U.S. Markets open in 5 hrs 35 mins

Veritex Holdings Inc (VBTX) Q4 2018 Earnings Conference Call Transcript

Motley Fool Transcribers, The Motley Fool
Logo of jester cap with thought bubble.

Image source The Motley Fool.

Veritex Holdings Inc  (NASDAQ: VBTX)
Q4 2018 Earnings Conference Call
Jan. 29, 2019, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Veritex Holdings Fourth Quarter 2018 Earnings Conference Call and Webcast. All participants are in a listen-only mode. Please note, this event is being recorded. I would now like to turn the call over to Ms. Susan Caudle, Investor Relations Officer and Secretary to the Board of Veritex Holdings. You may begin.

Susan Caudle -- Investor Relations Officer and Secretary

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 two. 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.

Joining me today are Malcolm Holland, our Chairman and CEO; Terry Earley, our Chief Financial Officer; and Clay Riebe, our Chief Credit Officer.

Malcolm?

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Good morning, everybody. Thank you, Susan. First and foremost, I want to officially welcome Terry Earley and the entire Green Bank team to the Veritex family. Last seven months working toward the January 1st Green Bank closings and -- has been an incredibly positive experience with all parties, pulling together to build something very special. I personally like to thank Manny Mehos for his constant support and trust over the past few months as we work toward uniting these two great companies.

I'll start with a couple of exciting announcements. Our Board has adopted our first quarterly dividend of $0.125 per share payable on February 21st for shareholders of record on February 7th, and we have finalized and received approval of a buyback agreement for up to $50 million of our common stock during 2019.

Now, on the results. Fourth quarter was an encouraging quarter for Veritex. We recorded fourth quarter EPS of $0.40 and fully diluted operating EPS of $0.47. We continue to see a very strong Texas lending market with Veritex net loans during the quarter increasing $110 million or 18% annualized. 2018 marked the eighth consecutive year of record loan growth for Veritex. Veritex originated new loan commitments in excess of $1.675 billion, while Green originated just short of $1.2 billion. That's almost $3 billion in combined new loan commitments. Our pipelines remain active and full, and we are extremely confident that our 2019 net loan growth will be in the low double-digits. Our Texas economy is strong. Our unemployment rate continued at historic rates of 3.7%, with new jobs of 391,000 and 127,000 statewide and DFW, respectively. Texas remains a robust economy.

As mentioned last quarter, we felt our core NIM had some upward movement. The quarter produced a 9 basis point increase to 3.82% from 3.73% last quarter. Terry will provide some additional color on the NIM in a few moments. Credit quality has remained very strong. Net charge-offs for the year were virtually non-existent. Non-performing assets decreased from 0.80% to 0.77% during the quarter and concentrations remained at acceptable levels. Additionally, we completed the December review of the outstanding Green Bank loan portfolio to obtain the most current data available and are making the appropriate up-to-date marks to the acquired portfolio.

The deposit side of our business continue to be extremely competitive in all of our markets. Veritex grew deposits $343 million or 15.1% for the calendar year 2018. Recognizing that a majority of this growth was in the interest bearing categories, we continue to be keenly focused on this side of the business. We have multiple levers available to continue to grow our core deposits, such as treasury management focused sales efforts, relationship manager deposit incentive plans and the creation of a new HOA division. We're also looking forward to new customer opportunities provided by the scale achieved with the merger of Green.

Now, I will turn the call over to Terry for some additional color on our numbers.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Good morning, everybody. Malcolm definitely did a good job in covering the major highlights for the quarter and there is certainly some good news and results. I'll move to now drill down into numbers and try to give you a sense of the earnings power of the new combined Company. I'll just start by acknowledging that by including the discussion of Green results in the press release, it does make it very long. But the importance of the Green acquisition to the Veritex financials, along with the desire to be totally transparent, led us to conclude this presentation approach was best. Finally, while GAAP reporting is certainly important and required, I'm going to focus most of my comments on combined operating results, even though the slides reflect the companies on a stand-alone basis.

