VBTX (2022 - Q1)

Good day and welcome to the Veritex Holdings First Quarter 2022 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. Please note, this event is being recorded. I'll now turn the conference over to Ms. Susan Caudle, Investor Relations Officer and Secretary to the Board of Veritex Holdings. You may begin. Susan Ca

Thank you. Before we get started, I would 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 statement. 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. 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. I’ll now turn the call over to Malcolm.

Good morning, everyone. I'm pleased to bring to you our first quarter financial results. Operating net income was $0.66 or $34 million and a pretax prereserve of 1.71%. The quarter had many positive attributes that continue to set us up for long-term success and increasing earnings growth. As I think about our growth during the quarter, both loan and deposit growth exceeded our expectations, yet the majority of the loan growth came late in the quarter. Our average loan growth from Q4 to Q2 was only $107 million, producing less-than-expected revenue for net interest income, but our ending loan balance was $362 million greater than Q4 ending balance, resulting in a 21% annualized growth quarter and a great starting point for Q2. The growth came in C&I $87 million, CRE of $222 million and residential $61 million. Just as encouraging was our deposit growth of 29%, with the majority being noninterest-bearing DDA, which grew $225 million during the quarter. The loan pipelines have actually increased and remain robust and should set us up for a similar to higher loan growth for the next several quarters. The why behind our growth profile continues to be the same four things: one, focus on constant upgrade and hiring of experienced and proven talent; two, operating in the strongest growth markets in the country; three, continued market disruption; and four, a commitment from my team that strong risk-focused growth is a pathway to enhancing our company's value. On the credit side, we find all of our metrics continue to trend in a very positive direction. NPAs have declined for the fifth consecutive quarter, moving down to 0.46% of assets from 0.51% the previous quarter. Criticized assets decreased 21% year-over-year. Past dues remain in an acceptable range, while total charge-offs were $4.8 million, centered in two acquired credits, which were previously reserved. I'd like to spend a few minutes discussing the talent we continue to attract to our company. As you're aware we have made a major priority to invest in top-notch talent, both on the client-facing and non-client-facing side. For the quarter, we hired 47 new people, 20 of which are new position adds and 27 replacement adds. Of the 20 new adds, 10 are on the production side. This does not include the three seasoned lenders we hired in Houston -- in the Houston market a couple of weeks ago. These three hires and the teams they will assemble make a major statement to the Houston market that Veritex is committed and positioned very well to continue our organic growth in this market. Our focus on talent and finding the right people and most importantly, that fit our culture and share our dedication to quality growth will continue to drive our value proposition. With that, I'll turn it over to Terry.

