Q3 2020 Texas Capital Bancshares Inc Earnings Call
[music].
Welcome to the Texas Capital Bancshares, Inc. Q3, 2020 earnings conference call.
All participants will be in a listen only mode. During the presentation. Please note. This event is being recorded.
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I would like now to turn the calibre to share and wary director of Communications. Please go ahead.
Good afternoon. Thank you for joining us for Keith <unk> third quarter 2020 earnings Conference call I'm Shannon married director of Communications before we begin please be aware. This call will include forward looking statements. They are based on our current expectations of future results for that well.
Forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from these statements are.
Our forward looking statements are as of the day of this call and we do not assume any obligation to update or revise them.
[laughter] made on this call should be considered together with the cautionary statements and other information contained in today's earnings release.
Recent annual report on form 10-K, and stuff like that you see there.
We will refer to slides during todays presentation, which can be found along with the press release in the Investor Relations section of our website at Texas Capital Bank Dot com or.
Our speakers for the call today are Larry Hellmann, Executive Chair, President and CEO and Julie Anderson CEO I think.
At the conclusion of our prepared remarks, our operator will facilitate a Q and a session and now I will turn the call over to Larry for opening remarks, Larry right. Thanks. Shannon then look really appreciate everybody being on the call. Today I know you have a busy calendar a these days and so appreciate it even more drilling will walk you through the results for the quarter.
But before that let me Mike.
Comments about where we are and where we're going to last.
Last quarter I talked about the steps we were taking in the plans we put in place to get us back to a sustainable earnings trajectory that would support a broad range of strategic options, while maintaining strong liquidity and capital levels. This quarter's results demonstrate the progress we're making most notably.
As expected, we had a profitable quarter with solid rather note. Both start about mortgage finance weakness continues to profit provide us with the flexibility while generating strong risk adjusted returns we reduced our noninterest expense run rate, while continuing to invest in key frontline do first week.
Continued to strengthen our balance sheet and actively managed our assets redeploying some of our personally held excess cash into securities to enhance yield.
We said last quarter that we had addressed some large exposures as we de risk our energy and leverage loan portfolio that.
That progress is reflected in this quarters lower loan loss provision.
Well go but not seen an oil prices continued to provide some headwind we're confident that our proactive approach to identifying and dealing with problem credits will continue on with provision levels much lower than we experienced in the first half of this year.
We said we would capitalize on the investments we have made through a renewed back to basic strategy focused on deepening relationships with our middle market clients and delivering better products and results.
We're seeing the fruits of that as client activity picks up and loan deposit and treasury pipelines and production.
These improvements are driven by the incredible talent, we have and continue to recur as we.
We hired a number of seasonal bankers during the quarter and are in the final stages of recruiting several more as we focus on the frontline talent that will drive growth of our middle market franchise and leverage our best in class specialty groups.
The bankers, we hired a car or just hitting their stride and bringing in new relationships and they have a strong pipeline.
Also our technology and HR Jeep teams, who joined US in the fourth quarter of last year continue to bring in quality relationships with this tiny amount I'm more confident than ever in our ability to deliver strong results, while gaining market share over the coming years.
And I'm pleased to report that we are well into the process of finding a new CEO to build on that progress I'm very excited about the quality of the candidates that were considering so much so that I'm confident that we'll have an announcement to share before the end of the year So stay tuned.
With that I'll turn the call over to Julie to review the quarterly results in detail Sheila Thanks, Larry well.
We're pleased with our third quarter results and a return to profitability, which we expected total revenue for the third quarter with $268 million and while not a record like last quarter. It was down only slightly compared to third quarter last year, we've continued to capitalize on market conditions, and our mortgage finance business to drug.
Meaningful revenue using our lowest risk loan category. The optionality of the mortgage finance business gives us an advantage by reducing revenue volatility through rate cycle.
Expected the third quarter provision was significantly less than the first quarter and second quarter and is reflective of some continued migration that we expected as well as some specific reserve changes for certain non accrual loans as we noted in the second quarter, we believe that the larger credits in energy and leverage have been a drag.