Turning to slide five in the deck, Malcolm has already commented on the key financial results for the quarter. So I just want to spend a minute focusing on a couple of other points. The combined and annualized fourth quarter operating net income for Green and Veritex totaled $111 million, again combined and annualized. This translates into $2.04 in fully diluted earnings per share. And you get there by adding the fully diluted shares for both companies and applying the exchange rate for the merger. This earnings level should give everyone a sense of the run rate earnings power before 2019 growth, the impact of the cost saves and the balance sheet marks.

On slide six, just please note the growth in tangible book value per share in Q4 with Veritex ending the year at $14.57 and Green at $11.18. Obviously, the tangible book value will change materially on January 1st with the closing of the merger. The work on the fair value marks for the balance sheet is still under way, but Veritex remains confident. That is earlier estimates of upfront TBV dilution from balance sheet marks and merger cost remain materially correct in the aggregate.

Turning to the next slide, these graphs demonstrate this earnings power I've been talking about of the two companies and show the pre-tax pre-provision operating earnings contribution as well. This level of pre-tax pre-provision operating earnings bodes well as we move later and later in the credit cycle. Both companies are producing strong operating results. Clearly, the level of excess capital being carried by the two companies will be significantly lower from the merger, coupled with the initiation of the dividend and the announcement of the buyback. The merger and these capital management actions should result in significantly higher returns on tangible common equity going forward.

On slide eight, both companies were already very efficient on an operating basis. Before we see the benefits of the cost saves related to the merger, with the conversion and branch consolidations planned for the end of the second quarter, the bulk of the cost saves will be back-end loaded. There has been a small portion of the overall savings that were realized late in 2018 and that level will increase in Q1 and Q2 with scheduled employee departures and other cost saving integration activities.

On a combined basis, loan production increased approximately 77% from 2017 to 2018 to the almost $3 billion number that Malcolm mentioned earlier. The planned divestiture of Green's Austin branch was announced late in Q4 and is expected to close in late Q1. Loan growth on a combined basis, excluding the impact of the Austin loans, which are classified as held for sale was approximately $530 million or almost 10% in 2018. This growth was achieved in-spite of the distraction from the merger and the work on the integration. Management remains confident in our ability to achieve low double-digit loan growth in 2019. Commercial real estate concentrations remained steady in Q4 and should not be a constraint on loan growth as we go through 2019.

On slide 10, the combined non-interest bearing DDA portfolio is almost $1.5 billion and represents approximately 24% of total deposits. Total deposit costs continued to increase. But remember, please consider the loan beta, where we have almost 70% floating rates. Additionally, the branch light business model provides other expense synergies, given the $6.1 billion in deposits with only 43 banking offices.

Turning to slide 11. Now, the increase in contractual loan rates from Q3 to Q4 for both Veritex and Green highlights the floating rate nature of our loan portfolio and the combined interest -- net interest margin in Q4 was 3.84%. As we look out into 2019, the companies is expecting a net interest margin in the range of 4.05% to 4.2%. This is the -- this range assumes no Fed fund rate increases and is a result of, first, the purchase accounting marks on loans and investments, second, the rate marks on the time deposits and borrowings, and third, a favorable mix shift in both earning assets and interest bearing liabilities.

Finally, on slide 12. As Malcolm stated earlier, Q4 reflected continued credit stability at Veritex with a slight decline in NPAs and Green has shown considerable improvement in NPAs since the end of Q1. Also, recall that the credit mark was refreshed at Green right before year-end and should provide considerable downside protection, as it relates to net charge-offs and loan loss provisions. It's important to note that post merger, approximately 63% of the loan portfolio now carries a credit mark and the part that isn't marked has been underwritten to Veritex credit standards and continues to show exceptional loss performance.

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

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Thank you, Terry. As you might imagine, we have a lot of moving parts right now consolidating our two institutions. The integration of our systems and teams is going extremely well. Personnel and Management determinations have been made and communicated Companywide. Over the last months, we offered 18 retention agreements to key Green producers with a 100% acceptance rate. Other highlights include us hiring our first ever full-time training Director from the Green side and engage in a brand agency to better connect with our customers. Additionally, our CIO just hired a new Chief Technology Officer to lead us in our growing technology area.