Thank you, Malcolm. Before I get into specific pages and results, I want to make a few general comments. Q4 2021 was an amazing quarter at $0.84 operating EPS. During Q4 everything fell our way, including bond prepayment income, collection of non-accrual interest, BOLI proceeds and an ALLL reserve release, if we adjust Q4 EPS for those things plus first quarter day count and share count, then we're right on top of our Q1 2022 operating results of $0.66 in EPS. As you think about Q1 2022, please keep the following in mind. First, the timing of the mismatch when we raise capital until when we can get it fully deployed. Next, period end to period end loan growth drives the perception of business performance, but growth in average loans is what drives earnings performance and our growth came late in the quarter. Next, business momentum is building. This is true across our spread businesses and our fee businesses. Finally, we continue to invest in talent to drive future growth. When making talent investments there is an inherent revenue expense mismatch that occurs at inception that we are willing to accept given the expected returns. Starting on Page 4. We're pleased with the continued strong financial metrics even with the additional capital. Our operating return on average tangible common equity remained strong in the first quarter at 16.1% and 17.2% over the last four quarters. Veritex's pre-tax pre-provision operating return on average assets was 1.71 for the first quarter and has averaged 1.80% for the last year reflecting a growing but very efficient company. On slide 5, Malcolm has already mentioned our loan growth for the quarter. This loan growth includes the March purchase of a $49 million owner-occupied mortgage portfolio. Loan growth on a year-over-year basis is 19.5% and this is the third quarter in the last year where it exceeded 20%. Loan payoffs were a big part of the back half of 2021 growth story. Payoffs in the first quarter declined meaningly from Q4 levels, but are still well above the levels seen in the first half of 2021. The level of unfunded commitments in the ADC portfolio increased to almost $2 billion. Current quarterly loan fundings from the ADC portfolio are approximately $500 million every quarter. Q2 growth has started strong, much better early quarter performance than what we saw in Q1. Average mortgage warehouse balances decreased 12.8% in the first quarter. We're certainly pleased with these results, given what's going on in the mortgage space and seeing the portfolio changes for some of our competitors. This portfolio now sits at about 5.8% of average loans. Moving on to slide 6. Loan production remained robust with good production from each of our lines of business. Q1 is typically weaker than our other quarters, but does reflect an increase of 23% on a year-over-year basis. Note that we've not included the mortgage portfolio purchase in our production results. Q2 loan production has started stronger and is tracking ahead of Q1 production at the same stage of the last quarter. On Page 7, earning assets ended the quarter at $9.6 billion as Veritex executed on the stated goal to build more on balance sheet liquidity. Cash and investments now composed 20.5% of earning assets, up from 18% at the end of Q4. Expect this trend to continue throughout 2022 as we work to get our loan-to-deposit ratio excluding mortgage warehouse down into the mid-80s. Net interest income decreased $3.7 million from Q4 to $73 million in Q1. Two items accounted for $3.1 million of this decline. These were the $2.1 million in Q4 prepayment income from a debt security and $1 million from the Q4 collection of non-accrual interest. The other driver in the decline in net interest income was day count, which represents $1.6 million. These items were offset by $1 million increase in net interest income from growth and $400,000 from the savings on the sub debt that was repaid late in Q4. The net interest margin decreased 15 basis points from Q4 to 3.22%. The debt prepayment and the collection of the non-accrual interest accounts for all, but one basis point of the decline. Average liquidity was approximately $355 million, higher than our normal target level and this increased liquidity is primarily a function of strong deposit growth and had the effect of depressing the NIM by 12 basis points. As you look to model net interest income in future periods remember the following. First, the Fed rate hike in March had minimal impact, since the bulk of our 1-month LIBOR and SOFR loans had a rate reset date of the first day of April. Second average loans for the first quarter were $380 million below the ending balance on March 31 creating a significant positive jump off. Third, Veritex's asset sensitivity has increased since Q4 and with market expectations of additional Fed rate hikes in 2022 of 200 basis points this will add significantly to net interest income. Finally, while we did not show data on the loan floors, but please note that with 75 bps in additional Fed rate increases virtually all the loans will be above the floor rate. Moving to Slide 8. North Avenue Capital continues to settle into Veritex and become more comfortable with our culture, processes etcetera. The pipeline remains strong. Q1 revenue could have been higher but a couple of closings slid to Q2. Net income forecast that we published when we announced the transaction remains on track. And so everything is going according to management's expectations. Moving to Thrive, their results have certainly been impacted by seasonality as well as the competitive pressures brought on by pricing and higher mortgage rates. Origination volume is down 18.3% and gain on sale declined slightly as well. We're expecting better results in Q2 as they are aggressively managing cost and staffing levels coupled with the successful hiring of the significant origination team in Arizona that should add meaningfully to forecasted volumes. On Slide 9 noninterest income totaled $15.1 million. Results for SBA, swap fees, deposit fees, syndication fees were all in line with management expectations. Operating expenses on Slide 10, increased $1.6 million from Q4. Salary employee benefits were the largest component of the increase as headcount grew almost 4% during the quarter. Also impacting personnel expenses were FICO levels 401(k) match on cash incentive payments and $960,000 in costs related to 2019 performance share unit grants that vested at 150% of target due to our top quartile TSR performance over the last three years. Looking forward Q2 marketing expenses will be elevated due to the cost related to the Veritex Bank Championship period tournament held in Arlington Texas during the month of April. Moving forward to Slide 10. A great quarter on the deposit front with growth of 29% for the quarter and 14.3% for the last year. Total deposit costs continued to trend down and ended the quarter at 17 basis points. Noninterest-bearing deposits now represent 35% of the deposit book and time deposits are down to 18% of the total. Got to admit that I'm glad to have both of these in the current rising rate environment. On Slide 12, all capital ratios improved with the common stock offering we completed in Q1. Tangible book value per share declined 2.5% excluding the impact of the capital raise. This decline reflects the impact of rising interest rates on the AFS portion of the investment portfolio. We did move $117 million from AFS into HTM during the quarter. Veritex grew tangible book value per share 3% over the last year after adding back the impact of quarterly dividends and backing out the impact of the capital raise. TBV growth has been and remains an important priority for our management team. Our capital deployment priorities, given the current valuation of our stock our organic growth, dividends, strategic growth; and lastly share repurchases. With that I'd like to turn the call back over to Malcolm.

