In the ever-evolving landscape of the banking sector, Veritex Holdings, Inc. (VBTX) emerges as a noteworthy player. Daniel Jones, an Investing Group Leader, delves into the financial performance and investment potential of this banking institution. Despite some recent challenges, Veritex Holdings stands out as a strong buy candidate, and this article explores the reasons why.
Size and Growth
Veritex Holdings is not among the largest banks, but it’s far from the smallest. With a market capitalization of $942.2 million, it positions itself as a mid-sized player in the banking industry. This stature has been achieved through a series of strategic acquisitions, allowing the bank to extend its reach. As of the end of 2022, Veritex boasted 28 branches, with 18 of them in the Dallas Fort Worth Metroplex and 10 in Houston.
This bank primarily caters to small and medium-sized businesses, defined as those with revenue under $30 million. Additionally, it serves customers in the ‘professional’ class. Its services range from accepting deposits and providing loans for real estate transactions, including commercial and residential properties. It also extends farmland and consumer loans, among other offerings. Veritex Holdings, like many other banks, provides a range of services including debit cards, mobile banking, and commercial treasury management.
Financial Strength
Veritex Holdings has demonstrated impressive financial growth. The bank has seen a substantial increase in deposits, surging from $6.51 billion in 2020 to $10.20 billion in the most recent quarter. The bank has successfully managed to grow its deposits despite the banking crisis that unfolded earlier this year. While there’s a certain level of risk associated with uninsured deposits, Veritex Holdings’ 31.5% exposure suggests a manageable level of risk.
Another noteworthy financial achievement is the substantial reduction in debt, from $1.91 billion in the first quarter to $429.5 million in the third quarter. This prudent approach leaves the bank well-prepared for any financial challenges that may arise.
The value of loans has also steadily increased, from $6.68 billion in 2020 to $9.67 billion in the third quarter of this year. Importantly, Veritex Holdings has minimal exposure to office assets, making up less than 1% of its total loans.
Strong Fundamentals
The overall growth in assets has driven revenue and profits upward. Net interest income expanded from $200.1 million in 2020 to $336.9 million in 2022. Net income grew from $73.9 million to $146.3 million during the same period. The growth trend continued into the current fiscal year with net interest income reaching $271.1 million in the first half, representing a 12% increase from the previous year. Although non-interest income dipped slightly from $38.5 million to $36.9 million, Veritex Holdings maintains strong fundamentals.
In terms of valuation, Veritex Holdings offers an attractive opportunity. With a price-to-earnings multiple of 6.4, it stands on the lower end of the spectrum, making it an appealing option for investors. The price-to-book ratio, at 0.63, and the price to tangible book value ratio, slightly below 0.90, further demonstrate its affordability.
Conclusion
Despite minor setbacks, Veritex Holdings remains a compelling option for investors. Its robust financial performance, consistent deposit growth, and well-managed debt position make it a strong buy candidate. Veritex Holdings may not be the largest bank, but its financial strength and attractive valuation position it as a promising player in the banking sector.