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Edited Transcript of VBTX earnings conference call or presentation 23-Oct-18 1:30pm GMT

Q3 2018 Veritex Holdings Inc Earnings Call

HOUSTON Oct 24, 2018 (Thomson StreetEvents) -- Edited Transcript of Veritex Holdings Inc earnings conference call or presentation Tuesday, October 23, 2018 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charles Malcolm Holland

Veritex Holdings, Inc. - Chairman & CEO

* Donald S. Perschbacher

Green Bancorp, Inc. - Executive VP & Corporate Chief Credit Officer

* Michael Clayton Riebe

Veritex Holdings, Inc. - Executive VP & Chief Credit Officer

* Noreen E. Skelly

Veritex Holdings, Inc. - Executive VP & CFO

* Susan Caudle

Veritex Holdings, Inc. - Executive Assistant & Shareholder Relations

* Terry S. Earley

Green Bancorp, Inc. - Executive VP & CFO

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Conference Call Participants

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* Bradley Jason Milsaps

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research

* Brady Matthew Gailey

Keefe, Bruyette, & Woods, Inc., Research Division - MD

* Daniel Mannix

* Gary Peter Tenner

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Veritex Holdings Third Quarter 2018 Earnings Conference Call and Webcast. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Ms. Susan Caudle, Investor Relations Officer and Secretary to the Board of Veritex Holdings.

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Susan Caudle, Veritex Holdings, Inc. - Executive Assistant & Shareholder Relations [2]

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Thank you. Before we get started, I'd like to remind you that this presentation may include forward-looking statements, and those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statements.

At this time, if you're logged into our webcast, please refer to our slide presentation, including our safe harbor statement beginning on Slide 2. For those of you joining us by phone, please note that the safe harbor statement and presentation are available on our website, veritexbank.com. All comments made during today's call are subject to that safe harbor statement.

In addition, some of the financial metrics discussed will be on a non-GAAP basis, which our management believes better reflects the underlying core operating performance of the business. Please see the reconciliation of all discussed non-GAAP measures in our filed 8-K earnings release.

Now here's our Chairman and CEO, Malcolm Holland.

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Charles Malcolm Holland, Veritex Holdings, Inc. - Chairman & CEO [3]

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Thank you, Susan. Good morning, everyone. Today with me, we have Noreen Skelly, our CFO; and Clayton Riebe, our Chief Credit Officer. In addition and keeping with our original plans to have joint calls since the Green Bank announcement driven by Terry Earley, CFO; and Donald Perschbacher, Chief Credit Officer of Green Bank to join us on our call today as well.

This morning, I'll give a brief summary of the Veritex quarter, Noreen will give a high-level summary of our numbers and then we'll turn the call over to Terry to present the Green numbers. I'll provide a short update on our integration and consolidation progress and open up the call for questions.

Obviously, the third quarter was the most transformational quarter in the history of our bank with the announcement of the Green Bank merger. We had completed and filed our S-4 and filed all necessary applications to the State Banking Department and the Federal Reserve. We received our approval from the state last night and anticipate hearing from the fed very shortly. We're still targeting an early first quarter 2019 close.

Our quarter growth looks a bit different than previous quarters with deposit growth outpacing loan growth. Our loan growth for Q3 was a modest $26 million or 4% on an annualized. We continue to see a large number of payoffs with $60 million coming in the last 2 weeks of the quarter.

During the first 9 months of 2018, we've grown $1.25 billion in new commitments and has pay downs of over $710 million. So the volume of new credits still remain exceptionally strong.

On the deposit side, growth for Q3 was the best quarter we've seen since the company's inception with an annualized growth of 26-plus percent. The $116 million in third quarter growth represents $50 million in noninterest-bearing growth and $160 million in interest-bearing growth with a total marginal cost of 1.53%.

Our reported quarterly earnings of $8.9 million or $0.36 per share did have $0.09 of merger-related costs, totaling approximately $2.7 million, making our quarterly earnings $0.45 per share adding back the merger cost net of tax. Noreen will provide some additional colors -- color on our numbers here in a moment.

From a credit perspective, we continue to maintain exceptional credit quality except for 3 acquired credits. 2 of the 3 loans are expected to be resolved through refinance or restructuring in the fourth quarter and all are property reserved for current and up-to-date valuations.

Now I'll turn the call over to Noreen for financial results.