Thank you, Terry. The year has started out well for Veritex with the announced acquisition of InterLINK from StoneCastle Partners, the $154 million capital raise and our continued organic growth we are well positioned for continued success. As we think through the prospects of a partnership with InterLINK, we're increasingly more excited about the numerous revenue opportunities and options on how to deploy these core deposits; while the additional capital will provide supplemental fuel and stability to help us execute our strategies. We say often, we have the right team, the right geographies and this is the right time for Veritex. Thank you to my team for dedicated -- and our dedicated staff who continue to produce incredible results. One last comment I'd like to make. We couldn't be prouder of one of our brand ambassadors Scottie Scheffler, the 2022 Master Champion and number one ranked golfer in the world. His humbleness and down-to-earth personality is so pleasing to be around and we are grateful for our partnership. We have been committed to the game of golf for many years. We love its feel of community and camaraderie, while displaying its principles of integrity, commitment and truth which represent what we aim to be every day for our clients and our communities. Operator, I now like to open the line for any questions.

[Operator Instructions] Our first question will come from the line of Michael Rose from Raymond James. Your line is open.

Hi. Good morning everyone. Thanks for taking my questions. Just wanted to start on the margin, so obviously a lot of moving pieces here Terry, I guess how should we think about kind of a starting point? Like obviously there's, a lot of items on the slide. What should we be backing out or adding back? And how should we think about a starting point, ex-rates for the margin? Thanks.

Well. I think the 322% is a good starting point. Last quarter its 337% was just unusually high. So if you're not thinking about -- I think you start with 322% and then it's whatever you assume about the changing asset mix. Are we -- can we get this excess liquidity down? As I said that's 12 points there's a lot of liquidity in the market. All banks have a lot of liquidity. Certainly there have been quarters where we've been closer to our target levels, but it's been a few. So I would start there. And I think the biggest thing for net interest income growth is just, knowing that through 75 basis points of moves and we're off the floors where our asset sensitivity is up and our growth profile. And I know this is not NIM, I've transitioned to net interest income. And then, it's just all about growth for us. And getting liquidity, existing liquidity deployed as well as what we know we'll be bringing on in the back half of the year with the Interlink opportunity that Malcolm mentioned.

Very helpful. And then, obviously you guys have been very active on the hiring front. And if I look at expenses and I kind of exclude the FICA, it looks like you were kind of flattish. Just how should we think about, just expenses as we move forward balancing the people that you're adding along with expense control efforts? Thanks.

Yeah. I mean, we gave this pretty broad expense range to start the year. And I would say we're still in that range and we're not near the top of that range in our minds right now. Again, as you think about Q1, you do have normal first quarter FICA stuff benefits off things like that. But for us, we also had that $960,000 expense item that I mentioned related to the PSUs. That item is one-time. I mean, we'll have -- we may be talking about a much smaller adjustment in Q1 of 2023, but you just can't accrue that, because you don't know it's where your TSR performance and you don't know how you're going to perform and how all your peers are going to perform. So…

And let me just add one thing Terry. It's just about not the actual number but the reason we're somewhat flattish Michael I think we do a really good job of moving people out, as we bring people in. So yes, headcounts are moving up. The bank's growing. We do have more employees. But we've done a pretty good job of managing out folks, when we need to. So the net number growth number is lower than you might expect. And so that will keep the salary number down just a smidge.

Yeah.

So Michael, I think for the year I think we're still going to be pretty -- right now I would say close to the middle part of that range we gave you. But that obviously depends on a lot of things. There's certainly salary pressure. We're all feeling.

