 520 and the fourth quarter, and almost a billion at 5.02. But when we're anything, anything above five should be our term funding profile. And it's all CDs. If you notice, we don't have any FHLB advances. So it should be coming down.
Speaker Change: These should roll down the price curve a little bit, you know, so I would expect that that's going to continue to be the case. And I think that will extend into the fourth quarter as well because, you know, we've got
Speaker Change #100: You've got a little over a billion at 5.20 in the fourth quarter and almost a billion at 5.02, but when we're
Speaker Change #100: Anything anything above five should be our term funding profile and it's all CDs. If you notice we don't have any FHLB advances so you know it should be coming down.
Hamid Hassan: Thanks, that's helpful.
Terry S. Earley: Thanks, that's helpful. And because I wanted to touch on it a little bit, but the SBA and USDA production was nil for the quarter. Unknown Speaker 0, What's the story there? Is that seasonality? And how should we think about it going forward?
Hamid Hassan: And you touched on it a little bit, but the SBA and USDA production was no for the quarter. What's the story there? Is that seasonality? And how can we think about it going forward? We expect a better back half on both of those numbers. SBA's got a lot of momentum, and they're doing a nice job. USDA, you know, we've done a little restructure in there. So we think we'll do better on the, we'll do better on the, the income on the back half of the year. And let me clarify, there's the error on the graph; the 18.8 million and Q1 production of USDA is actually Q2 production and SBA.
Speaker Change #101: Thanks, that's helpful. And you touched on it a little bit, but the SBA and USDA production was nil for the quarter.
Speaker Change #103: What's the story there? Is that seasonality and how should we think about it going forward?
Unknown Speaker: We expect a better back half on both of those numbers. SBA's got a lot of momentum. They're doing a nice job. USDA, you know, we've done a little restructuring there, so we think we'll do better on the..., do better on the feed and come on the back half.
Speaker Change #102: We expect a better back half on both of those numbers. SBA's got a lot of momentum.
Speaker Change #104: and they're doing a nice job. USDA, we've done a little restructuring there. So we think we'll do better on the...
Unknown Speaker: And let me clarify, there's an error on the graph; the 18.8 million in Q1 production of USDA is actually Q2 production in S&P. So SBA production is down a little bit from Q1 to Q2, and the pipeline for Q3 is way up. So I apologize for the error on the graph, but it's the USDA with no production. The SBA had good production. The number of loans produced was good; they were just smaller. And the gain on sale premiums in the SBA, on average for us, are hanging in there right around 9%. And we did, during the quarter, hire a new team.
Speaker Change #101: We'll do better on the fee income on the back half of the year.
Speaker Change #101: Let me clarify, there's an error on the graph. The $18.8 million in Q1 production of USDA is actually Q2 production in SBA.
Ahmad Jamal Hasan: Great, that's really helpful. Thank you for the clarification. And that's it for my question.
Hamid Hassan: So SBA production is down a little bit. From Q1 to Q2, the pipeline for Q3 is way up. So I apologize for the error on the graph, but it's the USDA with no production. The SBA had good production. And the number of loans produced was good. They were just smaller. And the gain of sale premiums in the SBA, on average for us, are hanging in there right around 9%. Okay, you know, and we did during the quarter, hire a new team of five people at this quarter. So, I mean, we're making some investments in that space.
Speaker Change #101: So SBA production is down a little bit from Q1 to Q2, the pipeline for Q3 is
Speaker Change #101: [inaudible]
Speaker Change #101: And the gain on sale premiums in the SBA, on average for us, are hanging in there right around 9%.
Speaker Change #101: And we did, during the quarter, hire a new team of five people, this quarter. So I mean, we're making some investments in that space. So I do look for the back half of our fee income to be much better than the front half.
Hamid Hassan: So I do look for the back half. There's our income to be much better from that.
Hamid Hassan: Great, that's really helpful. Thank you for coming to the clarification.
Hamid Hassan: Then that's it for my question. Thank you.
Speaker Change #105: Great, that's really helpful. Thank you for the clarification. And that's it for my questions.
Operator: This does conclude today's question and answer session, as well as today's conference call. Ladies and gentlemen, thank you for participating, and you may now disconnect.
Operator: This does conclude today's question and answer session, as well as today's conference call. Ladies and gentlemen, thank you for participating, and you may now disconnect.
Speaker Change #106: Thank you.
Speaker Change #107: This does conclude today's question and answer session as well as today's conference call. Ladies and gentlemen, thank you for participating and you may now disconnect.