OREANDA-NEWS. Veritex Holdings, Inc. (NASDAQ:VBTX), the holding company for Veritex Community Bank, announced today the results for the quarter ended June 30, 2016. The Company reported net income of $3.2 million, or $0.29 diluted earnings per share (EPS), compared to $2.8 million, or $0.26 diluted EPS, for the quarter ended March 31, 2016 and $1.9 million, or $0.19 diluted EPS, for the quarter ended June 30, 2015.

Malcolm Holland, the Company’s Chairman and Chief Executive Officer, said, “I am excited to announce another quarter of record earnings. With the reported $0.29 diluted earnings per share for the second quarter 2016, we have grown 2016 diluted earnings per share to $0.55 through the first six months of 2016, a 45% increase over $0.38 for the same period in 2015. The growth in earnings continues to be fueled by our strong loan growth with loans increasing by $43 million between March 31, 2016 and June 30, 2016.  I take great pride in noting that we have grown loans by $107 million, or 13%, since December 31, 2015, an annualized rate of 26%.”

“Loan demand continues to be robust reflecting the strength of the Dallas market. I expect that we will see a strong second half of the year,” Mr. Holland stated. “In addition to our loan growth, we have been very focused on core deposit growth over the last six months. We continue to hire experienced bankers with deep relationships in our market. We maintain that much of our franchise value is linked to our ability to retain and grow deposits,” continued Mr. Holland.

Second Quarter 2016 Financial Highlights

  • Net interest income was $10.2 million, an increase of $3.2 million or 46.7% compared to $7.0 million for the same period in 2015.
  • Total loans increased $283.1 million, or 43.9%, to $928.0 million compared to $644.9 million as of June 30, 2015.
  • Total deposits increased $354.6 million, or 52.7%, to $1.0 billion compared to $673.1 million as of June 30, 2015.
  • Pre-tax, pre-provision income was $5.3 million, an increase of $2.4, million or 82.2%, compared to $2.9 million for the same period in 2015.
  • Year-over-year improvement in the following performance ratios (annualized):
    • Return on average assets of 1.12% compared to 0.93% for the same period in 2015.
    • Return on average equity of 9.23% compared to 6.39% for the same period in 2015.
    • Efficiency ratio of 54.13% compared to 61.75% for the same period in 2015.

Result of Operations for the Three Months Ended June 30, 2016

Net Interest Income

For the three months ended June 30, 2016, net interest income before provision for loan losses was $10.2 million and net interest margin was 3.90% compared to $9.7 million and 3.88%, respectively, for the three months ended March 31, 2016. Net interest income increased $538,000 primarily due to increased interest income on loans as average loan balances increased $57.3 million due to organic loan growth during the three months ended June 30, 2016 compared to the three months ended March 31, 2016. The net interest margin increased 0.02% from the three months ended March 31, 2016. The increase in net interest margin was due to an increase in the accretion of purchase discount of 0.03% and a change in the mix of interest earning assets.  Total loans, which had an average yield of 4.86% represented 86.7% of earning assets as of June 30, 2016 compared to total loans, which had an average yield of 4.86%, representing 85.3% of earning assets as of March 31, 2016.  This was offset by an increase of 0.06% in the cost of interest bearing deposits primarily due to an increase in the rate paid on money market deposit accounts.

Net interest income before provision for loan losses increased by $3.2 million from $7.0 million to $10.2 million for the three months ended June 30, 2016 as compared to the same period during 2015. The increase in net interest income before provision for loan losses was primarily due to $3.6 million in increased interest income on loans resulting from average loan balance increases of $289.2 million compared to June 30, 2015. The net interest margin improved 0.13% to 3.90% from the three months ended June 30, 2016 from 3.77% for the same three-month period in 2015. The primary driver of the increase was an increase in average yield on loans of 0.08% to 4.86% for the three months ended June 30, 2016 from 4.78% for the same period in 2015.  This increase in average yield was primarily the result of an additional $149,000 in purchase discount accretion representing an addition of 0.06% to loan yields.

The average rate paid on interest-bearing liabilities increased 0.02% from 0.70% for the three months ended June 30, 2015 to 0.72% for the three months ended June 30, 2016 primarily due to an increase in the average rate paid on money market accounts.

Noninterest Income

Noninterest income for the three months ended June 30, 2016 was $1.4 million, an increase of $39,000 or 2.8% compared to the three months ended March 31, 2016. The net increase was a result of increased dividend income of $95,000 as a result of bi-annual Federal Reserve Bank stock dividends reflected in the three months ended June 30, 2016, and increased gain on sales of mortgage loans of $154,000 compared to three months ended March 31, 2016.  These increases were partially offset by a non-recurring gain on the sale of a loan acquired in the IBT acquisition of $193,000 reflected in the three months ended March 31, 2016, and a decrease in gain on sale of securities of $15,000 compared to the three months ended March 31, 2016.

