Veritex Holdings, Inc.
Q2 2018 Earnings Call Transcript

Published: 25 Jul 2018

[Operator:]

Good day, and welcome to the Veritex Holdings, Second Quarter 2018 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. 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.

[Susan Caudle:]

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 statement. At this time, if you are 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. By now we're sure you've seen the additional announcement released about our merger with Green Bancorp. An investor presentation as well as the full second quarter earnings releases for both Veritex and Green can be found on our website. I’ll now turn things over to our Chairman and CEO, Malcolm Holland.

[Malcolm Holland:]

Thank you, Susan. This is incredibly exciting day both for Veritex and for Green. With me today I have Manny Mehos, Chairman of Green Bancorp; Terry Earley, CFO of Green Bank; and Noreen Skelly, CFO of Veritex; as well as Clay Riebe, our Chief Credit Officer. I know we have a lot to cover and I’m sure you have got several questions. We are going to start with our high level second quarter earnings summary by Noreen and Terry, and then we will move right into our merger details and summaries followed by questions.

[Noreen Skelly:]

Thank you, Malcolm, good morning. As Susan said, our regular earnings release been filed in 8K can be found on our website. I’m happy to report a great quarter for Veritex. Our net income for the second quarter was $10.2 million or $0.42 per diluted share. We had strong loan production with Q2 annualized growth of 18% and record new loan commitment. Our expenses came in lower than I expected with the achievement of cost savings from our acquisitions and increased and differed origination expenses and lower professional expenses compared to Q1. I expect to see core noninterest expense run rate to increase between 500,000 to 750,000 in the third and fourth quarter as we fill open position and take on more space in our headquarter building. Our core NIM was 3.83%, down 1 basis point from first quarter but better than I anticipated on our last earnings call. You may recall my guidance was 3.70 to 3.80. We continue to see a loan yield expansions with each rate increase by the Fed. However, deposit cost this quarter increased 39 basis points, 22 basis points is primarily related to change in rate and growth in our correspondent money market deposits. The remainder is rephrasing of series and world deposits and 6 basis points related to onetime purchase accounting amortization on series. I expect our margin to stay between 5 to 10 basis points of the Q2 NIM for the remainder of the year. Also going our goal is to increase earnings and EPS by BMO leader in loan growth and asset quality benefit from future rate increases all while being very judicious when increasing deposit rates. With that let me turn it over to Terry.

[Terry Earley:]

Thanks, Noreen. Good morning everybody. It's good to be here and to talk about Green's second quarter. Needless to say I love the quarter. There is really not anything not to like about it whether you are looking at earnings or growth or credit, everything was improved. Starting with earnings, diluted earnings per share were $0.44, up from $0.25 in Q1. Speaking of earnings, our return on average tangible common equity was over 17.5% to 17.6% and our return on average assets at 154. Our NIM expanded 7 basis points to 3.94% and our efficiency ratio improved to 50.1, if you back out the cost of our secondary offerings in May came in just under 50 on an operating basis and that's the 5th consecutive quarter that we've been under 50% on an operating efficiency ratio basis. Talking about growth, great loan production for us $367 million in Q2 annualized growth rate of 10.6%, we said back on our Q1 call. We thought there was a lot of seasonality and lot of pay-offs and our Q1 results production was good. And as we head off to this new journey with Veritex, we feel like we've got a lot of momentum and our pipelines are strong. On the credit side tremendous improvement there as our NPAs decreased from the 2% down to 1.36, so, again a lot of progress there, more to go. I'm very excited about the momentum that we have heading into Q3 and into this merger with Veritex. Turning to Page 7, in my view we've really turned the quarter. The graph on the right about return on average assets and return on pre-tax pre-provision really shows the earnings power of the company, and so that we continue to build the pre-tax pre-provision. And certainly we're benefitting from our operating model with the branch like model with end markets with strong demographics and with the Fed raising rates. And so our asset sensitivity is really coming through and is evidenced by a 215 pre-tax pre-provision ROA and a 154 ROA. And as credit continues to improve we're going to continue to see this playout in all of our earnings metrics. As excited -- and at the bottom you see that NPAs and you see the trend there and for me it's just to reemphasizes a point that Green has turned the corner and you're really going to see improved performance going forward. And the managements view is that there is continued improvement in NPAs over the balances of the year. As excited as I'm about Q2, I'm even more excited about the future with Veritex. And I think both companies start this journey with the lot of momentum. With that let me turn it over to Manny.