We still have problem loans in both portfolios that are being worked to resolution, but the remainder is more manageable. Additionally, deferrals totaled 166 million at the end of September down significantly from the 1.2 billion at the end of June we would.
We would expect fourth quarter provision to be similar to that of Q3, assuming economic doctors don't deteriorate significantly compared to our assumption.
We began to see some of the results from the Q2 actions we took in resetting our cost structure. Additionally, we took another 15 million in software write off the write offs coupled with the charges last quarter is improving our core noninterest expense run rate going into 2021.
We're continuing to focus on frontline hires primarily corporate and commercial bankers, we had some meaningful additions in the third quarter and continue to have a strong topline no.
Now I'll move on just some more details for the quarter our.
Our average loans held for investment excluding mortgage finance was down on a linked quarter basis as we work to reposition the book in energy she already pay off to have accelerated and overall line utilization rates are down despite the negative impact of loan yields from the full repricing of wallboard, while we've been able to offset.
Portion of it with continued decreases in funding cost and overall loan spreads have been resilient.
As expected, we experienced another quarter of meaningful deposit growth, while we still remain focused on opportunities to further reduce interest bearing cost, including those presented as more expensive Cds mature our emphasis on growing existing client relationships and onboarding new clients will continue.
Net interest income was consistent with the second quarter level. This is Bob So I'm cool decline and now we're always focused on maximizing net interest income the spot some fluctuations and now well.
When we evaluate the drop in NIM number look the liquidity build since year end. The decrease is only 10 basis points.
NIM will continue to fluctuate based on shifts in earning asset.
There was some cash filled during the quarter. We were also able to deploy over a billion dollars two securities.
We will continue that strategy into 2021 and would expect to grow the securities portfolio to 4 billion or so roughly 10% to 12% of earning assets and 2021.
Warehouse yields declined slightly linked quarter as a result of less volume pricing in place.
Core L.A. try yield realize the full impact of wallboard pricing repricing with the impact partially counteracted by existing loan floors as of the end of September roughly 30% of our core eligible loans have floors in place, which is a meaningful improvement from Q2 level and already increasing.
The competitive environment will likely slow the pace at which we can continue to add floors over the coming quarters.
We believe the deposit pricing still have some room to come down over the next couple of quarters as higher price Cds roll off but obviously the most dramatic shift has already occurred.
Our provision for the quarter was $30 million and was primarily related to some continued migration and specific reserve changes on certain non accrual was the.
The third quarter provision is consistent with what we signaled last quarter. After the resolution of the larger energy credit so.
Certainly we expect to continue to have some additional migration as the cycle matures, but the remaining book, specifically energy and leveraged is more manageable after the multi year weve repositioning we.
We believe we are appropriately reserved most specifically in real time and energy on leverage in theory, we have lower levels of exposure and the most exposed to risk segments and with strong equity positions. The loss given default at this time is expected to be manageable.
We experienced a slight increase in total criticized 62 million with the migration, including downgrades from special mention to substandard and sell them from past to special mention predominantly driven by co that impacted industry.
And about half of that came from the leverage book, it's important to understand that we're seeing more undiscounted payoffs from the criticized portfolio than we've seen in the past. So while the numbers are there were there was a fair amount of ins and outs that made up that net increase.
Our linked quarter decrease in noninterest income was driven primarily by the gain on sales, which was expected based on the environment. We would expect the positive trend in gain on sales to continue for the next several quarters, but at lower levels than the third quarter. The second quarter was the peak the third quarter with lower but came in a little.
Stronger than originally expected and we would expect fourth quarter to be more modest say $10 million to $12 million for the quarter.
Noninterest expense for the quarter included some benefit from the actions taken in the second quarter. Additionally, we had a final software write off of 15 million continued benefit will be evident in fourth quarter core expenses and into 2021.
For the second half of 2020, our normalized not just expense will be in the low to mid 290, and that's excluding the $15 million write off were in the.