Compared to the three months ended June 30, 2015, noninterest income grew $724,000 or 105.2%. The increase was primarily a result of increased gains on sale of Small Business Administration (“SBA”) loans totaling $252,000, increased gains on sale of mortgage loans totaling $239,000, and increased deposit service charges and fees on deposit accounts of $161,000 primarily related to the deposit accounts acquired with the acquisition of IBT.

Noninterest Expense

Noninterest expense was $6.3 million for the three months ended June 30, 2016, compared to noninterest expense of $6.0 million for the three months ended March 31, 2016, an increase of $326,000 or 5.5%. The increase was primarily due to increases in employee expense of $415,000 related to the hiring of additional staff members, seasonal mortgage commissions, and a decrease in deferred direct origination costs.  This increase was partially offset by a decrease in professional services fees of $70,000 primarily related to annual reporting requirements for the Company as well as decreases in data processing and expenses related to other assets owned.

Compared to the three months ended June 30, 2015, noninterest expense increased $1.6 million, or 33.2%, to $6.3 million for the three months ended June 30, 2016. This increase was primarily due to the hiring of additional employees resulting in additional salary and employee benefit expenses of $1.0 million, increased professional fees of $138,000 related to increased directors’ compensation, audit fees and legal support, and increased other operating expenses of $442,000 primarily related to the acquisition of IBT.

Income Taxes

Income tax expense for the three months ended June 30, 2016 totaled $1.6 million, an increase of $209,000, or 14.6%, compared to the three months ended March 31, 2016. The Company’s effective tax rate was approximately 34.1% and 33.7% for the three months ended June 30, 2016 and the three months ended March 31, 2016, respectively.

Compared to the three months ended June 30, 2015, income tax expense increased $713,000, or 77.0%, to $1.6 million for the three months ended June 30, 2016. The increase in the income tax expense was primarily due to the $2.0 million increase in net operating income from $2.8 million for the three months ended June 30, 2015 to $4.8 million for the three months ended June 2016.  The Company’s effective tax rate was approximately 34.1% for the three months ended June 30, 2016 compared to 33.3% for the three months ended June 30, 2015.

Financial Condition

Loans (excluding loans held for sale and deferred loan fees) at June 30, 2016 were $928.0 million, an increase of $42.6 million or 4.8% compared to $885.4 million at March 31, 2016. The Company believes the increase from March 31, 2016 was primarily the result of the continued execution and success of our organic growth strategy.

Loans (excluding loans held for sale and deferred loan fees) increased $283.1 million, or 43.9%, compared to $645.0 million at June 30, 2015. The acquisition of IBT represented approximately $89.7 million or 31.7% of the increase from June 30, 2015. The additional growth of $193.4 million was achieved through organic growth.

Deposits at June 30, 2016 were $1.0 billion, an increase of $81.7 million, or 8.6%, compared to $946.1 million at March 31, 2016 primarily due to growth in noninterest-bearing accounts of $58.1 million and interest bearing accounts of $23.6 million. A significant contributor to the growth in noninterest-bearing accounts was a single customer deposit of $38.6 million, the customer is expected to withdraw these funds within the next 90 days.

Deposits increased $354.6 million, or 52.7%, compared to $673.1 million at June 30, 2015. The increase from June 30, 2015 was due to the acquisition of IBT’s deposits of approximately $98.3 million, customer deposit growth of $233.0 million and wholesale deposit growth of $23.3 million.

Advances from the Federal Home Loan Bank were $38.4 million at June 30, 2016 and March 31, 2016 compared to $27.0 million at June 30, 2015.

Asset Quality

The allowance for loan losses was 0.85% and 0.83% of total loans at June 30, 2016 and March 31, 2016, respectively, compared to 0.96% of total loans at June 30, 2015. The decrease in allowance for loan losses as a percentage of total loans compared to June 30, 2015 was primarily due to the recording of IBT acquired loans at an estimated fair value in the later part of 2015 with no significant additional loan loss reserves since the acquisition.

The provision for loan losses for the three months ended June 30, 2016 totaled $527,000 compared to $845,000 for three months ended March 31, 2016 and $148,000 for the three months ended June 30, 2015. The decrease in provision for loan losses for the three months ended June 30, 2016 compared to March 31, 2016 was due to a decrease in general provision requirements as loan growth was 4.8% for the three months ended June 30, 2016 compared to 7.9% for the three months ended March 31, 2016. The increase in provision for loan losses for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 was due to the general provision required from the increasing loan growth compared to the same period in 2015.