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Noreen E. Skelly, Veritex Holdings, Inc. - Executive VP & CFO [4]

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Thanks, Malcolm. I'd like to focus your attention on our third quarter highlights, which you'll find on Slide 6 of the presentation. Starting with the balance sheet, our loans ended at $2.44 billion, deposit ended at $2.66 billion and assets ended just under $3.3 billion. We continue to quickly earn back the tangible book value dilution from our 2017 acquisitions. Our tangible equity grew to $340 million, with tangible book value per share at $14.02 compared to $13.23 a year ago.

Net income available to common for the quarter were $8.9 million or $0.36 per diluted share, a decrease of $1.3 million or $0.06 over the prior quarter. Net income increased $3.8 million or 48% compared to the same period a year ago.

Net interest income grew $1.5 million. Excluding purchase accounting accretion, core net interest income grew $625,000, primarily as a result of average loan balances that were up just shy of $100 million from prior quarter. Our noninterest income is down slightly from prior quarter, given reduction in premiums offered on SBA loan sales. We decided it's better to hold the stock right now.

Noninterest expense increased to $18.2 million or $2.1 million over prior quarter. This is primarily due to Green acquisition-related legal and professional expenses of $2.7 million. Excluding these expenses, core expenses were up $849,000. We saw increases in occupancy and equipment-related property taxes, buildups in our headquarter building and other properties, some of which are one-time expenses. However, I think $15.5 million for noninterest expense is representative of Veritex stand-alone run rate.

Moving to Slide 7, we had loan growth of $25.6 million for the year -- quarter-end and average balances, as I said, were up close to $100 million in the quarter. We had a 9% annualized growth rate -- I'm sorry, a 9-month annualized growth rate of 12.6%.

New commitments and payoffs, pay-downs trended over the past 5 quarters is on Slide 8. We had record level of new commitments in the quarter. And given the average life of our loan portfolio, we continue to see pay-up and pay-down between 8% to 10% of our loan loss -- total loan balances.

Turning to the credit, Slide 9. Our nonperforming loan to total loans increased to 1.07% due to 3 acquired credits I mentioned earlier. This resulted in $21.3 million increase in nonperforming loans. One of these 3 loans had a $900,000 specific impairment recorded during the quarter. Our provision for loan loss was $3.1 million, an increase of $1.6 million over prior quarter. We had no charge-offs in the quarter.

Turning to Slide 10. As discussed previously, we had good deposit growth, and noninterest deposits grew $51 million. Our mix compared to prior quarter remain consistent.

That brings us to margin, on Slide 11. While our reported net interest margin was 4%, our core margin, excluding the accretion from purchase accounting, moved down 14 basis points to 3.69%. As you can see on the bottom half of the slide, we typically hold 86% of our earning assets and loans. This moved to 84% in Q3 with the interest and interest-bearing deposits in other banks. The marginal cost of new deposit this quarter was around 1.53%, and average yield on new loan production was approximately 5.50%. We should earn 4% spread as we deploy this funding into loan over the next quarter.

Turning to Slide 12. As in the prior quarter, we had several nonrecurring items that result primarily from our acquisition activity. Last point in Column D, we had a discrete tax benefit of $688,000, primarily related to completing a cost segregation study on our building and reverse -- and the revision of our deferred tax estimates upon filing our 2017 tax return.

With that, let me turn the call over to Terry.

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Terry S. Earley, Green Bancorp, Inc. - Executive VP & CFO [5]

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Thank you, Noreen. And Malcolm, I'd like to thank you for letting Green join the Veritex call to discuss Q3 results.

Turning to Slide 4 on the Green deck, continuing on there. It was a strong financial quarter, especially considering the merger announcement and the integration planning that's well underway. Green reported diluted earnings per share of $0.41 and operating earnings per share of $0.49 after adding back the $3 million in merger expenses. These operating results translate into a 1.69% return on average assets, a 19% return on average tangible common equity and an efficiency ratio of approximately 47%, that's on an operating basis.

Note that on the efficiency front, expenses were down over $1 million from Q2. It was strong quarter for loan growth, as period-end loans grew $144 million or 17.8% annualized. Green continued its quarterly dividend of $0.10 per share, payable on November 21.

Turning to the next slide. Note that the tangible book value per share increased to $10.63.

The next slide shows our 5-quarter trend on all of our key financial metrics. It is worthy of note that operating pretax, pre-provision return on assets have been above 2.10% for 3 consecutive quarters and really demonstrating the earnings power of the bank. And our operating efficiency ratio has been below 50% for 5 straight quarters.