Candidly, I've never seen this much communication and collaboration between similar sized institutions while coming together. We have a great deal of work to accomplish and our goal is to have a majority of it completed by June 30. We'll continue to monitor us, we will take the best of each institution to produce a better company and stronger than either one of us was independently. Increased scale and countless new opportunities enhance our new Veritex and our excitement about what we can build together in 2019 and beyond.

Operator, at this time, we'd be happy to answer any questions.

Questions and Answers:

Operator

(Operator Instructions) And our first question comes from the line of Matt Olney from Stephens. You may begin.

Matt Olney -- Stephens -- Analyst

Hi. Thanks. Good morning, guys.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Good morning.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Good morning.

Matt Olney -- Stephens -- Analyst

Want to start on capital. You had some interesting announcements last night as far as the stock repurchase program, the dividend, I think they all make sense. Curious on the buyback. How active do you expect to be? Is this more of an insurance policy in case the stock gets down to below $22 again? And then on the pro forma TCE ratio, I guess with Green Bank, I want to make sure I'm thinking about this right. I'm about at 9.5% TCE ratio in the first quarter, am I in the right ballpark there.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Go ahead, Terry.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Yeah. Matt, it's Terry. Let me take your last question first. I think you are in the right ballpark with respect to TCE at the end of Q1. You know -- and on the buyback, I would -- I do view it more as an insurance policy, although I would probably put a little bit higher number on it than you did. You used $22, so let's just -- let's leave it there. I think the last point I would make is that this Company is going to generate a lot of excess capital, even with the earnings power and so it's a great problem to have. But certainly the dividend and if we need the buyback, we're going to stay -- given our risk profile, we'll have plenty of capital to support the growth we need in our key markets.

Matt Olney -- Stephens -- Analyst

Okay. That's perfect. Thank you for that. And then on the cost savings, I think you said in the prepared remarks there was a small portion of the cost saves that were recognized at the end of 2018, so just taking a step back, any change in the overall cost saving expectations? And can you kind of firm up for us the timing of those cost savings? I think you said they would be back-half loaded. Any other color you can provide on the timing of the cost saves.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Well, I chose those remarks carefully and you'll note that we gave guidance on NIM and we felt like we needed to give guidance on the NIM because the range of everybody out there who writes on us was so wide, especially in Q1 and it felt like there was a need to clarify and tighten that up a little bit. We didn't say anything on the efficiency because I felt like you got in the cost saves because my general view is you guys have done pretty good job there. And you know, it will have -- we will have -- we will realize additional saves in the first half of the year, whether it'd be personnel or non-personnel related things. But when you got your consolidation and your conversion at -- in June, that's when you're really going to start to see the operational saves and things like that. So I don't know, I'll probably just leave it there.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Yeah. I think you're on the cost save number, we -- it moves within the number, but then the total that we had originally when we originally looked at the deal is virtually the same.

Matt Olney -- Stephens -- Analyst

Okay. All right, guys. I'll step back in the queue. Thank you.

Operator

Thank you. And our next question comes from the line of Brady Gailey from KBW. Your line is now open.

Brady Gailey -- KBW -- Analyst

Hey, good morning, guys.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Good morning, Brady.

Brady Gailey -- KBW -- Analyst

So the 2019 NIM guidance of the 4.05% to 4.20%, I got that. How are you all thinking about the core NIM for 2019? I'm just trying to figure out how much yield accretion will be flowing through the margin this year.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

My estimates of yield accretion on the loan side are probably in the 9 to 10 basis points range. Well, let me say, 8 to 9 basis points. Sorry. Needed to look back at my notes. 8 to 9 basis points.

Brady Gailey -- KBW -- Analyst

Okay. Yeah. So a core margin somewhere in kind of the high 3%, low 4% range, is that correct?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

No, no. I mean -- well, not yet. Let's be careful. As you know that -- when I say 8 to 9 bps on the loan portfolio, there's another 4 to 5 bps on the investment portfolio and there's some on the liability side. So I don't see the core NIM doing a lot. It might be up a handful basis points, but both from earning assets as well as the December Fed increase, but that's the way I think about this.

