Q2 2020 Veritex Holdings Inc Earnings Call
Welcome to their checks holdings second quarter 2020, <unk> earnings conference call in wet.
All participants will be to listen only mode.
Nick This event is being recorded I went out to the conference over to season cattle Investor Relations Officer in Secretary to the board Evertec toys.
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.
Two different.
How many undertakes no obligation to public we revise any forward looking statements.
At this time, if your loved 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 Veritex Bank dotcom.
Comments made during today's call are subject to that Safe Harbor statement on slide three we have provided an update to our risk factors specifically regarding the impact of cobot 19 could have on our business.
In addition to 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 disgust non-GAAP measures in our filed 8-K earnings release.
Joining me today or Malcolm Holland, our chairman and CEO.
Terry Earley, our Chief Financial Officer, and Clay Ribi, our Chief Credit Officer, I'll now turn the call over the mountain.
Good morning, everyone Hope all of you all are staying safe and healthy during these unique times Q2 for bear Jackson was much like the times. We're currently experiencing a lot of moving parts of many twists and turns along the way.
As always we desire to be transparent on where the bank is both financially and from a credit perspective, we intend to be more granular with a factor as we know them today, but please remember that we're in a season with many things changing daily.
Today will cover five main topics one updated the cobot related activities to credit quality update three pretax pre provision for our balance sheet and capital position and five some NIM detail. So first of cobot 19.
Texas began to reopen the state in late May we resume more normal work conditions worth remote workers coming back to the office the new safety guidelines in place however, with the reset growing number of infections in DFW and Houston My team felt it was prudent that we return our back back to phase one pandemic.
Plan, which we did effective June 29.
This allowed for those who are able to work remote to do so.
Currently have approximately 57% of our staff working remote.
Our executive team has also been divided into teams, which trade off working remote as well.
We have had only a handful of employees test positive and we have very strict protocols in place that should reduce any potential spread within our offices today, we've had no major outbreaks or.
Our branches are open via that drive thru and appointments can be made for enbridge visits.
We have weekly pandemic tackle tactical pay meetings and also have a biweekly call with our board of directors, we continue to invest in our communities as evidenced by approximately 400000 in donations.
During Q2.
I'd like to stop there for just a moment in fact, our incredible I T team and executive leadership team for doing an extraordinary job during these challenging times.
The road may be uncertain, but the resolve and dedication of my team is not.
So, let's turn to credit obviously credit quality is the most important issue on everyone's mind, including ours.
We are prepared some slides in the deck they'll have clay cover in a moment, but first I'll give you a high level view of our current credit outlook.
Real clarity on our loan portfolio continues to be somewhat clouded due to the virus PPP stimulus and payment deferment project.
As you might expect this credit quality picture remains very fluid with market and industry changes almost daily, but overall, we're quite upbeat about where we sit today, our npls to total loans plus already remained stable at 0.9% well past dues and the 60 to 89.
They category jumped.
Comped up a bit driven by two specific loans overall past dues were slightly down quarter over quarter.
In June we undertook a pandemic portfolio review project.
This undertaking included a review of all relationships over 2 million in our high risk categories and any relationship that received a deferral or a PPP long.
Included approximately 4.9 billion in committed loans are 55%.
The committed portfolio as you would guess are classified and criticized loans did increase during the quarter, mainly due to this pandemic reviewed project.
Nonaccruals increased marginally by 4.7 billion. These non accruals are made up of 14 different loans that range in size from 200000 to 1.4 million.
With our provision of nearly 19 million during the quarter loan loss reserve continues to build and now sits at 1.76% of total loans and 2%.
Total loans, excluding PBC in mortgage warehouse overall I think we're very pleased with our current portfolio performance as I stated earlier. This is incredibly fluid environment with new and updated information daily more on credit and just a moment.
As a press release stated in Q2, the company earned 48 cents per share or $24 million. After a provision expense of 19 Megan.
Pretax pre provision operating revenue continues to be one of our strongest financial metrics for the quarter.
Our PT pp was 45.7 million or return of 2.11% on average assets.
This income level continues to show the earnings power of our company and our ability to absorb a large amount of credit losses before we need to tap a single dollar capital.