We're in the formal planning process now and we'll have more detail about specific non interest expense targets in January but bottom line. We feel good about the actions weve taken in positioning us to continue to invest in frontline talent, while driving meaningful improvement in P. PNR Larry.
Thanks, Julie before we go to Cuba, and let me just take a moment to recognize and thank the outstanding leadership team bankers and employees at every level of Texas Capital Bank, who continues to do an extraordinary work under these extraordinary circumstances, we're all living journey.
Well, we will address the 2021 outlook in January I would leave you with a few thoughts about what our focus will continue.
Continuing to attract frontline talent and targeted loan growth, while maintaining our focus on managing credit through the cycle.
The recruiting process that we are executing on this year, whether as a CEO or the bank or level has given me even more conviction that already had that the Texas capital brand and the Texas market continues to be held in Spain.
With that Julian John Sharpen, our chief risk officer, and I would be pleased to take your questions. Operator, please begin the Q.
To ask a question press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question Press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Steven Alexopoulos from JP Morgan. Please go ahead.
Hi, good afternoon, everyone.
Good afternoon.
Maybe to start so if we think about pre tax pre provision income as the mortgage cod contribution moderates in coming quarters can you talk about your ability to continue driving pre tax pre provision growth.
Sure so.
So I'll I'll I'll make a few comments and then Larry can Larry can add so yeah, we would expect mortgage some moderate some and you know thats. Obviously, that's obviously dependent on what the overall mortgage industry does I think Larry talked about there certainly we are seeing some pick up in client.
Tivity some of the newer bankers that Weve added this year are seeing pickup in client activity and then we have more and more bankers that were hiring so I think that we would expect to see growth in some of those targeted areas happening.
Starting later it later this quarter and into next year, So thats, what weve expected to come from in addition, Steven the resetting that we've done on the cost basis.
It's certainly going to help earnings going forward.
Yes, I would agree with everything Julie said clearly the two that broke out in my comments, a technology and HRG, yet I'm just see a number of new relationships popping up here over the last couple of months I think we'll continue to see that that bankers.
That are focused on.
The rest of the season that we are this year are starting to see the topline build on that so I think we'll we'll we'll continue to see good.
Loans the loan.
Experienced in our specialty groups, we know mortgage will be down some but but I think we can make it up.
Make it up depending on what happens with the economy I look at the economy changes substantially than what maybe different than anybody else.
Hello.
And on the market so.
Hey, Steven one other thing one other thing to keep in mind on the warehouse is that we have a pretty well over a billion dollars in sub participations, probably a billion 3 billion for and so certainly as those volumes moderate we had the flexibility to bring some of those back on on the balance sheet and then also the.
Really you know reallocation of some of our excess liquidity into securities will help with help with that going forward. So.
So Julie do you think you guys will be able to drive net interest income growth I mean, the decline has moderated but do you think you could actually grow it from here.
Yes, absolutely okay.
Fourth quarter, obviously fourth quarter, we can see we can see I would expect it to be flat flat to down some in the fourth quarter dependent on what goes on with with with warehouse, but yes, we're absolutely.
Turning to expand revenue going forward its 2021.
And then finally for Larry So a lot of talk about new hires I'm somewhat surprised right you have a very uncertain macro environment and you guys are under a CEO search. So one is that impacting your ability to recruit at all and then second the company had a good history of hiring bankers getting loans, but not getting.
The full relationship are you changing the hiring strategy to go after bankers, where you get that more complete relationship. Thanks, absolutely and the bankers that we are going back to the fourth quarter last year and those two specialty areas I've talked about as well as the CNR bankers were talking.
Today, they they have all been trained on based on this ER activity and how to deepen the relationship and growing wallet with.
With other non credit services.
I mean, I've been doing that I hadn't been banking, specifically for 15 years, but certainly before that and if you can't do that then obviously, you're not going to be as successful so absolutely we're not.
Talking to lenders that are just lenders that you.
Questions, Yeah, Okay, and with that comes the Treasury deposit so that certainly the focus now and will continue to be the focus which will improve improve revenue.