Other real estate owned totaled $493,000 at June 30, 2016 and March 31, 2016 compared to $548,000 at June 30, 2015. Nonaccrual loans were $1.0 million at June 30, 2016 compared to $525,000 at March 31, 2016 and $312,000 at June 30, 2015. The increase in the nonaccrual loans at June 30, 2016 compared to March 31, 2016 was primarily due to the addition of a single loan. At June 30, 2016 and March 31, 2016, nonaccrual loans to our total loans held for investment was minimal at 0.11% and 0.06%, respectively.

Nonperforming assets totaled $7.2 million or 0.59% of total assets at June 30, 2016 compared to $1.2 million or 0.11% of total assets at March 31, 2016. Nonperforming assets were $860,000 or 0.10% of total assets at June 30, 2015. The increase of $6.0 million in nonperforming assets compared to March 31, 2016 is primarily related to the addition of a single $5.4 million loan to the accruing loans 90 or more days past due category.  This $5.4 million loan is part of the borrowing relationship detailed in the following paragraph and table below.  The Company believes this loan is well-secured, and a plan is in place for the borrower to bring the note fully current through contractual commitments to sell the underlying collateral and accelerate principal payments in advance of the original contractual terms within the next 90 days.

In the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, the Company disclosed a borrowing relationship comprised of loans to multiple affiliated funds in which one of the funds had publicly disclosed that it was subject to ongoing SEC investigations and that the Federal Bureau of Investigation served a search warrant in February 2016 at the fund’s corporate offices in connection with a law enforcement investigation. The borrowing relationship consists of four loans to five affiliated funds secured by various assets, including multiple notes made to numerous residential developers in favor of the funds and further secured by deeds of trust. These loans are made to separate and distinct borrowing entities, and are not dependent on each other for repayment.  Each loan has specific collateral note assignments that relate to particular single-family residential projects in either the Houston, Dallas, Austin or San Antonio markets. The specific collateral note assignments are not cross-collateralized. The Company believes that the value of collateral securing each loan is well in excess of loan amounts with the loan to value ratios less than 50%. The borrowing relationship is not considered to be impaired and no specific reserves have been established at this time.

 
The following table shows the principal balance of loans as of the dates specified for the above mentioned borrowing relationship.
 
    June 30,     March 31,     December 31,    
Borrower   2016     2016     2015   Comments
    (In thousands)    
Loan 1 $ 5,400   $ 6,000   $ 6,000   Substandard: payment 90 days past due, interest current as of
6/30/2016
Loan 2   1,579     1,579     3,082   Pass: paying in accordance with contractual terms
Loan 3   —     5,116     5,116   Paid in full
Loan 4   8,644     10,290     11,250   Split grade: $3,690 Pass; $4,950 Special Mention, principal and
interest are current; note renewed May 8, 2016 with a maturity
date of September 5, 2016
Total: $ 15,623   $ 22,985   $ 25,448    
                     

The total is presented for informational purposes only; debts are not required to be aggregated for legal lending limit purposes.

Non-GAAP Financial Measures

The Company’s management uses certain non-GAAP (generally accepted accounting principles) financial measures to evaluate its performance. Specifically, the Company reviews and reports tangible book value per common share, the tangible common equity to tangible assets ratio and pre-tax, pre-provision income. The Company has included in this release information related to these non-GAAP financial measures for the applicable periods presented. Please refer to “Consolidated Financial Highlights” at the end of this release for a reconciliation of these non-GAAP financial measures.

About Veritex Holdings, Inc.

Headquartered in Dallas, Texas, Veritex Holdings, Inc. is a bank holding company that conducts banking activities through its wholly-owned subsidiary, Veritex Community Bank, with ten branch locations throughout the Dallas metropolitan area and one mortgage office. Veritex Community Bank is a Texas state chartered bank regulated by the Texas Department of Banking and the Board of Governors of the Federal Reserve System.

Acquisition of IBT Bancorp, Inc.

On July 1, 2015, the Company completed the acquisition of IBT, the parent holding company of Independent Bank, headquartered in Irving, Texas with two banking locations in the Dallas metropolitan area. Under the terms of the definitive agreement, the Company issued 1,185,067 shares of its common stock (with cash in lieu of fractional shares) and paid approximately $4.0 million in cash for the outstanding shares of IBT common stock in connection with the closing of the acquisition, which resulted in goodwill of $7.7 million. Additionally, the Company recognized $1.1 million of core deposit intangibles in connection with the acquisition.