Yeah.

…and we have a lot of open positions especially in the back office, that you're always trying to get filled. But for us this is all about revenue right now. The expenses are pretty well behaved. And it's really about getting -- for me on the revenue side it's about -- in Q1 it's all about the timing of growth and better -- and we've always said our fees are going to be lumpy and they certainly -- that's the case. But the expense side is doing really -- from my chair, we're doing really well there and very much in line with what we thought when we started the year.

That’s very helpful. Maybe just one final one for me. Just on credit. As I look at the past couple of quarters, the charge-off ratio has been a lot higher than I think I would have thought. I know these charge-offs have been fully reserved for. But how do we think about what's kind of happened and why those loans have gone bad? And then just more broadly how do you think about credit? The reserve here is a little over 1%. I realize criticize and classifieds are down, which has been really good to see. But just given some concerns out there on the horizon, how should we think about credit for you guys and maybe future provision trends? Thanks.

Yeah. We feel really good about where our credit is. I mean, you got to take us back to when COVID started and everybody was running around pulling their house thinking the world is going to come to an end. And we purposely loaded up, because we could and we did. And so we feel really good about where our loan loss reserve is today. There's been a few of these acquired credits candidly that we're still working through. We've got a couple more that will get resolved in the back half of the year we believe. And we don't charge things off until we know we've lost. I mean, I can give you -- there's an example or two in the last past year where we thought we were going to lose and we ended up collecting. And so we're pretty diligent on our collection efforts. But I don't see any deterioration in our portfolio, haven't seen any trends that are concerning. As the -- as we fight the Moody's forecast about how good things are it's going to be more and more difficult to keep our reserves where we had it where we have them. And so we work at that. And it's odd, because the markets are saying and then everyone is saying recession this and recession that yet you get Moody's forecast and shows the Texas GDP and unemployment pretty darn stable and positive. So those are things that are just challenges for us but they're all first-world challenges. But we have to work to keep it where it is. But overall I feel really good about our credit portfolio and don't see any trends today. Now 30 -- 90 days from now, we're talking in July that may change. But Michael I just -- I don't see it and Clay doesn't see it.

Michael, I would add one thing. It looks like the reserve -- it looks like it went down a fair amount, which it did. But we took the negative bias in the Moody's scenarios from 20% to 30%. Just out of -- because a lot happened from when Moody's released their data to the end of the quarter, certainly a lot changed in the shape of the yield curve inversion et cetera. But do know we made the model more conservative than it otherwise would have been. And we probably -- we could have been looking at a little bit of a reserve release if we had not made it more conservative. We just didn't think that was the thing to do. And I totally agree with Malcolm as you dissect and slice and dice our reserve keeping it here is not going to be easy. But we -- that’s our intent.

Great. I appreciate you for taking all my questions.

Thanks Michael.

Thank you.

Our next question comes from the line of Brett Rabatin from Hovde. You may now begin.

Hey guys, good morning.

Good morning.

Hey Brett.

I wanted to first just talk about fee income for a second and make sure I understood the expectations for Thrive and North Avenue and obviously mortgage is a little more challenged this year, but I just want to make sure I understood the expectations for both of those businesses. And then are there -- you talked about the hires that you made or any of the hires that you're making in some of the fee income businesses? And what are you anticipating to maybe invest in some of those fee income initiatives this year?

Yeah. Let's start with Thrive. Thrive over 2021 and for the first quarter of 2022 has outperformed the NBA results consistently. In this quarter, I believe Q1 production was down 23% versus Q4 and they're down to 18.5%. So -- and that was true. That outperformance was true in 2021 versus the NBA. So I expect that that's likely to continue by some level. And I mentioned the hiring they've done in Arizona for a team that's pretty significant coming on there. But internally, I'm forecasting it along the lines of the NBA forecast. I just think it's -- I'd rather -- I think they'll outperform it, but I think that's the right way to model it and forecast it right now. And I think, gain on sale margins down 15 bps or so for them. I mean that's not huge and it seems to be -- but it's competitive. Brett, it really, really is up there. And as I made comments, I mean they are being like all the mortgage companies, very aggressive on managing costs as you would expect when you're in that business. Looking North Avenue, their pipelines are great. I'm excited about Q2. Our expectations for the full year have not changed, but the revenue that -- we thought we're going to do a little better when we started the quarter even midway in the quarter. But it just slid over. Guys, we've always said this is a lumpy business. And we have hired in North Avenue Capital two people I think on the production side.