All right great. Thanks for all the color. Thanks.
Thank you.
Our next question comes from Jennifer Demba with Suntrust. Please go ahead.
Hey, good afternoon.
Just curious about what you're expecting in terms of mortgage warehouse activity over the next few quarters could the typical.
Holiday and winter seasonality be a lot more muted this year.
Given the.
The level of Homebuying upgrade we're seeing right now.
Yeah, I think that's right Jennifer I wouldn't expect I would expect overall volumes averages to be flat to down.
[music].
Yeah for the fourth quarter.
Conservatively I would tell you I would expect it to be down it could it could absolutely committed more flattish.
Okay, and you said you have the ability to bring in more participations what kind of.
Hi.
How many participations are out there right now whats the capacity to do that.
So we have it's like Oh, yes, I think in the in the in the warehouse we have some participation to probably a billion four and you've seen us do that in the past where certainly in terms of the hot refinance activity, we increased the participation, but we certainly have the ability to to bring them.
Back onto the balance sheet. There is that 90 90 to 180 90 to 180 day notice period that we would that we would give but you can see that happening into 2021.
And Larry question, what's the company's propensity and interested you already purchased the point in the App.
The company is not really our use that as a tool just curious what platform.
Well.
We were really working on.
Improving our.
Our bank our capital ratios our earnings as I said before we're not really focused on share repurchases I would never say, we wouldnt rule that out but right now it's not a not part of what we're looking at so if you're asking me propensity we've never had a firm.
Pennsylvania bought shares back, but but look we're going to look at all alternatives and we get a new CEO and it'll be up to them to determine a longer start longer term strategy and and what role share repurchases or other capital activities play in there.
It's going to be up to him or her and the management team.
Thank you.
Well.
Our next question comes from Brad Milsaps with PSC. Please go ahead.
Hey, good afternoon.
Hey, Brad.
Julie I wanted to ask quickly maybe on the margin specifically.
Around some of that deposit rates I notice that the cost of interest bearing demand and the cost of savings actually interest bearing demand went up about a basis point linked quarter and savings down just three still well above the levels we.
The levels, we saw when rates were this low last time around is there anything.
Is there anything that's precluding you from bringing those down further.
Or is there a chance we might see a bigger drop off in some of those deposit rates over there.
Over the near term.
Yeah, I think that we absolutely have the ability to bring some of those costs down I mean, the first the first thing you would see isn't the Cds that we have those those are going to be rolling off it'll be rolling off over the next few quarters and they are at much higher rates I think we gave and given the detail on that in a slide and then.
Some of the other interest bearing absolutely there's opportunity to to Opportunistically.
Re price going forward.
Based on relationship.
Okay, but it doesn't sound like you're poised to sort of bring those back I think interest bearing demand last time around.
Those rates were down in the teens are sitting at 62 right now is that something that happens over a number of quarters or how are you.
How are you thinking about the yeah, Yeah, I think there's there's not any into we're not we're not planning any wholesale wholesale rate changes at this point I think that's something that you would see happen overtime and as you know and we've talked about as we as with the with Treasury services and with the Onboarding of some of the new bankers and more holistic.
Relationships I think that you're going to see that mix change, some and that's where you're going to see that come down.
Okay and as a follow up maybe to ask the mortgage warehouse question, a third different way.
If the MBA.
For forecasting mortgage isn't the originations in 2021 to look a lot like 2019 would you expect you know sort of your averages to look similar to 2019 or do you think you guys have taken more share have more customers to where you could do a little bit better than you did you know.
All else equal that than you did in 2019.
Okay, well first I would say that I'm not going to we're not going to give me renamed any real 2021 got it so well, we'll defer to January for that but I guess I would tell you Brad that we did I think we historically have will be the MBK estimate. So I think we would we would generally beat that and yes, I think that we have come to.
We need to be in the market share take away business.
So I guess stay tuned for more specifics on that in January but we're still talking about all about internally right now.
Okay, great. Thank you guys I'll hop back in queue.
Okay.