[Manny Mehos:]

Thanks, Terry. Number one, as you know we're talking about there is some sort of combination over the last couple of years, it's not only to achieve scale but to achieve better coverage in Texas. This is beyond our wildest imagination two years ago. This is an incredible combination. Malcolm was with fantastic bank. He has built this thing and that predominantly in balance. That's perfect fit for us while we are more in Houston than Dallas so I can't continue [Indiscernible]. We will be a leader in Texas banking over the top 10 pro forma deposit franchise. It has significant scarcity value and scale, both of those which we want to achieve for the years. Malcolm has a strong track record of building Veritex and we are excited to be part of this ongoing growth. I'm looking forward to join the Board of Directors of Veritex and work with Malcolm, Terry, Jeff fellow rest of the team to ensure the long-term success with this franchise. We'll also benefit from significant operating leverage and ability to drive further investments in necessary capabilities such as technology, new products and compliance. This will all lead to better customer experience. As informed, along with a great markets coverage, maybe the best in Texas, probably the best in Texas. It's also financially attractive. The accretion stands out -- 25% EPS accretion with manageable tangible book value dilution of 12.5% that will keep change the book value earned back 2.8 years. The combined balance sheet will be strong with the ample of capital in hand and significant capital generation to fund future growth. Those facts include the comprehensive due diligence which gives us confidence that we will realize the synergy of the transaction.

[Malcolm Holland:]

Thank you, Manny. Let's go over a couple of these terms and couple on metrics of how we put this deal together. So Green Bancorp will merge into Veritex Holdings. And Veritex will be the legal and accounting enquirer. It’s a 100% stock deal. You've seen the exchange ratio 0.79 VBTX shares for each share of Green. Aggregate consideration is right at a $1 billion for the price yesterday that's right at 2.5 times for Green, 15.2 times to '18 EPS and 13 times '19. In terms of executives of the company, I will remain Chairman and CEO of the combined company. Terry Earley would be the CFO. DFW City president will be Jeff Tessler; Houston City President, Jeff Greenway; and Clay Riebe will remain the Chief Credit Officer. From the Board comps standpoint, we will have a total of nine, six will be at Veritex and three at Green. And Manny, as he properly said, will be one of those three. We do expect to close this in early first Q of 2019. I think Page 11 really solidifies what Manny and I have envisioned. We were just talking earlier. We've been working on this for 90 days. And this is where this idea came from was this chart right here is that we've got something really special, special that nobody else in the state has. Virtually a 100% of our assets fit in the DFW and Houston markets, which are the two markets in Texas, you all know. And in that we are single-mindedly focused on the state of Texas. You can see on Slide 12. And you guys know all this stuff but the population growth, we have strong medium household income, and we've got Fortune 500 companies in both of our cities. It's obvious, why we love these markets and not only the great objectives but they are probably the best markets in the country. Our business models are hugely complementary. You can see that really that you put these together and we are much stronger together than we would individually when you combine our business models. So they are going to pick up some from us, we are going to pick up some from them and at the end of the day I think we become much stronger. The compelling financial impact on this is the best I've seen in my carrier. And so let's just go through a couple of the metrics. Manny has mentioned appropriately so that the accretion is going to be in excess of 25% for both '19 and '20. There is some dilution in this and its math right? So when you do a merger of equals and put two common companies size wise together you can create some dilution. The good news is we get paid back in less than three years, 2.8 years. And you guys know my track record and we've always overpromise -- under promise and over deliver. And we hope to do that in this case as well. Our capital ratios remain very strong. One of the things is Veritex has been hanging on to little extra capital for a while. This fully leverages that and so that's a real positive. We took a real hard look at across phase. Terry looked at that really hard. We had conversations related to last Friday that were very in depth. And we feel like that 11% combined cost say to the company is very, very achievable, and it's not a crazy number. To talk a little about the loan marks, we have a $59 million loan mark or 1.82% of the portfolio. In addition, there is a loan rate mark of approximately $50 million -- $15 million, excuse me. And then we'll have some fair value adjustments on the subject and trust. And our total integration costs and pretax merger expenses that we are looking at about $45 million. So with that I'll turn it back over to Terry.