Growth. During these times is of course going to be challenged at best loan growth, excluding mortgage warehouse and PPP constricted by 127 million for the quarter.
The growth bright spot was mortgage warehouse, which did increase its loan balances over Q1 by 71 me. It we do continue to feel loan growth will be fairly flat for the year.
Turning to expand on these and other topic shortly but first clay review, our chief credit Officer will discuss discuss our address portfolios and current status of payment deferments clay.
Thank you Malcolm and good morning, everyone.
As you would expect it's been a very busy quarter for credit teams.
The portfolio is performing as expected with MP A's and past dues remaining relatively stable overall the credit metrics are relatively flat to Q1 metrics with exception of the movement that we made to downgrade certain credits in connection with our pandemic portfolio review that Malcolm mentioned.
So let's begin with slide 11, which covers the total portfolio metrics for Q2.
The chart at the bottom of the page reflects net charge offs for Q2, 0.03% of total loans.
The increase in Ensco's is from one CNR credit and the amount of $1.8 million that was fully reserved in the Q1 Hcl and then subsequently charged off in Q2.
Past dues in the 60 to 89 day category bodes primarily due to two assets.
First as a Cree office building asset that isn't the process of a workout that's expected to be completed by the end of Q3.
Second is a retail Cree asset with a significant guarantor, that's being called on the cure the delinquency.
Moving to slide 12, you'll see a summary of the pandemic portfolio review, we conducted during the month of gene.
Malcolm gave a high level description of the project and I want to give you a summary of the scope in results.
Total penetration of the portfolio review touched 55% or the total portfolios committed balances.
Our credit team made decisions on financial data that was available to them at the time and we conducted portfolio reviews sessions with our lending teams who gathered anecdotal evidence on the performance of the their bar worse over the first 90 days the pandemic.
The results of the portfolio of the pandemic portfolio review, where that to $203 million and loans were moved to special mention.
70%, 75% of that movement came in the hospitality and retail creep portfolios.
31 million was moved to sub standard as a result of the effort.
The downgrades from the review accounted for 235 million of the 290 million in migration of criticized assets for the quarter or 81% of total migration for Q2 came from this effort.
We will continue the process quarterly as we are able to gather hard data on the performance of the loans in the high risk categories.
Slide 13 gives you a summary summary of around one around two deferrals granted by the bank as of July 24, as well as expected additional deferrals in round two.
Round two requests are being evaluated for necessity by reviewing actual financial data around one deferrals totaled $1.2 billion or 18.2% of the book round two referrals granted to date have been very license you can see.
We have polled our lending staff to determine the expected volume of additional around two deferrals.
And that data is provided to you for use by product type in around two data.
We expect total round two referrals to be less than 20% of total around one deferrals or 4% as outstanding loan balances. It should be noted that most of the creed product types like retail office and multifamily that received around one deferrals are not requesting second round deferrals, we view that.
As a positive indication of the strength of the loan portfolio.
Slide 14 highlights the hospitality, but free.
One of the Pleasant surprises in this book has been the performance of the lower end owner operated properties occupancy has been a above breakeven and several of these properties that focus on more essential workforce accommodations.
Many of these properties of now request that alone differ.
Top 25 exposures and hospitality portfolio reported an increase in occupancy of 18% from May to June ending the month of gene at 42.5% weighted average occupancy.
Revenues in this same group increased a 103% from made a gene.
That being said, we downgraded 35% of the hospitality book to a criticized asset grade during the quarter and this porterfield folio is receiving oversight by our special assets team.
We expect the volume of Brown to referrals in hospitality book to be roughly 36% of outstanding balances down significantly from 59%.
Let's take a look at slide 15, which highlights the details of our retail.
Create portfolio.
Only 6.8% of the retail book was downgraded during the quarter with over 90% of the downgrades going to special mention.
Second round deferrals had been very light and this book as of today.
And are expected to be less than 2% of the retail Cree book.
The past dues in this portfolio were previously identified problem credits.
The only M.P.A. in this book was a small retail strip center that was sold to a third party buyer at foreclosure sale on July seven and an immaterial loss.