Our next question comes from Brett Rabatin from Hobdy Group. Please go ahead.
Hi, good afternoon.
Hey, Brett.
Good Oh I wanted to ask about the deferrals and you know second round here, you had $61 million of 166 million.
Can you just talk about the deferrals that are remaining and the ones that you're getting requests on now like how are you managing those on what do you expect to happen or what those as they go through this last round.
Sure Brett This is John tour, Ben I'll take that 61 million at the end of the quarter. The current number is 39 million just to show you the pace of what's that as it is coming down so I think that that looks what's what looks very positive.
It's important to understand that the first round of deferrals was more of a customer request and we granted those request. The second round of deferrals are with the longer term vision of a whole a holistic resolution and so there is a a deeper conversation and repression of projections and and really.
Taking a look at those deferrals for the long term benefit of the client and how we see that playing out so it. So it really is a you know something that.
Something that we continue to remain diligent on but the volume is pretty pretty low at this point.
Okay.
And then secondly, you know the criticized loans in the energy book actually declined this quarter. After building for the last four do you guys feel like you have turned the corner in that portfolio and that continues to happen and do you think you've marked a lot of the problem credits in that piece of the portfolio enough that.
Actually it's it's not going to be a driver relative to the other pieces that are more at risk.
Yes, we've been through a multi quarter a proactive actions.
As as you know and that portfolio and resolving some of the larger.
Exposures that we have that are not reflective of what remains in the portfolio as what we've been working on for a few quarters now and the reserve that we have against that book is either is either near or at historical highs.
So we feel pretty good about where we're at and the and the.
And the reserve against that book as well as the the assumptions that we have on what the macro looks like in that in that sector.
We also saw format our reserve analysis with a loan by loan sales.
Stress analysis.
And cash flow analysis on those on those names and I can tell you that when we looked at it in February and we just looked at it.
Within the last 30 days RV, our view hasn't materially changed.
On what those on what those stresses.
Stresses look like and specific names. So we're at a very comfortable place right now with the reserve against that book.
Okay, and then just really quickly the purchases that you're going to do in the fourth quarter in the Securities book I'm presuming that they are similar in nature to what you did in Threeq you in terms of yield.
Correct.
Okay very plain vanilla.
Okay great.
Great I appreciate all the color.
Our next question comes from Michael Rose with Raymond James. Please go ahead.
Hey, Thanks for taking my question just as a follow up.
Last question is there a certain size you want to build the securities book too.
That you're targeting at this point.
Yes, what I said in the comments with it that we would expect that to grow to 4 billion or so maybe 10% to 12% of earning assets into it but by 2021.
Okay, sorry, I missed that.
Yes.
Right.
Okay. That's true as we think about the hiring that you guys are actively doing I know, it's just not the C. I think you may have hired a new chief lending officer EBITDA.
But is there a certain goal that.
In terms of number of RM. So you need to hire you think to kind of achieve your goals just wanted to see.
How aggressive you might be given the dislocations out there and what that could mean for the expense base. Thanks.
Sure. So look we I think we stated previously we were we were looking at our 10 to 15 bankers between now and the first half of 2021, I think that's still a good number.
You know there we find that there are highly qualified candidates out there.
And and we'll see what next year looks like we want to increase that number or.
Or decreases but right now that we're certainly looking to fill that number.
Okay, and maybe finally for me jewelry any updated thoughts on capital or is it.
Potentially after.
A new CEO came onboard at this point. Thanks, Yeah, I think that's I mean, I think that's right I think we certainly don't need capital, we felt comfortable with the overall capital consistent with what we've said in the past as you know we would be we would perhaps be open to some so optima optimization of capital it replaces and stuff.
So that might be something that we look to do but yes. It would be it would be in the future.
Okay. Thanks for taking my questions.
But.
Our next question comes from Beatty Gailey with KBW. Please go ahead.
[noise], Yeah, it's Brady good afternoon guys.
Hey, Brad.
So I just wanted to ask about.
Senses.
Got it.
The back half of this year, we already know what she looks like.