On Slide 7, Q3 loans -- Q3 loan growth of $144 million was strong, with 50% of that growth coming from our C&I business and 45% from commercial real estate. Loan growth since the end of Q1 2018 has averaged 14.5% on an annualized basis. Loan growth -- loan production remain strong at $348 million for the quarter, and our annualized year-to-date production in 2018 is up 45% over 2017. Loan pipelines remain strong, supported by an experienced team of bankers and a strong economy in Houston and Dallas-Fort Worth.

Turning to the next slide, deposits were relatively flat for the quarter, but our DDA balances have grown $150 million or almost 22% over the last 4 quarters. Our loan-to-deposit ratio trended higher with the strong loan growth and finished the quarter at 98.5%. Over the last 4 quarters, the fed's rate -- the fed funds rate 4x or 100 basis points. Over that same period, our average cost of total deposits had increased 28 basis points to 1.05%.

On the next slide, we'll look at our net interest margin, which declined 16 basis points. This is due to 3 factors: 10 basis points of the decline was due to lower accretion on purchase impaired loans from the Patriot acquisition in 2015; 3 basis points were due to prepayment of an agency CMBS security; and 3 basis points were due to the interest reversals on nonaccrual loans. For the quarter alone, yields, excluding fees, increased 20 basis points to 5.32% and the new production contractual rates for the quarter were 5.5%.

On slide -- on the next slide, fee income was up slightly to $5.5 million on strong customer service fees, offset by decline in SBA gain-on-sale revenue. During the quarter, Green elected not to sell $9.5 million in SBA guaranteed loans where the premium was too low to justify the sale. Had we sold these loans, noninterest income would have exceeded $6 million for the quarter.

Turning to the next slide. NPAs increased over Q2 primarily due to 2 real estate secured loans that moved into nonaccrual status. No loss is expected on either loan. Provision expense was $320,000 as we provided for new loan growth, but this was offset by a decrease in specific reserves on the health care credit that we impaired in Q1.

Finally, on Slide 12, capital levels remain strong and growing, given the profitability levels of the company. The Green Bank team remains excited about the merger with Veritex and is very focused to maintaining our business momentum as we successfully execute on the merger and integration.

With that, I'd like to turn the call back over to Malcolm.

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Charles Malcolm Holland, Veritex Holdings, Inc. - Chairman & CEO [6]

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Thank you, Terry. Our integration with Green is progressing better than we'd planned. We've firmed up and scheduled our data conversions. We're currently reviewing and formulating how respective team members will be aligned and it continues the opportunities for appropriate cost-saving efficiencies. This is our seventh year of Veritex, and I'm very proud of our organization and everyone's willingness to work together over the past 90 days. It's been -- it has been quite incredible.

Before closing, I'd like to take a moment to recognize my friend and long-time business partner, Bill Murphy. After 45 years of banking in Dallas, Bill has decided to retire from Veritex and our 2 boards. We're fortunate to have him as part of our team, and we wish him and his family all the best.

This morning, you saw that each of our 2 banks showed some real and different strengths during the quarter. Once we take these strengths and put them together, we anticipate a very balance sounded decision, and we're all very proud to be a combined company.

With that, operator, we can now open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Brady Gailey of KBW.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [2]

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I know that you talked a little bit about the loan pay downs impacting the period-end growth in the third quarter. I think, Malcolm, in the past, you've talked about this low double-digit range of loan growth. I was just wondering do you still think that's appropriate even as Green comes in the fold and you look at what the loan growth could be next year?

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Charles Malcolm Holland, Veritex Holdings, Inc. - Chairman & CEO [3]

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Yes. I mean, Green does -- really they thought their jar -- their stride here in '18, they had a 14.6% loan growth this year. We're at 12.6%. Our commitments together have been over $2 billion this year. We have a bunch of unfunded deals that will get funded over the next 6 to 15 months or so. We still feel pretty confident. We're going to be in the low-double digits, even the low teens for '19. The activity is still really, really strong, and our pipelines remain strong. So I don't think, Brady, will -- I think we feel comfortable in the 10% to 11% to 13% growth rate for the foreseeable future.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [4]

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All right. And then, I know in the release, you all talk a little bit about the robust deposit growth. Some of that came from brokered and then the correspondent money market. I'm just wondering where do broker deposits stand as of now? And then by correspondent money markets, is that like deposits to other financial institutions?