[Terry Earley:]

Thanks Malcolm. On Page 15, talking about the due diligence, it was very comprehensive with cyclical due diligence with Veritex looking deep and hard at Green and its portfolio and balance sheet and vice versa. We both engaged third-party credit review firms to assist us in this effort. From the standpoint of looking at the Green portfolio, they've got 81.5% coverage in the portfolios so a deep dive. And it gives us a lot of confidence as we re-shut the Green portfolio looked forward as to the earnings profile of this company can have. From my standpoint, looking at Veritex, obviously, they had outstanding credit metrics we still winning and look pretty big too. We've got just over 50% coverage on all of the big loans as you would expect and we feel very good about the diligence done there. From a compliance risk management, enterprise risk management both companies are doing a good job there. And I think there is only upside as we choose the best of both to go forward. And so that's -- I feel like we've done our due diligence and our both companies are very excited about how we are going to mark the balance sheet, I think it's very important, let me go off and trip a minute here. I think it's very important that Veritex is the accounting acquirer. Because this allows us to reset the Green balance sheet and go forward without the drag that could be there, potentially would be there. And so I'm excited about that I think what gives me such confidence about the earnings profile this company on a go forward basis. Turning to Page 16, as the time line going forward, obviously, we are here today to announce the deal that would be intent to file regulatory applications and the registration statement with the SEC as quickly as possible, certainly, before the end of Q3. Looking to -- again to get the approval to shareholder vote and get this thing closed in Q1. And right now we're talking about our systems conversion in Q2. I like that timeline because it helps us to get the noise out of the results as soon as we can so that everybody get real clearer about what the earnings power of the company you're in. On Page 17, the fully integrated financial metrics. We want to run this thing pretty close to -- it would be loaned up if you will, 95% loan to deposits, 25% demand deposits or higher. I think with the company's C&I focus there's upside of this percentage and would honestly be disappointed if we don't do better. Run -- as Malcolm said, continue to run the company around the TCE of 9. I think that the practice had a little bit of extra castles under leveraging the balance sheet just a little is not a bad place to be right now especially when you anything about where we are in this economic cycle. We continue to be -- intended to be around the 300% free level. And with that organic capital generation we will have a cleaner room for growth and accrue space. Fee income 10% -- north of 10%, I believe its where a lot of the revenue synergies are. And I expect us to do a lot better than 10%, when we look at the best, the both companies in the space with the efficiency coming down in the 45 to 47 range with an aspirational goal to get to the bottom of that range. ROA and RTCE, pretty amazing results so that we go like we can do, continue to drive down NPAs and really manage this thing with a good risk profile. So with that, I’ll turn it back to Malcolm.

[Malcolm Holland:]

Thank you, Terry. So Page 18 gives a little bit of history of what we've done individually, but we are just super excited about the opportunity to continue to build these franchises into what we think will be the Premier Texas Community Banking Franchise. Manny, Jeff, Donald, Terry, they should be really proud of where they have gotten this company tune. Candidly we are humble, they partnered with us and we can together take this to the next level. Over the past eight years between our two banks with purchase closed and integrated nine banks. We both went public in 2014. And during this process, we found really great compatibility between our staffs and confirm that our skill set to match really, really well together. The experience of both our executive teams with past combinations and integrations gives us -- gives us and our Board a great confidence in our executions. I would say the opportunities like this just don't come around very often. And so we are focused, we are excited. And we think the combination of these companies could be something really special. So with that, I would open the line up for questions, and we are happy to entertain in.

[Operator:]

[Operator Instructions] And our first question is from Matt Olney from Stephens. Your line is now open.

[Matt Olney:]

First off congrats on the deal to everybody in the room. It's not often that we see M&A deal with 25% EPS accretion. So that’s excited to see from our point of view. But I guess first question just on the cost savings. It feels like the cost savings that it's been assumed deals somewhat conservative. Are you assuming branch closing, the back office integration? I'm just trying to get a filed for what all is assumed in there because it seems like some of the other deals that we've seen announced over the last few months in your region imply cost savings far bit higher than you're assuming. So any of the details you can give us on that?