Yes.

So yes so we are trying to actively grow that business. They're doing good -- I mean they go through a lot of change. They went from being a private company to a part of a $10 billion bank. But it's a good team. They're engaged. I'm encouraged by the pipeline progress I see week-to-week and I'm still bullish on the year, although I wish Q1 even a little better. And one other fee hire just and we've hired a guy that's focusing strictly on the swap business now. Now the swap business market is a mess, because nobody wants to take on the other side of the trade. But that will settle down at some point. So that's another -- just one of our efforts from the hiring side to focus on the fee side.

Okay. Great. That’s great. Appreciate that given the color there. And then I wanted just to follow up on the margin. I want to make sure I understood with the pending deal. Is that baked into the static shock impact on NII, or would that be different once that transaction is closed?

It's not built in, because we don't have them on our core and the deal hasn't closed. Do I think it will make us a little bit asset-sensitive? I do. But actually, I'm okay with that, because I'm turning to that slide with the interest rate; slide seven. I mean, I love the upside asset sensitivity from a 100, 200, 300 shock, but I'm also looking at the down 100 shock. And when you look at the forward rate curve, rates peak in mid-'23 and start down. And so, I'm trying to figure out ways to take downside rate risk off the table should that occur. And that's certainly one of the things that will help along with what we're doing in the investment portfolio and the mortgage side of the business that we're building the portfolio there as well. So -- but no, to answer your question, it's not built in. It will take some sensitivity, up sensitivity off the table, but it will also take some down sensitivity off the table, since it will reprice down quickly.

Okay. And then maybe just lastly as it relates to that this on slide 6, you've got that great chart that shows the 13-month yield trend for loan production. And I was just curious, if you're starting to see stuff with solid four handles these days, or what the competitive landscape has maybe done to spreads as rtes are moving higher.

We -- there's a lot -- there's some talk about it. We haven't -- I mean we push it certainly. But pricing will be the last thing to move -- there's still some competitiveness in the marketplace, mainly in the lower end. On the very lower end, on the very high end that could be irrational. And as Terry always says, you get what you misprice. And so there's some of that going on in the market. But listen our pipelines are as full as they've ever been. Our second quarter, if you liked our first, you'll probably love our second. So, we're getting what we want and it's a little bit lower than we'd like, but we're okay with that. We like the volume.

Yes. Spread look, I think, if you were to look at -- we're typically -- and I always think of spreads not rates fixed or variable, it's all about spread. And do I think that spreads are going to compress a little bit on new origination? Yes. There's too much liquidity and too much capital, and we're definitely seeing that, especially in the term CRE space. And I agree with Malcolm on the high end. There's some way too skinny pricing. Look our industry is moving into a phase, where it's going to misprice risk for a while, but that's what's going to happen. And we're not -- we're a price taker not a price maker. And so we're going to have to deal with that. The thing we can't do is misprice or not misprice risk, but mis-analyze risk. We cannot take risk on the credit side. Mispricing alone you can see it, you kind of feel like you hit your thumb with a hammer. But if you the credit side the consequences are much more painful. So that's where we are. We're going to compete on price. We're not going to compete on credit terms.

Right.

Okay. Great. Appreciate all the color.

Thank you, Brett.

Our next question will come from the line of Gary Tenner from D.A. Davidson. Your line is open.

Thanks. Good morning.

Hi, Gary.

I think you know -- hey, I know you probably addressed this a couple of ways even during your prepared remarks. But as you think about just kind of the broader national economic uncertainty, are you seeing any impression at all that customers are kind of thinking differently about investing in their business at all as you look at sort of pipeline in the back half of the year and kind of what the opportunities are there? Obviously, Texas you'd expect to outperform the national economy, but just curious for any insights there.