 

 
VERITEX HOLDINGS, INC. AND SUBSIDIARY
Consolidated Financial Highlights - (Unaudited)
(In thousands, except share and per share data)
                                 
    At and For the Three Months Ended  
    June 30,   March 31,   December 31,   September 30,   June 30,  
    2016   2016   2015   2015   2015  
Selected Financial Data:                                
Net income   $   3,173   $ 2,813   $ 2,573   $   2,537   $   1,856  
Net income available to common stockholders       3,173     2,813     2,535       2,517       1,836  
Total assets       1,215,497     1,130,480     1,039,600       1,009,539       827,140  
Total loans(1)       928,000     885,415     820,567       754,199       644,938  
Provision for loan losses       527     845     610       —       148  
Allowance for loan losses       7,910     7,372     6,772       6,214       6,193  
Noninterest?bearing deposits       354,570     296,481     301,367       299,864       240,919  
Total deposits       1,027,729     946,058     868,410       842,607       673,106  
Total stockholders’ equity       138,850     135,241     132,046       137,508       117,085  
Summary Performance Ratios:                                
Return on average assets(2)       1.12 %   1.04 %   0.99 %     1.04 %     0.93 %
Return on average equity(2)       9.26     8.39     7.37       7.38       6.39  
Net interest margin(3)       3.90     3.87     3.78       3.84       3.77  
Efficiency ratio(4)       54.13     54.01     56.11       60.48       61.75  
Noninterest expense to average assets(2)       2.23     2.20     2.22       2.39       2.36  
Summary Credit Quality Data:                                
Nonaccrual loans   $   1,028   $ 525   $ 593   $   428   $   312  
Accruing loans 90 or more days past due       5,634     141     84       —       —  
Other real estate owned       493     493     493       493       548  
Nonperforming assets to total assets       0.59 %   0.11 %   0.11 %     0.09 %     0.10 %
Nonperforming loans to total loans       0.72     0.08     0.08       0.06       0.05  
Allowance for loan losses to total loans       0.85     0.83     0.83       0.82       0.96  
Net (recoveries) charge?offs to average loans outstanding       (0.03 )    0.03     0.01       (0.00 )     (0.01 )
Capital Ratios:                                
Total stockholders’ equity to total assets       11.42 %   11.96 %   12.70 %     13.62 %     14.16 %
Tangible common equity to tangible assets(5)       9.25     9.63     10.17       10.30       11.01  
Tier 1 capital to average assets       10.21     10.38     10.75       12.02       12.82  
Tier 1 capital to risk?weighted assets       11.88     12.03     12.85       14.73       14.87  
Common equity tier 1 (to risk weighted assets)       11.56     11.69     12.48       13.29       13.23  
Total capital to risk?weighted assets       13.23     13.38     14.25       16.18       16.52  

 

  (1 ) Total loans does not include loans held for sale and deferred fees. Loans held for sale were $4.8 million at June 30, 2016, $3.6 million at March 31, 2016, $2.8 million at December 31, 2015, $1.8 million at September 30, 2015 and $2.1 million at June 30, 2015. Deferred fees were $52,000 at June 30, 2016, $65,000 at March 31, 2016, $61,000 at December 31, 2015, $55,000 at September 30, 2015, and $49,000 at June 30, 2015.
   
  (2 ) We calculate our average assets and average equity for a period by dividing the sum of our total assets or total stockholders’ equity, as the case may be, at the close of business on each day in the relevant period, by the number of days in the period. We have calculated our return on average assets and return on average equity for a period by dividing net income for that period by our average assets and average equity, as the case may be, for that period.
   
  (3 ) Net interest margin represents net interest income, annualized on a fully tax equivalent basis, divided by average interest-earning assets.
   
  (4 ) Efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income.
   
  (5 ) We calculate tangible common equity as total stockholders’ equity less preferred stock, goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization, and we calculate tangible assets as total assets less goodwill and core deposit intangibles and other intangible assets, net of accumulated amortization. Tangible common equity to tangible assets is a non-GAAP financial measure, and, as we calculate tangible common equity to tangible assets, the most directly comparable GAAP financial measure is total stockholders’ equity to total assets. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures in the table captioned “Reconciliation GAAP —NON-GAAP (Unaudited)”.
   