[Terry Earley:]

Matt, it's Terry Earley. In terms of the cost saves, I think the place you have to start is with the fact that both companies are already incredibly efficient. As I've said we've run on an operating basis sub-50 for past consecutive quarters, Veritex's efficiency ratio continues to move down. And so I'm a believer and you're under promising the over deliver. And so at the cost, say its $20 million, certainly, contemplates some where we've got obvious rents overlap. You'll see this takes steps to consolidate those and extract the costs. And then the back office and all the normal things you would expect. I think it would have been wrong to come back here given the underlying efficiencies of both companies and talk about what maybe a more normal combined cost saves level just because it were already still efficient. And we know we've got a -- while the company -- we were very confident. I mean we've had some great conversation around cost saves. We have a roadmap, I believe, and how to get there. But I just think the bottom line is that it would have been too aggressive, I think, we've gotten questions. And I believe -- in the $20 million, I believe we can drive the efficiency ratio down with the cost saves. And again, I think, you would rather me be transparent what we know we can do and we're going to shoot to do better but I don’t want to stick to the CAGR because we're just so efficient.

[Matt Olney:]

And then as far as Green Bank as in the past had a handful of private equity investors. Can you talk about any kind of lock-ups you have on those investors with the transaction?

[Terry Earley:]

Go ahead Manny.

[Manny Mehos:]

So the lock-ups that they've agreed to is through the shareholder growth and then beyond the shareholder growth. It's [Indiscernible] on itself. They are on the Board of Directors, all three of them. And of course if they were to sell prior closing we still have to be lock. So the same what you've seen themselves in the past. They are not going to be --- none of them will be on the Board Veritex after the close. So there won't be any restrictions on that except -- with no restrictions. But there are various [Indiscernible] like a long-term, I will say. So you'll see various levels of interest in holding long-term. I just can't project around this.

[Matt Olney:]

Okay. And then last question for me, I guess, for Noreen. I just want to clarify that the margin guidance here. I think you're saying the core margin will be in a 5 to 10 basis point range from that 383 in the second quarter. Did I get that right? And can you talk about some of the drivers that would move it towards the high end of that range versus the low end?

[Noreen Skelly:]

Got it. 3, you're right. I'm guiding you to really a flat margin plus or minus 5 to 10. And what would drive it to the higher end is just strategic deposit pricing. We have -- last quarter, we were ahead of the rate -- the Fed rate increase with our decrease in our money -- of course, on a money market deposits, we are going to look at what the market is signaling to the September rate increase. We're going to hold off as long as we can, but our primary driver is to drive that loan growth. So if we can hold off and increasing those reports on a money market account, and some of the more price sensitive accounts, we are going to do that over and keep pushing the loan growth and the credit quality so that we can get that NIM expansion higher. Does that make sense?

[Operator:]

Our next question is from Brad Gailey from KBW. Your line is now open.

[Brady Gailey:]

Hey, it's Brady. I agree with Matt. I mean the fee 25% EPS accretion is a huge number, so congrats on getting this thing announced. But my first question is about the fee income side, I know, I think, Terry mentioned a little bit how there might be some synergies under Green Bank has some SBA that maybe you can overlay on the legacy Veritex, but just talk about the opportunities on the fee income side and what products can be overlaid on each other?

[Terry Earley:]

Yes, Brady, this is Terry. I think the fee income synergies, I think, it's hard to treasury management and continuing to build out. That’s been such a great source of revenue for Green and they continue that partnering with Veritex will be good. Secondly you have one which is FDA. Both companies are in the business. And I think we can do even better together than we've done separately. Green had a better quarter in Q1, but quite honestly -- I mean, Q2 was better than Q1, but honestly I was expecting it to be even better. And I’m very bullish on the back half of the year. So I think for the two companies there are SBA opportunities. And the last one, I would point to is our customer interest rate swap business. We had a good Q1 fell off a little in Q2, but I think joining with Veritex, there's good opportunity there. I think as we've mentioned our new loan pricing model that we put in at the beginning of Q2, all of that capabilities build into that in line if you will. So any customer who is looking at going -- any banker who is looking at doing that, interest rate swap can see exactly how it looks the fee income and everything while they are working to structure and price the deal. So I’m excited about that. I think that’s -- and I like their mortgage business. I think leveraging that across their footprint is also another point of revenue synergies. So again, I’m pretty bullish on this as a place where together we can drive some revenue growth.