It looks like it's indirectly you're guiding to for Q expenses of about 140 to 145 million I just want to make sure.
That was right in that and then longer term.
You are making some hires but you're also getting more efficient I mean would you expect.
That number to be fairly flat for the next couple of years or would there be growth.
So yeah, that's not your math is correct for the fourth quarter and so kind of when you look at the at the normalized for the year, we would expect going because we did that reset in because we did those those we've done those reduction we would expect and again, we're not going to give guidance for 2021 yet.
But but we would expect normalized 2020, we would expect 2021 to be to be down from that.
Down from the normalized 2020.
Okay that makes sense and then I was just wondering what new loan yields were in the quarter.
If you look at your held for investment loans, excluding the mortgage the portfolio yield was about 384.
What was the new loan yield and through Q.
So I'm, sorry, I don't have that and I don't have that in front of me, but that's not something that we normally gets on obviously the rate can vary depending on the area that I live.
Whether it's real estate, whether its deanna I guess I would just what I would tell you is that that we're focused on on quality.
Quality credits and only for Onboarding quality quality clients and so we will we will certainly deal with with rate competition as needed.
And maybe to ask it a little bit like do you expect the.
The core loan yields excluding mortgage excluding mortgage.
Excluding mortgage hub.
Bottoms here they'll be pretty stable or is there more downside to come in the future.
I mean, it just it just depends on that you know it depends on the mix again as you know we we had pretty good we've had pretty good success for a couple of quarters getting floors on new deals, which certainly helps offset the the the reset from levels that we've had but but I fear from the front line.
No thats, becoming harder competitively so you know I.
I guess I would tell you, it's just going to depend it's going to depend on where the new where are the new deals come from and what competition does.
Okay and then then finally for me it was it's great to hear that you all got some success hiring just curious if you look at the Oregon.
Today, how does that compare to a year ago do you happen to have those numbers and if not is it higher or lower than a year ago.
Right.
Yeah, I think that I think the numbers are probably I don't have that in front of me, but I would say that the numbers are about the same because I think there was there there was some kind of a normal normal attrition as we as we've changed kind of our focus so I don't have it in front of me, but I would.
Hi, it's probably on the on the on the R&D side I would say, it's probably that flat.
Okay, great. Thanks for the color guys sales.
Okay. Thank you.
Our next our next question comes from Ebrahim Poonawala from Bank of America Merrill Lynch. Please go ahead.
Hi, good afternoon.
Good afternoon.
Just wanted to follow up on a few things one Judy on expenses so.
I guess fourth quarter, just to make sure I understand this correctly Oh I don't know your response to one of the audio questions. Your full year. The expenses for this year will be somewhere around 592 595 million based on how you've talked about it in the slide 14.
We should so as you'd expect when do you want to be lower than that 519, and clearly the fourth quarter on here, it's going to be something on 140 million am I thinking about this thesis correctly.
That's fair <unk>.
Right and in truth. The message of this be the beach would expect wont be expensed from or I'll be at a point, where you did what needed to be restructured and now we are more than double the managing cost slightly but at the same time investing so we shouldn't expect a lot more in terms of just outright got cut.
<unk> cost.
Yeah, I think Thats fair I would tell you that the support areas of the company. We are all very focused on remaining flat and continuing to find efficiency because we want to support the front line investments that we need to make so you know we're not going to it we're certainly not we have.
No plans to do anything anything drastic in the short term that would affect what we're trying to accomplish in the in the long term, but but yes, I think we're where we're focused on efficiencies and we're focused on maintaining and reducing all the support side to offset the investments that we need.
On the front line.
Got it.
I guess, it's moving to I think what you talked about deposit costs on the savings deposits at 40, Bips So transaction that 62 on the.
On the other side you booked $11 billion sitting in 10 basis points gosh, just remind us why that negative CAD makes sense why not shutting down some of that cash outside of what you want to be deployed into securities like how much more excess cash do you need and why not be more aggressive in bringing down costs to kind of follow up I I guess.
Yup cabin.