Moving to slide 16, which highlights a metrics from our restaurant portfolio. We've seen some encouraging signs in this book in that three of our largest non real estate exposures have fully repaid their working capital lines during the second quarter.
Also our largest restaurant Korean customer has resumed making regularly scheduled payments after receiving around one deferral.
Most of the credit issues that are in this book were previously identified so downgrades in this space of $3.2 million were fairly light.
Good portion of this book is in the government guaranteed loans, which is getting payments from the SB a that will continue through Q3.
The MP ace or for the most part exclusively SP loans that were problems prior coven.
Slide 17 gives you a visual of the high risk industries within the portfolio.
Of the top three portfolios highlighted we fill a best about the look our largest exposure in retail curry.
While we do expect some stress in that portfolio, we believe our exposure as well underwritten with a weighted average LTV at 55% with quality sponsorship.
Hospitality is our most concerning portfolio given the lack of business and leisure travel and the potential slow recovery in this space.
Our credit from special assets teams are fully engaged in these portfolios and working with our lenders to identify potential problems as they arise and with that I'll now turn it over the Terry to cover our financial results Terry.
Thank you play and good morning, everybody, let's jump back to slide five.
This page gives you a good idea the second quarter and how we're trying to position the company for these uncertain times to start earnings per fully diluted share were 48 cents as we built the allowance for credit losses and recognize substantial PPP fees.
We're focused on three things maintaining strong pretax pre provision earnings building reserves for pandemic, driven credit migration and growing our strong capital base.
Let's start with pretax pre provision earnings in my opinion in this environment, the economic uncertainty and increasing credit costs due to the pandemic. The single most important metric is our pretax pre provision earnings and return on average assets. The 211 basis points of pretax pre provision our way indicates that we have signal.
The current loss absorption loss absorption capacity and our earnings before it impacts or capital moving on to building reserves credit provisions Federal 19 million in Q2 data down from almost $36 million in Q1. This allowed us to grow the allowance for credit losses to 2.1% excluding PPP line.
In the mortgage warehouse.
Next lets touch on growing capital common equity tier one capital grew approximately $25 million, representing 9.66% of risk weighted assets, even after absorbing the seasonal provision and the normal quarterly dividend.
Now on the slide 19, which focuses on our allowance for credit losses, a lot to cover on this slide it lays out the impact from Cecil on each loan pool from the day of adoption and ending on June 30, yet.
Forecast of Texas, unemployment and GDP are the key economic inputs into the seasonal model and these come from Moody's.
We're using their baseline forecast that were updated on June 18.
Since Q1, the average forecasted unemployment rate has gone up over 2% over the next four quarters and the average forecasted GDP growth has come down 2.7% over the same period.
Focusing on the column labeled June Thirtyth 2020, the declining economic outlook from Cobot 19 negatively impacted our overall allowance for credit losses to the tune a $14.4 million. Additionally, we increased our reserve for unfunded commitments to 8.4 million also worthy of note is the increase reserve coverage.
Of Npls, which is now up to just over two and a half times.
Please note, we're trying to build the reserve to prepare for the upcoming adverse credit environment.
To that in addition to the loss history of the economic forecast. We've also added in qualitative factors that increased the final allowance almost 40 basis points.
In our opinion as we look forward Theres, a high degree of uncertainty and a little to be gained by being overly optimistic.
Additionally, we still have 22 million of loan interest trademarks on the balance sheet from the Green acquisition. This translates into 38 basis points of additional cushion on the acquired portions of the portfolio.
Finally, the current reserve level, including our Q factors. It's the same at all material respects to scenario for for Moody's. This scenario is Moody's most pessimistic forecast for the Texas economy and represents a w. shape economic recovery.
In my opinion, our Q2 Hcl is not only larger than it was in Q1, but is also more conservative and better prepares the bank potential credit uncertainty.
On the slide 21 capital ratios at the holding company and bank started the quarter from strong position and group from their tier one capital increase almost $25 million and total capital increase over 36 Megan.
This resulted in all risk weighted capital ratios, increasing between 13 and 23 basis points. This quarter the leverage ratio declined this quarter because of the PPP lending regarding the dividend we declared a regular quarterly dividend of 17 cents per share after conducting multiple capital burned down scenarios.