[Unidentified Company Representative:]

Yes, Brady, we didn’t really modeling any revenue synergies in this thing whatsoever. And I look at the fee income fee as they have got some really need treasury management platforms that we could leverage off of. The interest rate swap business that they have that we don't have and then on the flip side the whole mortgage fees that we put together here. So again, we haven’t modeled any of it, but I do see that as a -- that’s we are much better together than we are apart.

[Brady Gailey:]

And then Malcolm, a question for you. I mean, you look at Veritex now and you are going to be $8 billion in assets. So I don't even asked about the $10 billion mark but now you are going to be especially with the organic growth profile of the company, and you guys might be about the plus $10 billion in a couple of years. But maybe just your thoughts about -- are you committed to crossing $10 billion? Are you remaining open substantially not crossing 10 and maybe any sort of preliminary estimate on what the Durbin impact would be if it cross 10 if you even looked at that yet?

[Malcolm Holland:]

So I prepared for a lot of questions. I didn't prepare for that one because I've been so focused on this combination and this integration. And so I think the short-answer is that we are absolutely open to it. But there is a lot of room between here and there. And our focus is going to be integration, efficiencies, getting the right people on the right seat. I think we have the right folks sitting around this table, but we need to spend sometime getting to that next level down or two. But it's absolutely going to be something that we're going to discuss as a management team. But candidly, Brady, I haven't given a whole bunch of thoughts to it but know that will start getting on our radars here once we get past closing.

[Operator:]

Thank you. Our next question is from Gary Tenner from D.A. Davidson. Your line is now open.

[Gary Tenner:]

As it relates to the merger, it looks like Green has maybe a single branch in Austin, obviously, not you guys that already exited that market with a reasonable to assume that remains a market that you would not want to invest in further?

[Malcolm Holland:]

Yes. Obviously that's something that we have looked at just really high level. We haven't made any decisions at this point in time. But it's certainly reasonable for you to ask the question. We just haven't done this specific analysis on that one specifically. We do have some branch overlap here in Dallas, a couple here. And we've looked at those just like Austin. And there is a couple of other kind of outlier branches at Green although some of them provide some really nice deposits. And so we've got a list of 5 or 6 or 7 or so that we just need to do the analysis on which Austin is one of them.

[Gary Tenner:]

And then I didn’t see at least in the slide deck, but in terms of the remaining energy exposure at Green. I know that's been running our portfolio as it's been at Veritex. Could you just update Terry where that portfolio was?

[Terry Earley:]

Yes, we've got combined portfolios. Remember we've got a little bit running off of sovereign. The combined portfolios are, I think, less than $100 million together -- about $90 million together. And we both have the same efforts to continue to squeeze that down and move that business out of the bank. We don’t have a -- but we haven't thought through it, but we don’t have -- we haven't talked about it, but I'm pretty sure we're not going to continue in that space on either side. That's been the goal. So it's now become a pretty small part of the $5.6 billion loan portfolio going forward.

[Gary Tenner:]

Great. And then just one earnings question just for Noreen. You had provided an outlook for expenses about $500,000 to $700,000 upper quarter higher than this quarter was that based off the core 14.7 number?

[Noreen Skelly:]

Yes, that's correct.

[Operator:]

Our next question is from Brad Milsaps from Sandler O'Neill. Your line is now open.

[Brad Milsaps:]

Lot of moving parts for both companies timing your standalone quarters, but just out of curiosity I can understand the 25% plus EPS accretion. But one is that based on the consensus estimates that are out there? And then two, does that also mean that you guys are fairly comfortable based on kind of this quarter results with what people are assuming that you could do on a standalone basis really comfortable?

[Terry Earley:]

Yes, Brad, this is Terry. Yes, this is based on consensus estimates. In terms of the modeling and -- I think both companies are pretty feel very strongly about their earnings momentum and profile going into Q3 and Q4 leading to the close. So I didn’t give any guidance, but I would materially, from what we said before, I would materially change anything. My view in terms of our EPS opportunities for both companies is -- at least, let me say it for Green. It hadn’t changed from where we were a quarter ago. If anything we just march -- we just laid out the first step improving we can get there if you will with a strong quarter in Q2.