You know, candidly, I know you all don’t like the answer. But no, we're not seeing anything here. The in migration of people continues and it's just -- it's a super strong economy. I thought that the housing market would start slowing down a little bit. But I can -- from personal experience and people we're hiring, they're coming from out of town. They can't find places to live. And these are places 30 minutes from headquarters. So I've read an article I think it was Monday of this week about our housing inventories in Texas, and it's incredibly low. And so anyway, I want to tell you there's some slowdown. I want to tell you, but there's just not the pent-up demand and then the travel piece of it, I mean, our motel portfolio has held up exceptionally strong way better than we -- I mean, these people are doing really well. So, no, I'm not seeing any of it right now. Maybe different in 90 days, but not today.

Well certainly no reason to apologize for it.

Yes. I feel -- I almost feel like I have to apologize because what's going around in the country. But Texas is -- our problem seems to be south on the border that everyone talks about and hears about.

Correct. In terms of the increase in rate sensitivity since year-end, is it primarily the additional kind of cash position and the growth in ADC balances that are driving that kind of quarter-over-quarter delta or something else?

No. No, I would agree with that. I mean, look our mix of production between floating and fixed has not changed. It just -- there have been times over the past 3.5 years, I've tried to change it. I haven't been very successful. So it just kind of -- it is what it is and we're just floating rate lenders. And so it's primarily liquidity because of the makeup of the balance sheet the floating fixed rate makeup of all the items on the balance sheet really hasn't changed materially in terms of their relative contribution if you will.

Great. And then last question…

I would say that the -- I think another big driver of that is asset sensitivity is what's going on in the DDA book. Malcolm talked about the growth. You can see it's 35%, 36%. And that drives asset sensitivity given that -- I mean, look non-maturity deposit assumptions are the single most important input or judgment in the whole model of interest rate risk for any bank. And the growth there is -- it would be having an impact.

Okay. Thank you.

Thank you.

Our next question will come from Brady Gailey from KBW. You may begin.

Thanks. Good morning, Guys.

Hi, Brady.

Hey, Brady.

I was just curious the purchases of the mortgage pools, but were those purchased from Thrive, or is that purchased from some other source?

They were purchased from another source. We -- look we have a desire for high-quality jumbo mortgages both ARM and fixed rate and Thrive's just not a –

Not the real house.

Its not yet. I hope they get there. I mean we're buying some CRA loans from them and we've tried to buy jumbo ARMs. But one there's not a lot -- there hasn't been a lot of demand for that in the market. Hopefully that's going to change. But they're just not a jumbo lender. And so it was not from Thrive.

Okay. And then I think I read in the release you all expect to continue to purchase some of these mortgage pools. How active do you think you'll be purchasing that loan type?

Well one of the things that -- as I talked about earlier was the downside risk to rates down. And we're at for the 100 basis points in rates down we are a negative 7.8%. Well I'd like to get that inside of 5% inside of 4%. And it takes about $300 million in mortgages to move it 1%. So you will see us be -- doing similar things to what we did in Q1 through each quarter of this year. One I want to deploy liquidity; two it's got very efficient capital allocations and implications; and three I want to reduce down rate exposure for back half of 2023 and beyond.

And then how does that play into your loan growth guidance? I know last quarter we talked about kind of I think 14% to 16% level of loan growth. I know that's changed just because now you have the new Interlink deposit deal. I know that deal hasn’t closed yet but it's coming up. So with that new flexibility on the funding side how should we think about loan growth? And obviously you all did over 20% this quarter. So that's pretty strong. How should we think about loan growth from here?

It's -- loan growth is really strong. I think I go back to my economy statement just a second ago. There's real commerce being done here. I think my remarks had something about look for us to duplicate what we did in the first quarter maybe a little better. There's some real opportunities here. And this goes back to 1.5 years to two years' worth of hiring focus. And these are just the benefits of hiring some really good people. And I just told we hired four new people in the last 30 days that are going to be gangbuster producers. And so we want to keep that going. Now we've also got a backroom that we got to make sure they can produce it. We got make sure we have the right credit people that are analyzing it. So it's a team effort top to bottom. But I think you can expect our loan growth to look a lot like it did in the first quarter for the next -- for probably the rest of the year.