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Charles Malcolm Holland, Veritex Holdings, Inc. - Chairman & CEO [5]

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And so the broker deposits are about 7%, about $200 million of our total. And what was the second half of your question, Brady?

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [6]

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Yes, just the correspondent money market. I was just wondering what the balances were there? And I'm guessing those accounts are from other financial institutions. Is that correct?

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Charles Malcolm Holland, Veritex Holdings, Inc. - Chairman & CEO [7]

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Yes. Yes, 100% other financial institutions, about $400 million just right around 15%. That's probably our most sensitive product out there and it's highly rate sensitive. So we can move the rate up, bring it on tomorrow and move the rate down and now move up.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [8]

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All right. And then lastly, for me just an update on how you guys are thinking about the margin into 4Q?

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Noreen E. Skelly, Veritex Holdings, Inc. - Executive VP & CFO [9]

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Sure. This is Noreen. We're thinking that we're going to have a bounce back on the margin as I said. We had some earning assets issued with the deposits coming in, deployments of loans in this quarter will bring 5 to 10 basis points back into the margin. So we're looking at 3.70% to 3.75% range for the fourth quarter.

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Terry S. Earley, Green Bancorp, Inc. - Executive VP & CFO [10]

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Brady, it's Terry on the Green side. I see the net interest margin moving up a few basis points as well. Don't anticipate another security prepayment of that size as well as a new nonaccruals and I think we'll continue to benefit from an earning asset mix shift as we shift cash flows from the investment portfolio into the loan book.

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Operator [11]

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And our next question comes from the line of Daniel Mannix of Raymond James.

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Daniel Mannix, [12]

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Just wanted to start with the PCI loans. So the ones moved to nonaccrual on the 2 energy loans. Can you tell me what part of energy those loans are related to? And then more broadly, as you look at the remaining energy portfolios both at Green and Veritex, do you feel like you're adequately reserved for the rest of those and kind of your plans on potentially exiting those?

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Michael Clayton Riebe, Veritex Holdings, Inc. - Executive VP & Chief Credit Officer [13]

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Sure. Great. This is Clay Riebe. The -- both of those loans we feel like are adequately reserved based upon current valuations. The total portfolio at Veritex in the remaining oil and gas portfolio is about $19 million. And all of those loans are in the nonperforming category today. And we're working to exit those credits and continue to do that. On a combined basis, the 2 portfolios, Green and Veritex, will have an acquisition of about $57 million in total combined balances, which is less than 1% of our loan book. And all of those loans are exit credits.

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Charles Malcolm Holland, Veritex Holdings, Inc. - Chairman & CEO [14]

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Yes, and the 2 that are problem assets here, they're both E&P credits.

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Michael Clayton Riebe, Veritex Holdings, Inc. - Executive VP & Chief Credit Officer [15]

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Correct.

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Daniel Mannix, [16]

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Got it. Terry, I wanted to ask you about the mortgage warehouse business. We've been hearing a lot about from stiff competition there. What do you think about the prospects of that business and kind of where you guys are thinking about taking that going forward here?

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Terry S. Earley, Green Bancorp, Inc. - Executive VP & CFO [17]

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That's a good question. During Q3, our balances were down just slightly in the mortgage warehouse business as we look in fact going forward though we see it as a business. At current pricing levels, that we're willing to continue at relatively the same level of customers and outstandings, I don't see it as a business we're looking to grow just because of the funding it would require. And should pricing come under increasing pressure, our decision -- long-term decision that business may change, but right now I think it's a business that with the big and spread income it provides us and the capital that it requires generates good ROEs for Green and I think for the combined company. And again, as long as pricing stays relatively close to where it is now that'd be my position to stay in it about the same levels.

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Daniel Mannix, [18]

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Okay, great. Then just one last one for me. Could you guys just talk about the relative strength of the Dallas and Houston markets from what you're seeing right now? How are the demographics trending? Are you seeing anything from tax reform? I mean, of course, you're getting the migration impacts from the sold states, but more directly are your customers increasing their demand, CapEx? And then, to piggyback off of that, have you given more thought into your physical footprint in those markets? And once the Green Bank deal is done, kind of what branches you might look to exit?