[Brad Milsaps:]

And you guys just touched on this a little bit, but any other areas where we would expect -- you might expect to run off either in the loan or the deposit book as you get closer or kind of pre-closing? Or have you assumed any at all at this point?

[Terry Earley:]

No, we haven’t assumed a run off. I mean we've actually assumed and continued a little bit of conservative growth rates for both companies. I do know that our pipeline is very, very slow at Veritex and understand that this could be one of Greens greatest quarters in terms of loan production. So I think you got some really, really solid momentum on both sides on the growth side.

[Brad Milsaps:]

And just final more general question. Malcolm your bank is a part of an MOE. Terry, you've obviously got a background with working through some MOEs. Maybe can you talk a little bit about how -- what you need to see or kind of what we should be looking for in terms of watching this one progress maybe both positively and negatively based on kind of what you guys have experienced in the past?

[Malcolm Holland:]

Yes, so, I mean, we both have some great backgrounds in terms of buying banks, integrating banks. We've done an MOE recently carried down a couple of them. I have a Chief Technology Officer that did -- a whole bunch of them North Carolina. He did 15 different acquisitions. And so he is part of our integration team. So we've got some folks around the table that have some experiences. We've done this. Albeit this one's a little bit bigger but the process is the same. And so when Terry and I sat down last week, let's think about our process. His process was the exact same one that we use when we went through sovereign. So I think we were thinking about it at same way. Our goal is continue to operate these businesses. Not lose focus on what we think we have great momentum and then make sure that we can get the efficiencies out of it going forward. Terry is exactly right. These are efficient companies. And so you put two efficient companies together, you're not going to gain a huge amount of costs savings. But if I read I’d be watching the quarters how do the quarters look going forward, credit wise, growth wise. And like I said, I don’t think we could have time this a whole bunch better on the momentum of each of these companies.

[Unidentified Company Representative:]

I would -- let me chime in Brad, I think it’s a great question. I think MOEs are wonderful financial construct. But the key is in the execution after the announcement. And I think the key to that line a couple of things. First, that the CEOs have to have a common vision. And I believe it’s pretty clear on here that Manny and Malcolm do. Second is your business model have to be similar and cultures have to be similar and we both go with the market really the same way very similarly. And the last thing I mean, obviously we're thinking about communities, employees, shareholders, customers. And I think from a customer and employee standpoint, especially speaking to the bankers, credit delivery is key in this. And I think that between play and [Indiscernible] on the Green side, I'm excited to see what they can do. And I think that if you do these things well, if you got a common vision and common culture and you really work on the credit delivery, obviously we got to execute the integration and in promotion. Well, because that's going to be the key to keeping the customers happy through that and then we can get as a cost saves and the upsides there. But I think the credit delivery and the culture will be key to keeping those important bankers as retarded customers. And you're going see a lot of focus on their part about that.

[Operator:]

Our next question is from Michael Young from SunTrust. Your line is now open.

[Michael Young:]

I wanted to ask just about kind of staffing levels and excess capacity for loan growth going forward. I know that's been a tenant of Green just kind of makeup over the years is to keep the expense level fairly flat forward. Do you -- what kind of capacities you feel like you have for growth once you combined the two companies within the existing lenders that are already onboard? And then what plans might you have for additional hiring key to extend in certain geographies or certain product types?

[Unidentified Company Representative:]

Yes, so I think -- I can speak for Veritex and I think I know what Green is thinking there. But in terms of geographies, Michael, we are going to be focused in DFW and Houston. Those are our geographies. There is a lot of market share to be grabbed there and that's where we intend to focus our time. We are always looking for good people. And with the combination in building an $8 billion institution, our sophistication level goes up, the type of clients that we are going to be attracting goes up. And at the same time, I think, some of our lenders that we will be hiring is going to go up. And so we're going to compete in some new markets. And so we always want to keep this community banks layer because I think that's important. And I do believe it's scalable. We both scaled it. But I also believe in terms of the growth side this is sophisticated a little bit more sophisticated borrowers out there that I think your top eight players in the C&I space and in the CRE space. So I think there is great upside. Our current stats, I think, have some more capacity, no question, we can become more efficient. But I also think we're going to have opportunities to hire folks that we've never been able to hire and do things for companies that we've never been able to do. And that's where those revenues synergy with none of it's been put into the numbers, is going to be a bounce.

