Veritex Holdings, Inc. Reports Third Quarter Financial Results

10/25/16

DALLAS, Oct. 25, 2016 (GLOBE NEWSWIRE) -- Veritex Holdings, Inc. (NASDAQ:VBTX), the holding company for Veritex Community Bank, announced today the results for the quarter ended September 30, 2016. The Company reported net income of $3.4 million, or $0.31 diluted earnings per share (EPS), compared to $3.2 million, or $0.29 diluted EPS, for the quarter ended June 30, 2016 and $2.5 million, or $0.23 diluted EPS, for the quarter ended September 30, 2015.

Malcolm Holland, the Company’s Chairman and Chief Executive Officer, said, “We achieved another record quarter making this the tenth consecutive quarter the Company reported an increase in earnings over the prior quarter. With the reported $0.31 diluted earnings per share for the third quarter 2016, we have grown 2016 diluted earnings per share to $0.85 through the nine months of 2016, a 39% increase over $0.61 for the same period in 2015.”

Mr. Holland continued, “I am proud of our achievements and believe they are a function of our business model. At the heart of our model is a culture focused on key principles: treat our employees like they are our family; never compromise on credit quality; and focus on driving financial results that matter to our shareholders.”

Mr. Holland added, “As a testament to these principles, I am happy to announce that we were recognized for a third consecutive year in a row as one of the Best Banks to Work For as featured in American Banker Magazine. This honor reflects our employees’ positive experiences and attitudes towards our workplace policies, practices, and benefits. With regard to credit quality, our credit ratios continue to reflect 'best in class' status. Finally, in support of our efforts to focus on financial results, we were honored by being named as one of the top performing small-cap banks in the country by Sandler O’Neill + Partners, L.P. in their annual Sm-All Stars Class of 2016. The objective of the Sm-All Stars is to identify high quality small-cap companies based on measures related to growth, profitability, credit and capital strength.”

“Our loan balances have grown by $106.1 million through the nine months of this year. Our origination activity continues to be strong with a level of new commitments consistent with recent quarters. However, we ended the quarter with an uncharacteristically high level of loan pay-downs and payoffs. As a result, outstanding loan balances were relatively flat as compared to June 30, 2016. I am optimistic about fourth quarter growth and earnings potential and confident we will end the year in a strong place,” concluded Mr. Holland.

Third Quarter 2016 Financial Highlights

  • Net interest income was $10.5 million, an increase of $1.9 million, or 22.0%, compared to $8.6 million for the same period in 2015.
  • Total loans increased $172.5 million, or 22.9%, to $926.7 million compared to $754.2 million as of September 30, 2015.
  • Total deposits increased $234.6 million, or 27.8%, to $1.1 billion compared to $842.6 million as of September 30, 2015.
  • Pre-tax, pre-provision income was $5.4 million, an increase of $1.6 million, or 40.9%, compared to $3.8 million for the same period in 2015.
  • Year-over-year improvement in the following performance ratios (annualized):
    • Return on average assets of 1.10% compared to 1.04% for the same period in 2015.
    • Return on average equity of 9.50% compared to 7.38% for the same period in 2015.
    • Efficiency ratio of 56.64% compared to 60.48% for the same period in 2015.

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

Net Interest Income

For the three months ended September 30, 2016, net interest income before provision for loan losses was $10.5 million and net interest margin was 3.70% compared to $10.2 million and 3.90%, respectively, for the three months ended June 30, 2016. Net interest income increased $289 thousand primarily due to increased interest income on loans as average loan balances increased $39.9 million due to organic loan growth during the three months ended September 30, 2016 compared to the three months ended June 30, 2016. The net interest margin decreased 20 basis points from the three months ended June 30, 2016. The decrease in net interest margin was partially due to a decrease in the average yield in interest-earning assets from 4.38% for the three months ended June 30, 2016 to 4.24% for the three months ended September 30, 2016. This was the result of a $35.1 million increase in interest- bearing deposits at other banks with an average yield of 0.54% which represented 8.4% of average earning assets for the three months ending September 30, 2016 compared to 5.6% of average earning assets for the three months ending June 30, 2016. The decrease in net interest margin was also the result of an increase of 7 basis points in the cost of interest bearing liabilities primarily due to an increase in the rate paid on financial institution money market deposit accounts.

Net interest income before provision for loan losses increased by $1.9 million from $8.6 million to $10.5 million for the three months ended September 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 $2.4 million in increased interest income on loans resulting from average loan balance increases of $197.5 million compared to September 30, 2015. The net interest margin declined to 3.70% from the three months ended September 30, 2016 from 3.84% for the same three-month period in 2015. The primary driver of the decrease was a 13 basis points increase in the average rate paid on interest-bearing liabilities from 0.66% for the three months ended September 30, 2015 to 0.79% for the three months ended September 20, 2016. This increase was primarily due to an increase in the average rate paid on money market accounts.