Brady, we've grown $1.162 billion in the last four quarters. We've only bought one mortgage pool of $49 million in that. We're going to keep buying mortgage pools our pipelines are stronger. In my comments I said our production and our growth is running well ahead of where we were in Q1. And that was -- that $1.1 billion was $19.5 million. So …

And there's so many levers Brady. I mean the other lever is and we haven't talked about it but this North Avenue Capital getting into the LEAP side, which is the renewable energy program. I mean those are loans you put on your books. You don't sell those. And so that's another lever. I mean we just have a whole bunch of levers to keep loan growth at a certain level. And listen, that too I am. I'm a growth guy, and there's not a lot to buy out there – or let me just say this. There's not a lot for sale that would make sense for us – and so organic growth which is the best growth is where we focused. And this didn't happen overnight. I've been telling the market for 1.5 years what we've been trying to do. And so this is just the – some of the efforts that we put forth that are starting to pay off.

And Malcolm maybe on that point, historically you guys grew the company through bank M&A. You don't need that anymore just given the growth profile. But more recently, you did Thrive to add to the fee income, you did North Avenue to add the fee income. You did Interlink to help on the funding side. So you've done a decent amount of kind of non-bank acquisitions. Do you see any other sorts of companies or verticals that would be attractive, whether it's on the fee income or funding or any other side of the bank that you would like to see via an acquisition, or are you kind of set with what you have at this point?

So I'm really happy with where we are. And so I think it's an execution story, unfortunately or fortunately, however you want to look at it. We've always been a prove-it-out story since we went public in 2014. And so far we've been able to prove it out every time. I think that's where we find ourselves again which is fine. But I don't have the strong need and desire to go fill a bucket that I don't think we have. Are we going to be opportunistic if something shows up and makes sense? Sure. We'll take a look at something. But we can be – we've been disciplined over the life of our company. We can even be more disciplined. And so we think we have something special and now we just have to execute and prove it out. So I don't really have the strong desire to go out and find something other than there's one thing I would like to do – and that's to put the third leg of the stool in Texas and have a presence in Central Texas. And so how does that fit in? And how does that look? I'm not sure. But that is a geography that I think is important to have if we're going to be the Texas bank which I think that's what we want to be.

Got it. Okay. Thanks for the color, guys.

Thanks, Brady.

Next question come from the line of Matt Olney from Stephens. Your line is open.

Hi. Thanks, guys. I'll take the mortgage warehouse question. We were down a little bit this quarter but on a relative basis much better than your peers out there. What can you point to in the quarter? And then what's in the outlook? Thanks.

Hey, Matt, I go back to – it's probably a little bit of a broken record. We have a really, really solid leader in that vertical for us. She is a seasoned veteran. I think we've answered a couple of times that even though we'll – always don't ever say always or never. But I think we'll pretty much always outperform the market because she's that good. She's added to her team. She's changed out the clientele that we had and upgraded our clientele. We're looking at top-notch national mortgage companies that she has relations with. So, I would really -- I would point to our leadership in that area probably more than anything. And I always feel like we'll outperform the markets, even though we're down a little bit, but we're pretty good as it relates to the rest of the industry.

And operationally, we have a really strong…

We have a really strong team.

Yeah, that delivers day-in and day-out. That works for our mortgage warehouse plans.

It's highly relational. You think it's just transactional, but it's really not. There's a relationship factor. And Terry is right. The folks in the back room are exceptional.

Thanks for that. And then I guess switching gears, I'm also curious about the deposit pricing strategy for the year. Have you made any tweaks or changes yet to deposit pricing? Are you seeing the movement from competitors? And I think what's unique about Veritex this year is going to be the Interlink deal and the timing of that. And with that do you think you can lag more on deposit costs until that deal closes over the next few months? Thanks.