Turning to slide 22 and deposits.
Like most banks, we had a very strong quarter on the deposit front has transactional deposits grew $535 million or 52% annualized much of this can be attributed to our PPP lending, but clearly customers are more comfortable carrying more liquidity given the unknown factor.
Thanks to our economy.
The mix of the deposit portfolio has improved significantly since the beginning of 2019 with non interest bearing deposits at 31% of total deposits in our reliance on time deposits dropping from 36% to 24%.
The loan to deposit ratio, excluding PPP loans in the mortgage warehouse at quarter end stood at 93.5%.
I'm from almost 101 person at the end of Q1.
The graph and the bottom left of the page shows the trend in quarterly deposit cost average cost of interest bearing deposits, excluding purchase accounting declined by 56 basis points from Q1 to Q2.
Looking past the second quarter the table in the bottom right corner. The page shows the time deposit repricing opportunity for the remainder of 2020 and beyond.
Moving on to slide 23, and liquidity the purpose of the slides to highlight three things first our primary and secondary liquidity sources. The table in the bottom right shows that we have up almost $2.7 billion in total liquidity resources available to the company.
Second our investment portfolio is approximately 1.1 billion as you'll note that makes 7% the portfolio was available for sale the portfolio yield is at 2.88% and the cash flow coming off the portfolio in the next year is projected to be $151 million or 14%.
Finally late in the second quarter, we became more comfortable with the stability of our funding and reduced our on balance sheet liquidity and deleverage the balance sheet.
This reduction in a very low yielding earning asset will have positive NIM consequences as we work through the back half of the year.
On page 24, you'll note for graphs first is our return on average assets in pretax pre provision or a trend in the top left graph Vera Texas delivered a robust pretax pre provision operating return on average assets above 200 basis points and five of the last six quarters.
Second graph on the left is the operating efficiency ratio, which shows we've been lucky been below 48% over the last five quarters. This low efficiency ratio achieved through our branch flight business model is the key to maintaining our strong pretax pre provision earnings.
On slide 25.
Our net interest income declined 1.6 million to 65.8 million in the face of the fed cutting short term rates by 150 basis points in March.
The GAAP net interest margin decreased 36 basis points to 3.31% in Q2.
Lower interest rates impacted the now by 12 basis points as loan yields decreased 64 basis points. During Q2 remember that our loan portfolio is 70% floating and the primary index is one month LIBOR.
Offsetting the rate impact on loans was a 55 basis point decrease in rates on interest bearing deposits and another 30 basis point decrease some of the lower rates paid on our FHLB advances.
The PPP lending program, while of significant benefit to our customers and communities negatively impacted net interest margin by nine basis points lower purchase accounting adjustments accounted for six basis points at the decline.
Next year, three factors, which should help the NIM to improve in the back half of 2020.
First the 665 million in Cds that mature at a rate of approximately 1.6% and should be renewed at a rate in the range of 30 to 40 basis points second the forgiveness of PPP loans, and the redeployment of that 1% yielding asset into higher yielding asset classes and.
Third the redeployment of excess liquidity on the balance sheet. During Q2, we ran with interest bearing deposits that were 83% above our target level.
Finally, as you think about our NIM performance in Q2 remember that we're taking RPP peak these through noninterest income and not through net interest income. This accounting election will cause our NIM compression to look worse than peers.
On slide 26, vertex reported operating fee income $18.4 million.
From 7.2 million in Q1.
Deposit service charges were down as a C. H activity declined and Veritex wave more customer deposit charges in light of the pandemic.
This was more than offset by increases in every other fee income category. The most significant was in government guaranteed loan income during the quarter as we originated the PPP lines Veritex elected the fair value option at the GAAP accounting treatment.
As a result, and using a broker flow to value. These PPP loans, we were able to recognize 12.5 million in PPP fees gross and we now does that against a discount on the par value of the loans for a net 10 and a half million dollars.
Staying on slide 26, operating non interest expense increased about 3 million from Q1 to Q2.