So again, what we're you know we're going to deploy some into securities and then I think what you see is the one to 2021, we absolutely will be will be focused on optimizing the funding side. So I would expect to see some of that as some of that come down.
Into 2021, I can't I can't tell you exactly what level, but yes, I would expect that to come I would expect a portion to be deployed into securities and we would expect some optimization happening on the funding side that we're already working on so I would expect that cash the actual cash to come down into 2021.
Got it and.
Just a last name domes, all fall Oh, I I guess also Larry in terms of.
Hiding that you're doing with you some of the responses that you give to the previous questions.
Is it what is your intent for that timing and also the new CEO that you're bringing on strategically is the idea to have someone then I'm, assuming it's an external candidates who the audience. The books of the franchise or just talked with them to Paul The board talked about who the candidate should be and what would the number one two or three priorities that you were looking for in depth.
Yes.
Sure. So look I'm not going to tell you who it is but [laughter].
When when do we know, we'll let you know, but Oh I think I've said before like were looking for somebody that that really understands this business suit can or look at the entire landscape of our markets and other markets determine which businesses we ought to.
Invest more in a invest less and looking for somebody with great leadership.
Talent and qualities were looking for somebody with a track record of execution of the of the strategy.
And so clearly the the candidates that we've seen all have those qualities and many more we went through a pretty exhaustive process with our search firm to to build a a succession planning process over the last 18 months or two.
Two years and now that it's time to execute on that we hit the ground running and so we we have.
We we had lots of criteria that we're looking at and the candidates that we've looked at a many of whom.
Many of whom have met all of those more so I'm really excited about it I'm I'm, a I'm happy to work with a with a new CEO for whatever period of time and either as executive or non executive chairman.
So you know me well as I've done by the end of the year and then we'll go from there and then then you'll know exactly what they look like.
All right well, thanks for taking my questions.
Right.
Our next question comes from Gary Tenner with D.A. Davidson. Please go ahead.
Thanks, Good afternoon.
Wanted to ask on the loan portfolio you gave in the slide deck, a pretty good kind of year over year.
Kind of walk through of the beginning balance to the September 30 balance I Wonder if you were look at that on a sequential quarter basis.
In terms of targeted reductions line utilization et cetera.
What the biggest deltas would have been on the 700 million or so sequential quarter change.
[noise], Oh, I mean, I don't know that there would have been I think the the line utilization has has come down more in the last quarter or two I don't know that it wouldn't be that different than have been kind of generally how this is I think the line utilization is probably the thing that would be.
Okay that would be more dramatic in the last quarter or two then over the year over year.
And then I would say the targeted reductions you know I would say those those were more weighted toward last year Q3 Q4 in the first part of the year.
Okay, let's help.
Yeah, I know it does I guess on the on the line utilization.
So the more recent thing item and of course, we've heard that from for most banks do you have a sense of how do you think we're at the bottom of all utilization at this point to where you know alley try loans might begin to stabilize here or do you think there is some additional deleveraging from your customers to come.
So I think yeah, I think it I think it is because I think we're starting to see some pick up in activity you know in in March we were all braced for line Utilizations to go through the roof and aren't picked up a little bit but not much and then they just continued to come down I don't know J.T.
You have any call me I can just add I mean, certainly I think where we're at the line utilization in the last 90 to 120 days is probably fluctuated offer off the baseline you know plus or minus 10% as well as where I was I won't give you what those numbers are but but it's it's been.
From from historical historical level levels, it's a plus or minus 10% within the last 90 to 120 days are starting that starting at the end of the first quarter.
Okay. Thank you and then just for kind of margin building purposes could give us.
The.
The effective yield for the PPP loans in the quarter.
It's I don't know what it is.
I don't know what it is is it.
Yeah, it's the standard two or 3% yeah.
Yeah, it's pretty definitely it's a pretty immaterial impact on our overall numbers based on that the amount of PPP loans that we have.
All right fair enough. Thank you.
Thanks.
Our next question comes from Brock Vandervliet with you'd be yes. Please go ahead.
Hi, Thanks for taking the question.