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Charles Malcolm Holland, Veritex Holdings, Inc. - Chairman & CEO [19]

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Yes, so taking the last one first. There's certainly the report over last year just geography-wise just kind of sit real closely. Just -- so those are pretty easy and we'll consolidate those. But other than that, I mean, we love our footprint. I mean, the 10th on a map look really, really, really good. Would we add 1 or 2 strategic ones over the next couple of years? Possibly. But I would tell you, we're probably going to stay pretty close to what we have in place with the few consolidations. The Dallas-Fort Worth and the Houston markets are really, really robust, and really it continues to be driven more than anything by job growth. I mean, we've 15,000 new jobs that you saw some yesterday in Dallas last month. We're over 130,000 new jobs in the State of Texas this year. I mean, it's just -- it's really, really strong. And most of that's happening in Dallas-Fort Worth. And so we -- we haven't seen any deterioration in any of our portfolio outside of the 3 acquired bids, which we recognized when we bought that bank that those were our problems. And so I would say right now, we're still pretty, pretty bullish on our 2 markets driven mainly by the job growth, which is driven by people moving into this state, which is in Dallas. I don't know the Houston number and Dallas, it's 425 people a day, still moving in.

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Operator [20]

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And our next question comes from the line of Brad Milsaps of Sandler O'Neill.

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Bradley Jason Milsaps, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [21]

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I joined a few minutes late so I apologize if you addressed this, but core loan yields at stand-alone Veritex, I think, were up maybe 4 or 5 basis points linked quarter. Malcolm, could you give us a little bit more color there and kind of what your outlook kind of says from a competitive standpoint from maybe seeing some improvement there? Are you kind of related to what you've seen in previous quarters?

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Charles Malcolm Holland, Veritex Holdings, Inc. - Chairman & CEO [22]

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Yes. I think we're making some headway there. And it's definitely moving up our third quarter average yield for new loans was about 5.60%. So I do see it moving up a little bit, Brad, maybe 7 bps or so. But I think we're still -- I think we're pretty bullish on that moving up.

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Bradley Jason Milsaps, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [23]

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Okay. And just a follow-up on that. When you guys announced the deal, I think Veritex, on a stand-alone basis, was somewhere closer to a kind of a 3.75%, 3.80% kind of NIM. I think last, when Green Bank gave guidance, they were looking for 3.90% to 4%. Obviously, we've come back off those numbers a little bit. As you think about where the combined NIM of the bank, as you put the 2 together, this kind of accretion income notwithstanding, is it somewhere in that 3.70% to 3.75% type range as the 2 companies come together?

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Charles Malcolm Holland, Veritex Holdings, Inc. - Chairman & CEO [24]

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Terry, do you want to take it?

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Terry S. Earley, Green Bancorp, Inc. - Executive VP & CFO [25]

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Yes. Brad, I think 3.75% plus or minus 5 bps or so, I'd say probably a fair range, again, excluding the accretion on the Green portfolio from the mark going forward.

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Bradley Jason Milsaps, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [26]

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Okay. And here the offset would be that the Green balance sheet is maybe a little bit bigger than your file would be kind of going in?

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Terry S. Earley, Green Bancorp, Inc. - Executive VP & CFO [27]

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Correct. I think the growth has been a little better stronger than we had thought. I never expected a quarter like this 90 days ago, where we had this type of loan growth, but we're -- certainly demonstrated, as Malcolm said earlier, the business development efforts at Green are the best they've been in a long, long time after the exit of energy and the rundown of CRE. So it feels good and again, don't ever -- I mean, it's good to have 60% of the Veritex portfolio floating and 80% of the Green portfolio floating. So whatever the fed does, it's certainly going to help us there. Help us as we try to manage what's happening on the interest-bearing deposit side.

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Charles Malcolm Holland, Veritex Holdings, Inc. - Chairman & CEO [28]

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And Brad, I would say, during the many acquisitions that we've done, I mean what notoriously happens is that we'll put a deal together and that bank will have -- take a big deep breath and slow down. I got to give a lot of credit to Geoff Greenwade and his team that they have completely focused on still acquiring new business and to see this kind of growth in over 90 days into an announcement, we haven't seen that. And so it just speaks volumes in what they're doing at Green.

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Bradley Jason Milsaps, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [29]

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And then -- and just one final follow-up. The -- Terry, the small uptick you saw in nonperformers at Green, were those identified kind of early on in the process kind of slated for marks? Or were those maybe newer problem loans that came out this quarter that were sort of warrant -- I think you may have mentioned they were substandard, but I can't recall for certain.