[Michael Young:]

And then maybe the flipside of that equation just there is a lot of competition for deposits and lending talent in the two markets that you guys are in predominantly. Can you just talk about any efforts you guys have made on the front end of this so that you are planning to make any kind of the early stages of the integration to protect both the talent side of the organization but also the deposit portfolio as well?

[Terry Earley:]

Yes, Mike, Terry. I'll take a shot at that. Malcolm will probably add-on to make there. Obviously in the onetime cost there is money and here is that the kind of to hang onto people as we get through that. And this is probably a point us to be make and we were talking about MOEs. But we know we got to hang on to people. And I was certainly -- in the deposit world, I mean, I think both companies have done a good job, but I think we can do better together. And there is a Green lender incentive plan, certainly weighs deposit growth. And if you don't make 50% or more of your goals then that's certainly -- it's not a good outcome from you on abundance side. I think Veritex has got a very balanced scorecard to drive their side. So I don’t -- I think its driven good deposit results, but it is competitive, and it gets more competitive every day. So of you probably heard me say this as I walking at the hand to hand combat out there where you've got a deal. I think our focus is really twofold. Is this a relationship and not being not a single service household and especially at single service fee date. You will see us got to the math to hold on to that relationship and price it as reasonably as we can while keeping it. If this is single service, especially on the CD side and somebody walks in with what we think is pretty unreasonable rate, we're not going to chase that. I mean and that’s -- I think that’s going to drive, that’s the mentality, I think, we have to have going forward protect the relationships. And fortunately, for both of us we have got assets since the balance sheet that will let us do that. And I just think that's the mindset we have got to have. And we've got our people in the branches who are touching customers are so important to us. I get to talk about the financials. And that’s exciting and I have a lot of passion for it. But the reality is we're just keeping store for what the people out there touching customers every day. And without them, we have lot of fun talking to you guys. And so I’m excited that for what they have done and what they are going to continue to do and you are going to see us to be as aggressive as we need to be to protect relationships.

[Unidentified Company Representative:]

Yes, Michael, just to add on just a little bit. Our incentive plan is definitely weighted towards the deposit side. This is a conversation we have been having internally for a good year. It's top on mind. I think we both have a lot of different levers to pull on deposits. We don't ever want to be the leader in the market, but we dam sure we are going to protect what is ours. And so I echo Terry's sentiment that when we've got a relationship, we will go all the way to the math. And so I think our cultures again are very similar in that respect. But let me just tell you, we know that that's part of the secret sauce in this deal, we are on it, we are looking at it and it will be top of mind as we move down the road because we've got some aggressive growth plans. So we got to fund it.

[Operator:]

[Operator Instructions] Our next question is from Brett Rabatin from Piper Jaffray. Your line is now open.

[Brett Rabatin:]

I wanted to ask, I think, the level of accretion and the opportunity to grow probably thorough the answer. But Malcolm you may have anticipated getting a question about sort of the framework of the decision here to combine or both of you guys or both groups may have had sort of anticipated the question of the framing of doing this transaction versus talking to larger regional's. And so I was hoping to get a little more color around just how that's came about. And the decision of this versus the other potential alternatives?

[Unidentified Company Representative:]

Yes, so the history and we just talked a little bit toward the call about the history and when this all started as, obviously, I've known Green for a while, they've known us for a while, we are in the same markets. But as you know, I wish, I've been actively trying to build the Houston franchise and was unsuccessful with the couple of other deals, and trying to taking a little step back after we lost the last two deals and finished the silver medalist on both of them. Although our pricing was exactly the same there are other regions why we finished second. And then we, Manny and I and Jeff had a conversation one evening down in Houston. And they just started -- we just started talking. And the more we talk the more it makes sense. So this was in early May and we decided to look at each other in the eye and say listen, let's give this its full effort to see if we can go to the next level. And so that's what we did. And alone behold 90 days later, we were able to announce the deals, there has been a huge amount of work. I don’t think we were ever on either ones radar until kind of active first quarter. And just it has become a very, very positive marriage here. And so that's the basic history of how it happened.