Two most significant drivers of the increase 1.2 million encoded related expenses and a $1 million increase in problem loan expenses through remainder was spread across various expense caf expense related categories. The Adam excluded from operating expenses was a 1.6 million dollar fee and for the FHLB.
The prepayment where the company use excess liquidity to reduce leverage in shrink the balance sheet with that I'd like to turn call back over to mouth.
Despite these unique times for our country and uncertainty in our industry, where are they looking for ways to make or company better and we're always trying to move forward.
I, often say to my team that these days provide many opportunities for companies like ours to embrace the challenges that the market gives you.
This is it time went great companies become even greater and this is what we did with the June 15th announcement of hiring Jim research and care and Mcdaniel, Despite having them here only seven weeks, we have already benefited greatly from their experience and leadership. Additionally, scooter Schmidt of 40 plus year Bank.
Veteran and the private wealth private banking wealth management space has recently joined our team he will ultimately office in Houston and lead our private Bank initiative.
We're grateful to have all of them as part of the Veritex tape.
Terry given you some detail in perspective on our capital position you should know that we are stressed our capital every way we know how and we always conclude at the bank remains in a well capitalized position in every scenario.
As reported we have declared a quarterly dividends 17 cents per share again this quarter, we strongly believe that as long as our projections hold true. The company will have ample income to continue to pay out at this level. However, we also in the flexibility and make proper adjustments if needed.
No I say this every quarter, but truly cannot be any prouder of our veritex team. There are talented experienced and passionate about delivering a quality banking product with the us most and excellence.
Operating operator, we're open to take a few questions.
If you like to ask a question. Please press Star then one number one on your telephone keypad.
That is star one to ask an audio question.
Your first question comes from.
Great Keener with da Davidson.
Hey, Good morning, guys. This is Gary tenner.
Hey.
Have you had a couple of questions I guess first in terms of the.
See high utilization rates, obviously seen I'd be in lower.
Big driver that sequential decline in the period end loans, what was the utilization rate at quarter end Terry versus March 31 number.
You're talking about fundings on lines of credit Gary.
Yep.
What I can tell you is the utilization rates down I don't know that I have the exact number play as an exact number that I can tell you the just from.
Our restaurant portfolio, we had three.
Three of our largest lines of credit if you will they all funded up at the ended the quarter.
In March this uncertainty and they've already fully repaid dose.
So, but I don't have this we don't have the exact we can certainly get bad, but don't have that numbers or who follow up what about you own that Gary.
Okay that'd be great. Thank you.
I'm sorry, just in terms of some of your your margin commentary.
Great well you mentioned at the I'm kind of the three things that will benefit the second half, but did you make a comment earlier about either some late quarter early early July deleveraging.
It was it was late quarter de leveraging.
We shrunk the balance sheet.
In the back half of the quarter about about a half a billion dollars back down to about eight and a half ABL is one of the positives to me is that we could fall in $400 million and PPP loans and the balance sheet not grow that much but that's just because we were carrying so much liquidity late in Q1 early in Q2.
So to that liquidity and just.
Deleverage the balance sheet, just because it just gotten a little bit bigger than we felt like it needed to be and it was what as efficient as we wanted it to be.
Okay, Great I appreciate that and then finally nothing I'm just wondering if you could maybe differentiate your degree you can right now between kind of business activity levels.
Between DFW, and Houston, and kind of puts and takes between the two markets right now.
You know there there's certainly.
Differences, but I would tell you I think they're both seeing some our pipelines, albeit not like they were nine months ago are still fairly active and I would tell you the Houston is.
It's accuses active is Dallas is.
It's not as diversified this industry wise is Dallas is but I would put them at pretty.
Equal footing right now.
Yes.
I mean, I feel good about what where folks are being able to do it even though they're working from home and getting in front of clients, but.
You know they were still in a wait and see a little bit attitude, but we are pipelines are.
There are okay.
Okay. Thanks for taking my questions you get it.
Your next question comes from Brad Intelsat with Piper Sandler.
Hey, good morning, guys arent Brad.
Just wanted to follow up on Gary's question regarding the margin.
Terry I appreciate all the color, particularly around that the CD book, you guys have been bringing that down quite a bit just curious if you expect.