That's a good question, and what I would give to have a crystal ball on that one, because I actually believe, there's so many factors at play here, both rates and what does the Fed do with the size of their balance sheet in terms of quantitative tightening. And I'm in the camp that they're going to tighten pretty hard there to suck liquidity out of the system. But, it certainly hasn't shown up yet, but let's see what they do with their May meeting. The Interlink, to me the Interlink deposits give us optionality. And we get -- we've been -- there's a lot of liquidity still in the market. And I turned down a lot of money earlier this week, late last week, just on pure pricing. Just we don't have -- in the past Veritex virtually always had to say yes to the pricing. I just turned down, because they didn't have this optionality related to things like Interlink. And I think our banking teams are better at gathering deposits today than they have been to include, our C&I teams and our community bank team. So far, we're not seeing really any meaningful movement from anybody. I don't think -- you've always heard me say that, I think DFW is the most irrational deposit pricing market I've ever worked in, in 40 years, but it's not. It's pretty. And that's true today on the one side to a degree, but it's not true today on the deposit side. So far, that's been pretty rational. I expect it to continue for a while. But I do think, you get a couple of 50-point bad moves and the customer's awareness of what's going on with rates is going to just spike. And then it will be interesting to see, I think it's going to be a function of the liquidity that the Fed leaves in the markets that's going to drive banks to move rate. Customer awareness is going to be up. But if they've got the SX liquidity they're sitting on, I just don't think banks are going to buy so much. So, I think my belief and my hope sitting here today is Veritex is going to meaningfully outperform how it is done comparing this upgrade cycle to prior ones. Time will tell.

Yeah. Okay. Thanks for that. And just lastly, any update on Interlink itself since we last spoke and the timing of the closing of that transaction.

No. Just going through the regulatory process. We've had a couple of conversations with the state and FDIC and just headed down into the process. We're still hoping that we can close at the beginning of the third quarter, but really have not had much decisiveness on the regulatory side yet.

I think the most exciting development there is the proposed merger of our Federal bank Solutions and [indiscernible] hope I said that right; which we're -- there's really only four competitors in this space nationally and those are two of them along with us and one other. And so those two combined and so now there's three and the other two are significantly better than we are bigger than we are.

Much bigger.

Much bigger by

Tenfold.

Yes.

More money.

Yes. And so I think our value proposition for that space is only going to be strengthened, by what's going on around us. We benefited tremendously from merger disruption in the Texas markets and here's merger disruption showing up again. And we think, it bodes well for us in terms of our entry into that space.

Okay. Great. Thanks for taking my question.

Thanks, Matt

Our next question will come from the line of Graham Dick from Piper Sandler. You may begin.

Hi, Good morning, guys.

Good morning, Graham

Just-- don't have much for you all today but just wanted to hear a little bit about your all's plans for the bond portfolio for the rest of the year. It looks like it was about $200 million. Just wondering what kind of pace do you all think you'll take it from here? And then, also how much of that portfolio is floating or would reprice with rate hikes?

Yes. I mean you can expect to see our bond portfolio continue to grow along similar paths. It grew about 17% or so I think in the quarter a couple of $100 million. Look, this is all part of our strategy with Interlink to create a fortress balance sheet because one of the knocks on Veritex has always been we ran with such tight liquidity. And so, we're trying to intentionally change that by bringing on more securities into the portfolio and driving down that loan-to-deposit ratio. I'm glad, we started our expansion of the portfolio in 2022 versus earlier although that's still painful for everybody given the volatility of rates we've seen. But look, we're not trying to go all in in one quarter. We're moving in slowly. And you will see as we put some in HTM we may put more in HTM as we buy. But it's just a part of the strategy again, to strengthen the balance sheet and help give us protection for rates down for the back half of 2023 2024. So that's -- it's the portfolio has performed well. We expect to keep the duration the price vol, et cetera in line with what you've seen us do in the past. Mix will probably be relatively the same but it's just a part of building this balance sheet to get it to where we want to be.

All right. That’s helpful. And then I guess just on the AOCI impacts we've seen. You all don't I guess back that into your alls capital planning process do you? Given it doesn't impact to regulatory capital ratios?

That's correct. Certainly, we're mindful of it and the effect it has on TCE. But as I look across the landscape, we have one of the best TCE ratios of our peer group anyway. And so -- but no we don't I'm not trying to forecast AOCI. But anyway that's a hard one. We certainly think about price vol when we're buying, but we don't try to forecast it since it doesn't impact capital.

Thanks, guys. That’s all for me.

Thank you.

Thank you. I'm not showing any further questions in the queue. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.