Brady Gailey -- KBW -- Analyst

Okay. Right. That's helpful. And then just on the M&A front. I know it feels a little early to ask about M&A just because it's still the big deal and I know you are going to be focused on it for the -- at least the first half of the year, if not the full year. But I mean, both Green and Veritex have been pretty acquisitive in the past. How are you all -- and you'll be around $8 billion, so you got not a ton of room until you hit $10 billion. How are you all thinking about M&A for the back half of this year and into 2020?

Charles Malcolm Holland -- Chairman and Chief Executive Officer

We're thinking about it the back half -- really, we're thinking about it 2020. I mean, you hit the nail on the head. We -- this is a big deal for both of us. We are zero focused on making sure this integration goes well and it is going exceedingly well, but there is a bunch of stuff to do between now and 6/30 that the M&A discussion has really been off the table, until we can get through 6/30. And we even have a small -- little piece of our data converting in September. It's a smaller piece. It's a treasury piece, but we've got a lot to get done here. And so if we do what we think we can do and we can deliver what we think we can deliver, then we're going to have some optionality in the back half of the year and going into -- in 2020 to make some of those decisions. But those are decisions that we'll make down the road.

Brady Gailey -- KBW -- Analyst

Okay. Great. Thanks, guys.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Thanks, Brady.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Thanks, Brady.

Operator

Thank you. And our next question comes from the line of Brad Milsaps from Sandler O'Neill. You may begin.

Brad Milsaps -- Sandler O'Neill -- Analyst

Hey, guys. Good morning.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Hey, Brad.

Brad Milsaps -- Sandler O'Neill -- Analyst

Terry, I just wanted to follow up on the whole core NIM discussion. It looks like maybe you changed the way you presented to some degree in that the core NIM as you define it, includes some level of expected purchase accounting and then anything above that is sort of the accelerated piece. Is that correct?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Yes, that is correct. In my view, the scheduled accretion is no different than buying -- the loan portfolio is like buying a bond at a discount. And it's got a life. And when you look at Veritex's stand-alone accretion in the fourth quarter, one, it was down materially, which drove the decline in the NIM. But there is -- if you take the remaining marks accretable yield and look at it -- and look at Q4, we got 17 quarters if the level stays exactly the same. And so -- of life left in those marks, if you will, 17 quarters. And I just think that bodes well and it's an ongoing revenue stream that needs to be considered as core because it really has got a pretty long life on it. So yeah, we've changed, that's why -- we've changed, I guess, reflecting my view of that scheduled accretion as part of the yield that you priced into the deal when you marked the balance sheet and announced a deal and that's the way we ought to treat it. And if there's anything above that, then we ought to call that out because that is lumpy and unusual.

Brad Milsaps -- Sandler O'Neill -- Analyst

Got it. So the 4.05% to 4.20% would include everything, the accelerated and the expected or that's just the expected?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

That's the expected.

Brad Milsaps -- Sandler O'Neill -- Analyst

Okay. So then it could -- there could be upside, if you get something accelerated?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Correct.

Brad Milsaps -- Sandler O'Neill -- Analyst

Okay. And then you said you expressed comfort with kind of the efficiency expenses that are out there. Does that include like any new update on CDI because you have new marks here?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

When -- yes. We have -- it does include CDI, both the positive impact of wiping out the Green and the estimated CDI from the merger. Our work on the CDI is not yet complete, but I just really don't think it's going to change materially from what was filed in the S-4.

Brad Milsaps -- Sandler O'Neill -- Analyst

Okay, great. And then just a final question on fees, specifically SBA. I think if I read correctly, it would sound like Veritex had a pretty good SBA quarter, maybe you guys did and may have that flip-flop. But just kind of curious, what's all going on with that product? Kind of how you think about that kind of a -- on a combined basis?

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Yeah. I mean, we -- it's still a major focus for us. Both companies were very active and had folks in at the Green. The Green guy is going to be leading us there. We think it has understandably slowed down a little bit, but we still think that we will be fairly active. I think we're kind of looking at about $1.5 million or so a quarter in USDA and SBA, but that's -- those are lumpy, as you know. So those USDA deals show up and you could have a great quarter and the next quarter be a little bit down, but that's still a very -- very much a focus for us. The 10-year product is pretty difficult to sell right now just because of the pricing, the 25-year product, you still get some really good pricing. So we'll make those decisions, depending on what the markets are, but it's still a major piece of what we're going to have for next year.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

And -- but tagging on, the great thing about the USDA product is you don't have to split the premium over 10%. So the economics are even better. It's lumpy, but it's going to have even more great focus for us going forward and the rest of what Malcolm said I totally agree with.