Noninterest Income

Noninterest income for the three months ended September 30, 2016 was $1.9 million, an increase of $481 thousand or 34.07% compared to the three months ended June 30, 2016. The increase was primarily a result of increased gains on sale of Small Business Administration (“SBA”) loans totaling $306 thousand and increased gains on sale of mortgage loans of $110 thousand compared to three months ended June 30, 2016. In addition, the increase was due to a $109 thousand late fee paid with the payoff of a substandard loan during the three months ended September 30, 2016.

Compared to the three months ended September 30, 2015, noninterest income grew $850 thousand or 81.50%. The increase was primarily a result of increased gains on sale of SBA loans totaling $307 thousand, increased gains on sale of mortgage loans totaling $336 thousand, and a $109 thousand late fee paid with the payoff of a substandard loan during the three months ended September 30, 2016.

Noninterest Expense

Noninterest expense was $7.0 million for the three months ended September 30, 2016, compared to noninterest expense of $6.3 million for the three months ended June 30, 2016, an increase of $728 thousand or 11.6%. The increase was primarily due to increases in salaries and employee benefits and professional fees.

Salaries and employee benefits expense was $3.9 million for the three months ended September 30, 2016, compared to $3.6 million for the three months ended June 30, 2016, an increase of $331 thousand or 9.2%. The increase was attributable to employee compensation increases of $96 thousand resulting from annual merit increases and the addition of six new full-time equivalent employees. Additionally, mortgage commissions increased $62 thousand compared to the prior quarter as the result of increased mortgage loan fundings for the same period. The total number of full-time equivalent employees at September 30, 2016 and June 30, 2016 was 163 and 157, respectively. In addition, employee benefit expenses increased by $166 thousand which was due to higher claims incurred under our partially self-insured medical plan compared to the previous quarter. The Company adopted a fully-insured medical plan effective September 1, 2016. Professional fees expense was $785 thousand for the three months ended September 30, 2016, compared to $503 thousand for the three months ended June 30, 2016, an increase of $282 thousand or 56.1%. The increase was primarily comprised of $200 thousand in legal and other professional services related to a potential acquisition and $60 thousand in audit and accounting expenses due to increased regulatory internal control requirements as a result of asset growth.

Compared to the three months ended September 30, 2015, noninterest expense increased $1.2 million, or 20.3%, to $7.0 million for the three months ended September 30, 2016. The increase was primarily due to increases in salaries and employee benefits and in professional fees.

Salaries and employee benefits expense was $3.9 million for the three months ended September 30, 2016, compared to $3.0 million for the three months ended September 30, 2015, an increase of $919 thousand or 30.6%. The increase was attributable to employee compensation increases of $374 thousand resulting from annual merit increases and the addition of 19 new full-time equivalent employees. Mortgage commissions increased $144 thousand as the result of increased mortgage loan fundings for the same period. Additionally, incentive costs including executive and lender incentives and stock compensation increased by $112 thousand compared to the three months ended September 30, 2015. The total number of full-time equivalent employees at September 30, 2016 and September 30, 2015 was 163 and144, respectively. In addition, employee benefit expenses increased by $178 thousand which was due to increased number of covered employees and higher claims incurred under our partially self-insured medical plan compared to the prior year. The increase in employee expense was also affected by a decrease of $106 thousand in the deferral of employee expense related to loan originations. Professional fees expense was $785 thousand for the three months ended September 30, 2016, compared to $632 thousand for the three months ended September 30, 2015, an increase of $153 thousand or 24.0%. The increase was comprised of $69 thousand related to SEC reporting and filing expenses and includes a new subscription to a cloud-based SEC reporting and collaboration software. In addition, audit and accounting expenses increased $71 thousand as fees increased due to increased regulatory internal control requirements as a result of asset growth. During the nine months ended September 30, 2016 and 2015, the Company incurred professional fees of $200 thousand in legal and other professional services related to a potential acquisition and non-recurring acquisition expenses of $205 thousand related to investment banker’s success fees and legal expense, respectively.

Income Taxes

Income tax expense for the three months ended September 30, 2016 totaled $1.8 million, an increase of $129 thousand, or 7.9%, compared to the three months ended June 30, 2016. The Company’s effective tax rate was approximately 34.4% and 34.1% for the three months ended September 30, 2016 and the three months ended June 30, 2016, respectively.