[Brett Rabatin:]

Okay. And then just from the Green side, I think, Manny, you have talked about potentially thinking about an MOE. Can you maybe talk about the framework of that versus coming up on a larger regional or some other player? And then was also just curious to kind of get if I could, a little better framework around you've got two different lending teams merging the two cultures of those two groups as you progress next year?

[Unidentified Company Representative:]

Well, I take the first part of that and I'll let Malcolm take the second half. I've done a broken record the last couple of years. MOEs in Texas were market share, exchange and more balanced. This is the best value preposition for our shareholders. And that's not, I mean, part of the business, we've mentioned regional's. I mean regional's have the ability to pay for anyone for Texas with growth needed. I mean there are stocks that are not trading at the multiples. So I think a necessary to make up a track with acquisition in Texas. We don’t see them slipping around as partly speaking. So on the other side of coin, because of our stock price total trading below peers of metrics. We really want very competitive acquisitions. And the other part of that is during the small acquisitions such as in Europe were not I'm assuming here. So at the end of the day the best economics and the best way to create the kind of bank that everyone's ever want as first joint forces with someone like us. This is predominantly in the Dallas market. And where you can still sort of what I call modern time deposits. We can build -- we jointly run like this over the phone. Very efficient, we give the cost saves out. We've got an even better; we've got better market coverage. Then and it doesn’t hurt if the legislation has changed by most regional candidates for acquiring, they came down. They don't have to innovate. They can -- if they want to between the 10 and 50. So all that came together sort of may have also sense, when we talk as Malcolm said, it was sharpening that sharp full source. If they're relating, in fact, we both saw -- we saw the same thing happening. And not we saw that greater organization either, I couldn’t think of a better way for us to add Dallas and bounce up now for more [indiscernible] combined, balances a much more diversified markets and autonomy I think Dallas [indiscernible] So all that -- coming to down part of it and you probably asked, but, this deal I couldn’t have -- two years ago I couldn’t have imagined I think we are better than this, not closer to this. So it check all the boxes narrowing we have something that’s I think -- when you look at that chart where if you look at the NIM bounce, most community banks in Texas were the most balanced, which made some scarcity value varying. So that I mean not -- I can't tell you, I will now have mature my son who is not here, but these things you get -- exactly what we've been leasing for two years.

[Unidentified Company Representative:]

And just quickly on the culture piece. As Terry said, we are very, very similar on the lending side. And so I think both Jeff Chiseler and Jeff Greenway, they've already had like three or four meetings in their meeting today. Jeff Greenway is going to be appeared this week. There is a lot of communications. There is a lot of back and forth and it's all positive. And yes, culture is vitally important, but they're very similar and I think the combined culture -- because you are --you never going to get one or the other, you are going to get them both, you get a mix of both. But I think the combined culture will come out even better than what each of us have began individually.

[Operator:]

Our next question is from Matt Olney from Stephens. Your line is now open.

[Matt Olney:]

Just want to follow-up and get your updated thoughts on capital. Looks like you are deploying a big chunk of the capital in the transaction. But when I look on Slide 17, it looks like the profitability could move up quite a bit on full integration ROTCE in 18% range, so it's generating quite a bit of capital. Perhaps, it’s a little bit too early but what are your thoughts about starting some kind of common dividend and returning capital to shareholders at that point?

[Unidentified Company Representative:]

I mean certainly that’s been a conversation that we had a little bit up. As you know Green has a dividend, they just announced their quarterly dividend. And we will be talking quickly about how we do that going forward. But you have assessed it correctly and we can pull off the efficiencies, we think we can pull off. We are going to generate a fair amount of capital. And we don't need to have extra capital hanging around all the time. So that’s going to be a conversation we have pretty quick.

[Operator:]

Thank you. At this time, I’m showing no further questions. I’d like to turn the call back over to Malcolm Holland, Chairman and CEO of Veritex Bank, for closing remarks.

[Malcolm Holland:]

Well, thanks everybody. It's certainly a transformative day for both of our companies. I think you can tell our excitement here. And we will be available today. We all be together today if anybody wants to have any further conversations, give us a quick email. We will try to fit it in. Thanks for everybody's time.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.