Brad Milsaps -- Sandler O'Neill -- Analyst

Great, thank you guys.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Thanks, Brad.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Thanks, Brad.

Operator

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

Gary Tenner -- D.A. Davidson -- Analyst

Good Morning.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Good morning.

Gary Tenner -- D.A. Davidson -- Analyst

Some of my questions have been answered. Good morning. Couple of questions, though. I guess in terms of fees for the combined Company, are there any fee categories where maybe the structure or types of fees differed materially, whether there'd be any sort of meaningful difference than just the combination of the two companies' fee items?

Charles Malcolm Holland -- Chairman and Chief Executive Officer

No. I mean, I think the combination is accurate. Green definitely had a really nice non-interest income treasury fee product -- products, which we're going to be adopting, but combining them together, I think is very accurate.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

I do think it's the place where they -- we see revenue synergies trying to leverage that customized Green treasury management code across the Veritex footprint and the Green within the customer interest rate swap business. And that's something we'd like to see expand across the Veritex footprint. So -- but -- Malcolm's right, it's combining it and thus just focusing on it and growing it.

Gary Tenner -- D.A. Davidson -- Analyst

Okay. Thanks for that. And actually as you mentioned the swap book and the swap business with prospects of a Fed pause and not knowing where they'll go after this and you noted the large amount of your loans that are floating rate in nature. Any thoughts in terms of sort of moderating or adjusting the rate sensitivity at this point in the cycle?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Well, we've now run -- we've got three quarters, we've already run on the pro forma combined basis for the institution and -- I'm pretty comfortable with where the asset sensitivity is, I'd say it's modestly or moderately asset sensitive. It's come down with some fixed rate lending that we've done in the back half of the quarter. We're certainly not neutral or not liability sensitive, but I'm pretty comfortable with where we are and I don't see the need -- I think the asset duration we have, I want to use in the owner occupied commercial real estate book to help us drive deposits and operating -- from operating businesses. So we've got the ability to do that, we will continue to do it, I think it will keep us neutral and I like what it can help us do on the deposit side. So feeling pretty good there.

Gary Tenner -- D.A. Davidson -- Analyst

All right. Thank you very much.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Thanks.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Thanks, Gary.

Operator

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

Daniel Mannix -- Raymond James -- Analyst

Hey, guys. Good morning.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Hey, Daniel.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Hey, Daniel.

Daniel Mannix -- Raymond James -- Analyst

Appreciate the updated outlook here. I want to start with credits. So maybe Clay, want to ask -- it looked like the credit metrics regained their footing this quarter, can you give us an update on those three PCI loans that were removed to non-performing last quarter in 3Q?

Michael Clayton Riebe -- Executive Vice President and Chief Credit Officer

Sure. Sure, we can. The first credit that was in the auto industry, that loan resolved and is on a performing basis today. The other two credits that are in the oil and gas space, we expected one to resolve in the fourth quarter through a refinance. That has not taken place. We continue to work that credit. And the final credit was another oil and gas credit that's in the bankruptcy today and we expect that to resolve in Q2 of this year.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

No additional marks or anything on any of those credits, valuations has stayed pretty stable.

Michael Clayton Riebe -- Executive Vice President and Chief Credit Officer

Right.

Daniel Mannix -- Raymond James -- Analyst

Got it. So adequately reserved?

Michael Clayton Riebe -- Executive Vice President and Chief Credit Officer

Yes.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Yes, sir.

Daniel Mannix -- Raymond James -- Analyst

Great. Okay. And then just wanted to switch over to deposits. Looked like there was sequential declines in the core deposits after what was really a great third quarter. How much of that fourth quarter decline is seasonal or, I guess, transitory in nature? I mean, I -- and I totally understand the high loan growth and tilt toward commercial, what -- how that impacts deposit costs and betas, but how do you see those trending this year and 2019?