Compared to the three months ended September 30, 2015, income tax expense increased $487 thousand, or 38.0%, to $1.8 million for the three months ended September 30, 2016. The increase in the income tax expense was primarily due to the $1.3 million increase in net operating income from $3.8 million for the three months ended September 30, 2015 to $5.1 million for the three months ended September 2016. The Company’s effective tax rate was approximately 34.4% for the three months ended September 30, 2016 compared to 33.6% for the three months ended September 30, 2015. The increase in effective tax rates from the three months ended September 30, 2015 was affected primarily by increases in our federal statutory rate from 34% to 35%.

Financial Condition

Loans (excluding loans held for sale and deferred loan fees) at September 30, 2016 were $926.7 million, a decrease of $1.3 million or 0.1% compared to $928.0 million at June 30, 2016. The net decrease from June 30, 2016 was primarily the result of gross loan growth of $73.5 million which was offset by $74.8 million in loan paydowns and payoffs during the third quarter.

Loans (excluding loans held for sale and deferred loan fees) increased $172.5 million, or 22.9%, compared to $754.2 million at September 30, 2015. The growth over September 30, 2015 is due to the continued execution and success of our organic growth strategy.

Deposits at September 30, 2016 were $1.1 billion, an increase of $49.5 million, or 4.8%, compared to $1.0 billion at June 30, 2016. The increase from June 30, 2016 was primarily due to an increase of $114.8 million in financial institution money market accounts resulting from the launch of a correspondent banking group. This increase was partially offset by a decrease of $49.6 million in noninterest bearing deposit accounts, primarily due to a single customer deposit of $38.6 million. These funds were deposited at the bank prior to June 30, 2016 and were held at the bank for less than ten days. In addition, wholesale deposits declined by $11.5 million.

Deposits increased $234.6 million, or 27.8%, compared to $842.6 million at September 30, 2015. The increase from September 30, 2015 was due to an increase in financial institution money market accounts of $137.8 million resulting from the launch of a correspondent banking group, organic growth in retail and business money market accounts of $70.1 million, growth in time deposits of $30.2 million, and an increase of $5.1 million in noninterest bearing deposits which was partially offset by decreases in wholesale deposits of $10.0 million.

Advances from the Federal Home Loan Bank were $38.3 million at September 30, 2016 and $38.4 million at June 30, 2016 compared to $18.5 million at September 30, 2015.

Asset Quality

The allowance for loan losses was 0.87%, 0.85%, and 0.82% of total loans at September 30, 2016, June 30, 2016, and September 30, 2015, respectively. The increase in allowance for loan losses as a percentage of total loans over the three quarter period was primarily due to changes in qualitative factors around the nature, volume and mix of the loan portfolio.

The provision for loan losses for the three months ended September 30, 2016 totaled $238 thousand compared to $527 thousand for three months ended June 30, 2016. The decrease in provision for loan losses for the three months ended September 30, 2016 compared to June 30, 2016 was due to a decrease in general provision requirements as loans decreased 0.1% for the three months ended September 30, 2016. The increase of $238 thousand in provision for loan losses from September 30, 2015 to September 30, 2016 was due to the general provision required from the increasing loan growth compared to the same period in 2015.

Other real estate owned totaled $662 thousand at September 30, 2016 compared to $493 thousand at June 30, 2016 and September 30, 2015. Non-accrual loans were $1.1 million at September 30, 2016 compared to $1.0 million at June 30, 2016 and $428 thousand at September 30, 2015. At September 30, 2016 and June 30, 2016, non-accrual loans to our total loans held for investment was minimal at 0.12% and 0.11%, respectively.

Nonperforming assets totaled $2.1 million, or 0.17%, of total assets at September 30, 2016 compared to $7.2 million, or 0.59%, of total assets at June 30, 2016. Nonperforming assets were $921 thousand, or 0.09%, of total assets at September 30, 2015. The decrease of $5.1 million in nonperforming assets compared to June 30, 2016 is primarily related to the pay-off of a single $5.4 million loan which was included in the accruing loans 90 or more days past due category as of June 30, 2016. This $5.4 million loan is part of the borrowing relationship detailed in the following paragraph and table below.

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 consisted 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 were made to separate and distinct borrowing entities, and were not dependent on each other for repayment. Each loan had specific collateral note assignments that related to particular single-family residential projects in either the Houston, Dallas, Austin or San Antonio markets. The specific collateral note assignments were not cross-collateralized. The Company believes that the value of collateral securing the last loan is well in excess of the loan amount 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.

September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
(In thousands)1,5791,5793,0825,1165,1164,2428,64410,29011,250Split grade:$1,242 Pass:$3,000 Special Mention, note
matured 10/15/2016 and is in the process of renewing
Total:$4,242$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.

For more information, visit www.veritexbank.com

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