Hey profit on either.
I think I saw in one of your slides you mentioned.
3 billion of FHLB.
Borrowings coming due.
Pretty soon is that.
Plan B to just just pay those off as that part of the optimization on the funding side.
Correct.
Okay.
Most of it most of what we normally keep the FHLB is is overnight overnight on money and it is we get we get advances on our mortgage finance portfolio and so these were some if you remember I'm in the March timeframe, we did some extended maturity.
And so these will be it will just roll off.
Okay and.
And.
This come up on other calls as well I think a lot of assuming that you know the deposits.
Whether PPP or otherwise.
Did in the last couple of quarters kind of go.
Go the other way.
But more recently it seems like some bankers or are intimating that they may hang around longer.
Longer for it for any number of reasons, what's your what's your view on on your deposit flows and how much you may retain their Kevin any sense of that.
Yeah, So I don't and I don't know that P.P.P. I mean, yes, there were some into problems I don't know that that's been a that's been.
A meaningful driver one way or the other on our deposit I mean are they come from ours, our deposit growth has come from mainly from existing clients certainly in the <unk> on the in the mortgage industry with the with the volumes. They had there's been some growth you know that's a that's not an area of focus for us and so that certainly some of the growth is.
From that and then it's just kinda from other existing clients as we as we kind of refocused our efforts on treasury, calling.
On some of our existing client.
Okay.
And within the mortgage finance operation.
If you could just remind us are you in different regarding the.
The mix of refinance or purchase or is there a real difference in profitability too.
Yeah, there's no difference in the in the profitability I will tell you that that most of our our clients our print their purchase like we don't we their purchase but obviously they take advantage of the refinance market, but our clients are our people who are in the business all the time whether theres.
Refinanced sales or not but certainly they take advantage of that but yes, there's not any any difference in the pricing.
Okay, great. Thanks for the questions.
Right.
Our next question comes from Bill does alum of Titan Capital. Please go ahead.
Thank you I would like to also follow up on the mortgage loans, specifically the brokered loan fees.
Up by 50% versus the second quarter, that's seems a much larger than what we would've expected a high given that the second quarter also had a pretty high level of mortgage activity and maybe excluding the first month of that Oh that Q2 would you talk to.
Why you were so successful with at a 50% increase sequentially.
Yeah. So so bill those are those being flag those fees are paid at the end. So it will usually yes, though they were strong they were both strong quarters from volumes, but that would be the majority of those fees are paid at the end of paid at the at the end when the loan is paid off the line. So you can see those you can see.
Like some.
All right some of the some of the themes that were in the some of the fees that are in the third quarter. They would've been on volumes advances that we made in Q2 <unk>.
Understood. Thank you for the clarification.
Sure.
Our next question comes from Peter Winter with Wedbush Securities. Please go ahead.
Good afternoon, Hi.
Hey, Peter.
So I just want to pick on one line within expenses that Mark.
Marketing has come way down and it declined again in the third quarter can you just talk about what's happening.
What's happening in the marketing like.
Yeah. There if you remember a few quarters ago, we're talking about there were there were some deposit related there were some deposit related fees in there that were kind of variable with some of our index deposits. So as rates have come down and those those have come down as well.
I do think that.
This level is a good run rate then.
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Going forward.
Yeah I do I think this is a good run rate.
Oh, there's seven dish I mean, there's so much so so traditional marketing and business development and things like that but yeah. I think this is probably a good run rate.
Right that's all.
That's all I had thank you.
Thanks, Thank you.
This concludes our question and answer session I will turn the conference back over to President CEO, Larry home for closing remarks.
Great. Thank you very much appreciate everybody, calling in today and I'm like you have follow up questions, Julie or Jay for your and others will be.
Well over the next several nice so feel free to get in touch with us. Thanks again.
Thank you for your participation in T.C.B.I.'s Q3, 2020 earnings Conference call. Please direct requests for follow up questions to Julie Anderson at Julie Dot Anderson at Texas Capital Bank Dot Com you may now disconnect.
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