Yes, those to renew or do you expect further kind of shrinkage.
In the.
CD book, you got to think about the back half.
I think you'll see further shrinkage I mean, there's not any right theres not a lot of rate benefit to time money up for a year vis-a-vis the money market option, you got and so I think we're already seeing that shift and customers are saying look I'm, a little to take a little bit less yield, but keep the liquidity flexibility and so I think that's a trend that's it.
Trend that really starting in Q2 Q1 was pretty good on the CD fraud as I recall, but Q2 really changed when the fed drop rates 150, Bips late March and I think you're going to continue to see that there is just not enough premium interim rates to more did to incent people to move out of tranche the money market side.
Got it and and your comments around you know, putting some liquidity to work.
You know you've got about 300 million of PPP logged on average I think by my math, maybe carrying a 170 or so.
Million of excess liquidity.
Where where are you thinking about you know if wander flat where are you thinking about putting you know putting that money to work.
Given the shape urban and all of its going on you know with interest rates are you thinking about adding bonds or paying out borrowings just further shrinkage.
As you did late in the quarter, just kind of want to get a sense of what we're kind of driving some of those comment.
Well I think I think first place, we'd probably be looking to do is still grow our mortgage warehouse business. The yields in that are better than anything we can get in the investment side of the house other than unless we're willing to take credit risk and so first I'd say you expect to see the mortgage warehouse business continued to grow.
Second if we're going to go the investment portfolio were most likely to do.
Longer dated CMBS type products.
That will give us good right you know reasonable.
Fixed fixed rated yields because we're so asset sensitive and then if we decide to we could do some type of forward starting derivative to swap it too to floating three to four years out the cost has that just isn't that high right now but.
Im not saying, we're going to do that that's just something we're looking at we're also thinking about de leveraging.
The mortgage warehouse as a given the others, we're still evaluating and we got to get the PPP money back.
Before we can do that but one thing you saw in in the in the deck is that 75% of our loans in numbers are at 150000 and under in terms of size and that's where the forgiveness should be the easiest and the money to flow back the quickest. So what we're thinking about we're thinking about all that I think between.
Between.
Between.
The Cds.
Cds and the PPP and the excess liquidity all those things are going to have a pretty beano as they happen over the back part of the year I think they're all going to have pretty meaningful impacts on the NIM and and as I think I said this last quarter I thought Q2 was going to be the the bottom of the Nam and I'm.
Our modeling internally indicates it's going to have some meaningful meaningful expansion as we go through the back half of the year.
Great. That's helpful and just to follow up on your comments around warehouse you did have some nights growth in the quarter, obviously, some related to refi activity picking up but it sounds like you guys have been able to.
That's a pick up share there as well can you kind of just offer little more color on kind of what you'd be able to do out how big you know canvas business getting how big do you wanted to get maybe as a percent of orange, earning assets.
Yes, if you recall, Brad we hired Amy Saskia Abadi about a year ago May last may last year, so little over a year you know very very talented.
Who.
It's very experienced and so she.
The market share common is right on.
Picked up and actually increased the level of.
The credit credibility credit underwriting of the client that we have is much higher in greater and there are I will tell you there some in the pipeline right now they're best in class and it's because of Amy in her experience and her relationships in the industry. So.
We do see a greater market share listen we don't we don't want to become massively dependent on the mortgage warehouse business, that's not our goal.
My guess is we're going to play between five and 10% of total loans outstanding.
And.
We're probably not going to play any higher than that we think it's a nice add onto the visit that certainly counter cyclical to what we're dealing with right now so.
Can see that Weve, I think you'll see a between five and 10, but.
Outside of that and in a normal business time, I don't I don't think you'd see it much over seven so that's kind of what we're thinking but we do like the business in this space and the credit quality of our borrower is.
It's a lot higher than it was a year ago, Yes, let me tag on two things one to me I look at US I view it as this wonderful bridge as a way to deploy excess liquidity until didn't until the normal economic activity around DFW in Houston get becomes gets back further and you know it.
To me, it's it's a place where you can you can put money with good customers very very low risk high risk adjusted returns high returns on allocated capital and it's a great bridge Ted the to the economy comes to gets back further.