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Donald S. Perschbacher, Green Bancorp, Inc. - Executive VP & Corporate Chief Credit Officer [30]

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Brad, this is Donald Perschbacher. Those are loans that originated many years ago, probably 3-plus years ago. And so that has been on the watch list and on our radar. They weren't new issues that popped up. It was just a timing issue of finally reaching the point that we thought that it was nonaccrual, but not anything that we have more than ever, not to our surprise.

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Operator [31]

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And our next question comes from the line of Gary Tenner of D.A. Davidson.

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Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [32]

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Just a follow-up question, Noreen, on your kind of comments on the bounce back of your margin for the fourth quarter. Does that outlook suggest that you have sort of maybe pre-funded some of the loan growth in the fourth quarter with some of the brokered and correspondent deposit gathering in the third quarter so the incremental cost of new deposits next quarter maybe won't pull up the total costs as much as you saw?

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Noreen E. Skelly, Veritex Holdings, Inc. - Executive VP & CFO [33]

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Yes. I think that's fair. Yes, I think that's fair, Gary.

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Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [34]

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Okay. And then, bounce back quarter as you're in the third quarter in terms of discount accretion benefit, any sort of visibility or expectation of where we should be sort of looking for that number in the fourth quarter?

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Noreen E. Skelly, Veritex Holdings, Inc. - Executive VP & CFO [35]

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What number, I'm sorry?

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Charles Malcolm Holland, Veritex Holdings, Inc. - Chairman & CEO [36]

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Accretion.

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Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [37]

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Discount accretion.

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Noreen E. Skelly, Veritex Holdings, Inc. - Executive VP & CFO [38]

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Oh. So on our fourth -- in terms of the PCI and the cash recoveries that we get out that, and it's anybody's guess. We are fortunate to have $2 million cash recovery on an impaired loan that we never expected would be originally market and that you can see that in our numbers this quarter. So for the purchased performing loans, we've really seen that come down far quicker than we originally expected. That numbers looked at $600,000 this quarter, and we expect it to slow down just over $300,000 for the next quarter.

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Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [39]

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So the -- sorry, Noreen, I mean to interrupt you, but the $2.6 million benefit this quarter, $2 million of that was single credit recovery?

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Noreen E. Skelly, Veritex Holdings, Inc. - Executive VP & CFO [40]

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You got it. You got it. That's sort of the offset to the -- we had our $900,000 impairment on a purchased credit impaired loan and then we had a $2 million pick up on something we never expected. So unfortunately, they're on different places on the balance sheet or on the income statement.

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Operator [41]

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(Operator Instructions) Our next question comes from the line of [Matt Dane] of Peacock Capital Management.

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Unidentified Analyst, [42]

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I was curious -- I just wanted a little bit more color on, in particular Green. What is leading to the loan growth strength? What's the underlying reasons? Where are you seeing the demand? And just help me understand the driver there a little bit more, if you could?

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Terry S. Earley, Green Bancorp, Inc. - Executive VP & CFO [43]

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[Matt], it's Terry. I hope you're doing well. I mean, I think the biggest thing is when you -- at Green, when it was out of the CRE business and running down oil -- running down CRE and exiting oil and gas and was just dependent on C&I businesses. This company was a mid-single-digit type grower. And that what's really happened is CRE is back in the game and there's lot of opportunity there in both markets, Houston and DFW. And I think that's the biggest difference in terms of our growth profile over the last couple of quarters as compared to 2017. Also I'll note that our payoffs, Veritex's payoffs went up; ours actually came down. We have higher payoffs in the first half of the year. So our production was, in terms of new commitments, relatively flat, picking -- again, production driven by both C&I and CRE, CRE coming on strong, but our payoffs were down and so it translated into better loan growth for us. So we went up from, like, 10.6% last quarter to the 17.8% annualized this quarter. So I don't have to think, as Malcolm said, it's -- we've got a good experienced team and they are -- especially, credit to Geoff and his team, I mean, they stay very, very focused on trying to be active with customers and prospects. And we're trying to do everything we can to keep them out of the minutia and work of the integration planning. I mean, they don't need to get caught up in that. And there's been a lot of time spent between the credit teams and the sales team to get them comfortable with how we're going to deliver credit and our risk appetite and I think they see it's a good fit. They see how the process isn't going to be that different than what they were used to. So they're not caught up and worrying about those things, they're very focused on being -- dealing with customers and capturing new business. And I think that focus -- that work that's been done on the integration by the credit teams is really paying off for us.

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Operator [44]

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Thank you. And ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.

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Charles Malcolm Holland, Veritex Holdings, Inc. - Chairman & CEO [45]

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Thank you.