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Seasonal probably isn't the right word, but they are opportunistic and that there were a couple of large company sales that happened in the third quarter that were substantial. And so those money sat around for 60 to 120 days, while they reinvested and did whatever they did with those dollars. We still know that deposits are probably one of our largest challenges. We do have a bunch of levers to pull. This market is still growing, it's quite robust, but it is very competitive. The good news is that at least on the loan side, we continue to move our loan yields up. And as we move up our deposit side, but we have seen some flattening, I guess, locally in terms of cost. And so, is the competition the same, yes, but I think it's at a lesser price, which is encouraging to us. But it's just -- it's something that's got to be top of mind for all of our relationship managers and in my Management team, it is the most frequently talked about subject. But we still feel good about getting our growth next year.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

I think we've also increased the weight we give it in our lender incentive plan to support that importance and view of the challenge it represents for us. So hopefully that will contribute as well.

Daniel Mannix -- Raymond James -- Analyst

Yeah. That's really helpful, I appreciate the additional color on those deposit growth strategies. So just wanted to confirm there, are you still targeting that 95% loan to deposit ratio for the combined Company?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Yes, sir.

Daniel Mannix -- Raymond James -- Analyst

Great. All right. That's it from me. Thanks, gentlemen.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Thanks, Daniel.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Thanks, Daniel.

Operator

And our next question comes from the line of Bill Dezellem from Tieton Capital Management. You may begin.

Bill Dezellem -- Tieton Capital Management -- Analyst

Thank you. I had a couple of questions. First of all, your, I guess, I should say, Veritex's salaries and employee benefits was up by roughly $900,000 versus the third quarter. Would you please walk us through what was behind that? And then secondarily, Terry, you'd mentioned that the combined entity had $2.04 of earnings when annualized. Is that the number that we should be taking that 25% accretion on that you originally noted when the combination was announced?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Let me take -- let me start the first there on Veritex salaries. I think there's two things that are playing into the increase in the salary line. First is variable incentives driven by growth and production by the -- by our bankers. So it was a strong -- it's strong growth translated into better incentives for them. Secondly though, even though we had a lot of growth, production was actually down and Veritex has been talking for several quarters now about a lot of production that was going to fund up, and I think that was what was going on. So production was down a little. So our cost deferral under FAS 91 was less. And so the combination of higher variable incentives and lower cost deferral is what's contributing to the salary line.

On the second question, I went blank.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

It is on the $2.04.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

$2.04. Yeah. I think that's -- look, we -- I gave you that number because I think it's indicative of what our run rate earnings are as we jump off into 2019 before those things. And so we certainly didn't know on July 24th exactly what our Q4 run rate earnings were going to be, but I think our comments and everything still generally -- we're not sitting here and giving guidance that -- or comments that would change that guidance. So it's in the range of when you get to a NIM of 4.05% to 4.20%, it puts you in a similar place with respect to that accretion, EPS accretion we originally discussed when we announced the merger.

Bill Dezellem -- Tieton Capital Management -- Analyst

And the $2.04, that's the combined annualized is the correct base to be using that on as opposed to Veritex only or -- I just want to make sure that we don't start doing a 25% accretion on the wrong base?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Well, it gets you to the -- the comment was based on Veritex -- the merger announcement was based on Veritex's EPS expectations for 2019. So -- I mean, you're layering in the Green earnings, but you're layering in the Green fully diluted shares as well. So the calculation was different. What I'm really saying that what you suggested gets you into the right range, if you will, of where we think about 2019 performance.

Bill Dezellem -- Tieton Capital Management -- Analyst

Okay. Thank you for the clarity. And I appreciate the help.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Thanks.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

And our next question comes from the line of Matt Olney from Stephens. You may begin.

Matt Olney -- Stephens -- Analyst

Hey, thanks for taking the follow-up. I just wanted to understand the one-time expenses for 2019, as a result of the acquisition, kind of the timing and the amount we should be expecting?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Yeah. Matt, it's Terry. We -- timing, we want them to be front-end loaded at first half of the year and I would estimate that we have about two-thirds of them to go and they -- there will be a lot in Q1 with the closing of the deal. And the advisory cost and some of the severance, et cetera. So we certainly have got about, again, about two-thirds to go with, I think -- and I would say that will be weighted a little bit toward Q1 over Q2.