 
VERITEX HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets - (Unaudited)
(In thousands, except share and per share data)
                                 
    June 30,   March 31,   December 31,   September 30,   June 30,  
    2016   2016   2015   2015   2015  
ASSETS                                
Cash and due from banks   $   12,951     $   12,416     $   10,989     $   10,478     $   11,699    
Interest bearing deposits in other banks       114,293         79,967         60,562         113,031         51,570    
Total cash and cash equivalents       127,244         92,383         71,551         123,509         63,269    
Investment securities       83,677         79,146         75,813         61,023         59,299    
Loans held for sale       4,793         3,597         2,831         1,766         2,127    
Loans, net       920,039         877,978         813,733         747,930         638,696    
Accrued interest receivable       2,259         2,252         2,216         2,088         1,557    
Bank?owned life insurance       19,767         19,614         19,459         19,299         18,115    
Bank premises, furniture and equipment, net       17,243         17,248         17,449         17,585         12,107    
Non?marketable equity securities       7,035         5,541         4,167         4,045         3,970    
Investment in unconsolidated subsidiary       93         93         93         93         93    
Other real estate owned       493         493         493         493         548    
Intangible assets       2,264         2,347         2,410         2,458         1,110    
Goodwill       26,865         26,865         26,865         26,025         19,148    
Other assets       3,725         2,923         2,520         3,225         7,101    
Total assets   $   1,215,497     $   1,130,480     $   1,039,600     $   1,009,539     $   827,140    
LIABILITIES AND STOCKHOLDERS’ EQUITY                                
Deposits:                                
Noninterest?bearing   $   354,570     $   296,481     $   301,367     $   299,864     $   240,919    
Interest?bearing       673,159         649,577         567,043         542,743         432,187    
Total deposits       1,027,729         946,058         868,410         842,607         673,106    
Accounts payable and accrued expenses       1,611         2,122         1,776         1,782         1,202    
Accrued interest payable and other liabilities       855         573         848         1,089         672    
Advances from Federal Home Loan Bank       38,375         38,410         28,444         18,478         27,000    
Junior subordinated debentures       3,093         3,093         3,093         3,093         3,093    
Subordinated notes       4,984         4,983         4,983         4,982         4,982    
Total liabilities       1,076,647         995,239         907,554         872,031         710,055    
Commitments and contingencies                                
Stockholders’ equity:                                
Preferred stock       —         —         —         8,000         8,000    
Common stock       107         107         107         107         95    
Additional paid?in capital       116,111         115,876         115,721         115,579         97,761    
Retained earnings       22,725         19,552         16,739         14,204         11,687    
Unallocated Employee Stock Ownership Plan shares       (309 )       (309 )       (309 )       (406 )       (406 )  
Accumulated other comprehensive income       286         85         (142 )       94         18    
Treasury stock, 10,000 shares at cost       (70 )       (70 )       (70 )       (70 )       (70 )  
Total stockholders’ equity       138,850         135,241         132,046         137,508         117,085    
Total liabilities and stockholders’ equity   $   1,215,497     $   1,130,480     $   1,039,600     $   1,009,539     $   827,140    
 
 
VERITEX HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income - (Unaudited)
(In thousands, except share and per share data)
 
    Six Months Ended  
    June 30,   June 30,  
    2016   2015  
Interest income:              
Interest and fees on loans   $  21,407   $    14,802    
Interest on investment securities      679        464    
Interest on deposits in other banks      173        109    
Interest on other      2        1    
Total interest income      22,261        15,376    
Interest expense:              
Interest on deposit accounts      2,007        1,297    
Interest on borrowings      335        249    
Total interest expense      2,342        1,546    
Net interest income      19,919        13,830    
Provision for loan losses      1,372        258    
Net interest income after provision for loan losses      18,547        13,572    
Noninterest income:              
Service charges and fees on deposit accounts      877        527    
Gain on sales of investment securities      15        7    
Gain on sales of loans      1,282        431    
Gain on sales of other assets owned      —        (2 )  
Bank?owned life insurance      384        357    
Other      227        134    
Total noninterest income      2,785        1,454    
Noninterest expense:              
Salaries and employee benefits      6,763        5,245    
Occupancy and equipment      1,795        1,665    
Professional fees      1,076        905    
Data processing and software expense      554        535    
FDIC assessment fees      269        196    
Marketing      411        367    
Other assets owned expenses and write-downs      130        35    
Amortization of intangibles      190        148    
Telephone and communications      197        114    
Other      892        603    
Total noninterest expense      12,277        9,813    
Net income from operations      9,055        5,213    
Income tax expense      3,069        1,533    
Net income   $  5,986   $    3,680    
Preferred stock dividends   $  —   $    40    
Net income available to common stockholders   $  5,986   $    3,640    
Basic earnings per share   $  0.56   $    0.39    
Diluted earnings per share   $  0.55   $    0.38    
Weighted average basic shares outstanding      10,695,083        9,447,807    
Weighted average diluted shares outstanding      10,978,284        9,703,510