Great. Thank you guys appreciate it.
Yes.
And your next question comes from now.
With Stephens.
Hi, Thanks, Good morning, guys.
Hey, Matt Hey, great details on the credit deep dive very helpful.
Can you give us the balances.
The special mention loans and the steps in your line as at June Thirtyth. They may have been that deck I just missed it.
As of June 30th you're talking about total for the bank yes.
Okay, Yeah hang on this I said the press release right.
Yeah.
Yes.
Totaled four criticized assets a 600.
$607.8 million committed or outstanding Adss outstanding.
Yes.
There are met that what you're looking for Matt Yes, perfect. Thank you. Thank you and then on the.
On the PPP side I, just want to isolate the financial impact in two key results and.
And care I think you said on the fee side. It looks like you took all the accrued benefits and the fees into Twoq you can you confirm that we show.
Impact be onto Q and the fees.
And then what was the impact if any on the expense side deferred comp or otherwise from just PPP.
Well as we said yeah, we had about 12 and a half million dollars and fees, we took 10 and a half million of that this quarter.
We took 12 and a half technically in fees, but we in them in the fair value. We wrote the discount to par that's going to come back. If these loans are forgiven or we sell and and there's plenty I guess I get approached every single day at least once if not multiple times from people wanting.
The body salons. So so there's a couple of million dollars a discount it's going to come back.
Over the next seven quarters, if you will.
You know I think most people are expecting especially with us having all this launch under 150000 I think those are going to come come back pretty quick.
On the expense side, we didn't defer any cost on base. We you. So we've got no reduction in E from any cost deferral that that was in our co. Good related expenses, Matt. It we called out no no no. We the he's talking about normal origination cost you would defer a many of our.
Appears I've talked about pretty significant expense deferrals, and they're really system, we didn't defer any because we were taking all the ppps him through the fair value option.
Yes, Okay. That's helpful. Perry and then on the Kobin expenses knock a mentioned is that fair to say that can remain.
So my elevated here in the near term given all the uncertainty out there.
No no I don't think so it's not a lot of those were one time expenses.
Yes. It was the two biggest were the contributions that Malcolm mentioned in his.
And then comments, where real we were really investing in our communities where people were really struggling food banks things like that and then the other was some some money. We spent because we had a team of between 90 and 100 people who worked on the PPP and we did some incentive stuff to really benefit those folks that.
Good work nights and weekends to help our customers, yes. So those benefits will be nonreoccurring, where we continue to invest in our communities quite possibly.
Well, we continue at the 400 plus level.
I don't think so but.
Hi, I don't think it'll be that high.
Okay.
That's helpful. And then my last question on on the loan growth I think there was some commentary and prepared remarks that.
It would remain relatively flat the back half the year did I catch that right and ended that I assume exclude both PPP and the mortgage warehouse that's correct.
Got it.
Thank you guys.
Thanks, Matt.
And your next question comes from Michael raised with Raymond James.
Sorry.
Good.
I just a few follow up question just just following up on Matts question, so quite smooth.
The cobot expenses and some of the elevated credit.
It's like the run rate for expenses, it's going to be down on kind of a core basis as we move forward, but you also did add some some people in the quarter wondering is talk about it but that's kind of in the ballpark and then.
You'd be selective on hires we look forward, but if you can discuss kind of the opportunity set.
To make investments at this point thanks.
Yeah Michael.
You're right.
I'm expecting expenses to be down going forward in spite of the hires just because.
Now the one.
I say that because you know we the cobiz expenses, there's some other some other little things in the quarter that I don't think necessarily going to be as high going forward, but but.
The wildcard or the is problem loan asset cost you saw him go up a million dollars this quarter and I don't I don't know that it's going to be that way in Q3, but as we get in Q4 and beyond.
I think that cost it's gotta go up just as we work through.
You know the credit.
Wave that's coming if you will so but generally down especially other than that.
Yeah and in turn okay that.
In terms of investment new hires yeah, I mean, there's there's some opportunities out there you know there's some pretty good disruption that continues in our marketplace is both Houston and Dallas Fort worth.