Matt Olney -- Stephens -- Analyst

Okay. And then on the Green Bank side, I think there was a larger charge-off than we've seen for a few quarters now. Any color? Was that cleanup or anything you can tell us about that charge-off or just credit in general at Green Bank?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Yeah. That charge-off related to the syndicated healthcare credit that Green identified in Q1 and provided for. And so -- that bankrupt -- that company went into bankruptcy and that -- during Q4, that bankruptcy was resolved and Green was paid down on its unreserved portion, if you will. And so we were just cleaning it up. We had gotten far enough along, we had real clarity on what the charge-off needed to be and we dealt right to get that done in 12/31. So --

Matt Olney -- Stephens -- Analyst

And outside of that, Terry, it looks like non-accrual levels fell at Green Bank, so I assume there is no other color there or any other details on the Green Bank credit piece?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

No, it's actually moving in the right direction.

Matt Olney -- Stephens -- Analyst

Perfect.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

And that's all before the March that we're going to make on the portfolio. So we feel really good about their portfolio.

Matt Olney -- Stephens -- Analyst

Okay. And then circling back to the margin discussion. I looked at my notes and I believe the mark that we talked about last time on that sub debt and maybe some trust preferreds was around $8 million. Is that still the right ballpark number or has that moved around with rates being volatile?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

It's -- I think it's -- rates have moved up and moved back down. I'm still using, as I think about things, that same general number. That work is still -- that -- we've been more focused on the loan and investment side than on the liability side of the balance sheet on the marks so far in January, but I think you're probably still in the ballpark.

Matt Olney -- Stephens -- Analyst

And just -- how do I think about the duration of some of these moving pieces? So take that first one on the sub debt part, what's the duration of something like that?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Well, the bulk of the marks coming out of the Green sub debt, which was put on in December of '16, it's a 10-year, no call 5. So you got three years to run. It was expensive when issued and that we would expect to actively refinance it when the time comes. So that's the way I would think about that. The other liability marks are going to be relatively short. The Federal Home Loan Bank advances are all inside of 18 months and the duration of the CD portfolio on average is probably about a year. I mean, it's -- as is most -- I don't think in my entire career I'll be ever seeing a CD book with a duration of more than (inaudible). It's a -- that's where -- so they don't have long lives.

Matt Olney -- Stephens -- Analyst

And what about the duration on the loan side, Terry, what's your best guess of that?

Terry S. Earley -- Executive Vice President and Chief Financial Officer

I would say, that's got -- it's -- that's probably four to five years and the same is true in the investment portfolio. I talked about the yield. The NIM pickup and the investment portfolio, it's got a effective duration if -- at probably around about 4.1 years. So -- yeah. So it's got a pretty good tail on it as well.

Matt Olney -- Stephens -- Analyst

Okay. All right. This is challenging my accounting knowledge, but I'll do the best I can on this. Thanks guys.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

So be it. Thanks, Matt.

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Thanks, Matt.

Operator

(Operators Instructions) And I'm showing no questions at this time. I'd like to turn the call back to Malcolm for closing remarks.

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Appreciate everybody's attention today and we're available for any calls afterwards, if anyone needs one. Thank you very much.

Operator

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.

Duration: 40 minutes

Call participants:

Susan Caudle -- Investor Relations Officer and Secretary

Charles Malcolm Holland -- Chairman and Chief Executive Officer

Terry S. Earley -- Executive Vice President and Chief Financial Officer

Matt Olney -- Stephens -- Analyst

Brady Gailey -- KBW -- Analyst

Brad Milsaps -- Sandler O'Neill -- Analyst

Gary Tenner -- D.A. Davidson -- Analyst

Daniel Mannix -- Raymond James -- Analyst

Michael Clayton Riebe -- Executive Vice President and Chief Credit Officer

Bill Dezellem -- Tieton Capital Management -- Analyst

More VBTX analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

More From The Motley Fool

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.