So we're not going to be we're not going to be crazy about it but there are few opportunities that were.
That we're looking at right now.
This is actually a pretty good time to do it yet in the back half a year and it's usually hard to hire people the back half of the year, because there's bonuses in the first quarter wall.
There's not a lot of activity and there's not a lot of bonuses. So.
I think we're going to have some opportunities, but again I don't think it's going to be crazy, but there's there's several in both markets that we're we're looking at yes, Michael from up as we see a one the key things were focused on is maintaining our pre tax provision pretax pre provision.
And so as I agree with Malcolm I think we're going have the opportunity to invest I think we've got to be willing to invest in technology and people and we've got away. The revenue expense mismatch of that and how quickly can can investments get up to get up to scale and start carrying their load. If you will but you've always got to be willing to make those investments.
I understood I appreciate all the color and I appreciate the color on the and the slides.
Question on the on the retail accrete book, what the debt service coverage ratio on it are you seeing any notable differences between.
Whether it's not our owner occupied or not our owner occupied between the Dallas and Houston market. It sounds like there might be a little bit more stress in Houston at this point, but.
Natural gas and oil prices have come back a little bit. Thanks.
Yes, I don't think we're seeing any.
Meaningful difference between the two markets.
Relative to.
Overall debt service performance the number of deferrals in the Houston market is is meaningfully less than what we're seeing in the in the Dallas market. So I don't really see any real differences there between the two markets in the performance of the retail Cree book.
Okay.
I think that's it for me thanks for taking my questions guys.
Thanks, Michael.
Your next question comes from Woody late with KBW.
Hey, good morning, guys Barnett worn anyway.
So I realize there's a fair amount of uncertain uncertainty filled but with the AC outlook.
2.01%, you know that screen pretty favorably among peers, assuming the macro forecast. So if it works and much from here do you see yourself building the reserve from current levels.
No.
I mean, if the fourth.
The forecast doesn't deteriorate I you know I think it stays there now the one thing that if the portfolio migration is worse than we're forecasting potentially but but you know we're being pretty conservative on that as you can tell from the deep dive the clay and his team did so.
I think we're in a good place where I'm you know we could see.
Lower provisions and less and less this economy, just they start to shut down of killing two things are going to really drive that number higher William that's going to be unforeseen credit losses that we don't see right now are some crazy Moody forward looking.
Economic data I mean, those are the two things really can drive it materially and we don't see either one of those right now and so to answer your question I don't see and greater reserve build just to build Terry stated you know we got had fixed we were aggressive on our Q factors, which.
Moving the reserve up an additional 35 to 40 Bips.
So we're even ultra conservative in that regard.
So we feel really good about where we stand on on our reserve Bill.
That's helpful.
And then last last for me capital levels expected to build over the back half a year and assuming we get some clarity on the macro environment as the buyback something you would consider later in the year or is that more of a 2021 event.
Is it off the table for this year, we're not when it's not in any plan that we have.
You know, we still have approval for a little bit less it's not even that much left under our initial approval I think we have 31 million lab. So there's not even a great deal. It's even approved so but it's not in any of our models. It's just there's too much uncertainty. This is not the time to go even though the valuations attractive you would love to be buying it.
Does it seem prudent given the economic uncertainty that we're facing.
Got it thanks guys.
Right.
Any do you have a follow up from Gary Tenner da Davidson.
Thanks, guys just wanted to.
A follow up on the mortgage warehouse.
Commentary Gerardo kind of grow share in that business yields there I think averaged about 3% for the quarter.
Can you talk about the kind of.
Competitiveness of the pricing environment, there and do you think you could hold that yield around 3%, while gaining share where do you have to sacrifice more.
No I think I think we can definitely hold it.
There are some folks in our market there are actually.
Contracting.
He has given at least in our local market the ability to hold pricing pretty firm, but I don't I don't see that can.
Reducing from where we are right now.
Alright, thank you.
Okay here.
And there are no further questions I would not a coverage our speakers for any closing remarks.
Hi, Thank everybody for your time today and anybody has any further questions you're welcome to reach out to us directly they could get day. Thank you.
That does conclude today's call you may now disconnect.