Q3 2020 Veritex Holdings Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin in a few minutes. Please remain on your line. Thank you.
[music].
Good day and welcome to the Veritex Holdings third quarter 2020 earnings conference call and webcast.
Participants will be in listen only mode.
Please note this event is being recorded.
I will now turn the conference over to Ms. Susan Collins.
Mr Relations Officer, and Secretary to the board of their checks holdings.
You may begin.
Thank you before we get started I would like to remind you that this presentation may include forward looking statements and those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ.
The company undertakes no obligation to publicly revise any forward looking statement.
At this time, if youre logged into our webcast. Please refer to our slide presentation, including our Safe Harbor statement beginning on slide two for.
For those of you joining us by phone. Please note that the safe Harbor statement and presentation are available on our website varitek space Dot com.
Comments made during today's call are subject to that Safe Harbor statement.
Some of the financial metrics discussed will be on a non-GAAP basis, which our management believes better reflects the underlying core operating performance business. Please see the reconciliation of all discuss non-GAAP measures in our filed 8-K earnings release.
Joining me today are Meltem Holland, our chairman and CEO, Terry Earley, our Chief Financial Officer, and claim review, our Chief Credit Officer.
Now I'll turn the call over to Nelson.
Thank you Susan good morning, everyone I hope, you're continuing to stay safe and healthy during these kind of crazy days. The pandemic continues to be a top of mind, but we're learning to deal with the new normal and still run our business in a profitable and efficient way we have seen our state continue the opening process in all areas of life.
We have only a handful of infections in our bag and we have slowly and methodically began the process of moving our employees back to our offices today, we still have approximately 48% of our staff still working remotely.
Third quarter was a very good quarter for various tax for the first time in six months, we feel we're seeing some clarity on our credit since the pandemic started.
And we are starting to see some positive movement in many areas of our business.
As has been our history, we will continue to be transparent with our results and granular with another deep dive this quarter into our at risk credit portfolios and related metrics.
For the quarter, we announced operating earnings of 22.9 million or 46 cents per share an increase of three cents over the previous quarter isn't.
This includes a provision of 10.1 million down from the previous quarter of 19 million our.
Our pretax pre provision continues to be one of our strongest metrics delivering 30.
39.3 million or 1.82% return on average assets for the quarter.
1.96.
For the year 2020.
Concerning our philosophy on the provision we continue to believe that Prudence would have a stake. It continued critical look at our quarterly provision.
Our analysts analysis has allowed us to continue to build our loan loss reserve to 2.1% of total loans, excluding PPP and mortgage warehouse.
From a growth standpoint, we continue to see new opportunities in both C. and I and the CRT space for the quarter, we saw annualized growth over Q2 of 4.4%, excluding mortgage warehouse and PPP.
Our mortgage warehouse continues to benefit from a very hot mortgage market growing at 103 million or 23% linked quarter.
Our pipelines are continuing to build as businesses in Texas are becoming more confident in the economic conditions and we look for some added growth in the fourth quarter.
We classify prospects in our pipeline into three categories based on their progress term sheet underwriting and approved.
We also track for DAC projected pay offs.
Our analysts analysis for mid July to mid October 90 days show significant increases.
Through loans are up 156%.
Loans and underwriting are up 135% term sheets are up 120% our projected pay offs are up 53%.
Obviously, all these opportunity deal did not turn into loans, but does that give you an idea that things are starting to turn more positive.
Now for just a few high level comments on credit during.
During the call during the quarter, we did see or Npis increase from <unk>, 0.62% to 1.11 at the same time, we saw our past due numbers return to lower than pre brand demick levels, and a big decline and deferrals, which currently stand at 2.3% of total loans Mitch.
Our jobs were still somewhat muted during the quarter, but as we expect some further migration, we anticipate charge offs moving higher in Q4 and the first half of two.
2021.
I will give you some specifics credit in a moment now during the call over to Terry for our financial update.
Thank you Malcolm and good morning, everybody I want to spend a few minutes on the Q3 financial results and then cover capital and liquidity.
Page seven you'll see multiple graphs first is our quarterly trend and EPS given the rate environment and the continued build of or a triple. We're excited to report 46 cents per diluted share and surpassed consensus expectations below that you will see the return on average tangible common equity other than Q1 2020.
We had a significant build in a triple will to deal with the pandemic, we have generated very strong operating returns, including 13.3% in Q3.
The return on average assets and pre tax pre provision return on average assets trend isn't the top middle graph bare, Texas liberte robust pre tax pre provision operating return on average assets for the last six quarters in Q3, it was 1.82% and has come down given lower market interest rates, but remains one of the.
Greatest strengths of our economy second below that is the operating efficiency ratio, which shows that we have been at or below 48% over the last five quarters, while adding significant talent to the company.
The slow efficiency ratio achieved through our branch Lite business model is the key to maintaining our strong pretax pre provision earnings.
Tangible book value continues to grow organically and now sits just over $15 at 15 19.
On to slide eight net interest income was essentially flat from Q2 to Q3, that's $66 million. The GAAP net interest margin expanded one basis point to 3.32% in Q3.
Lower loan yields negatively impacted the NIM by 14 basis point remember that our loan portfolios two thirds floating in the primary index is one month LIBOR floor.
Efforts to reprice deposits contributed nine basis points to the NIM.
We believe there are additional opportunities to continue to drive deposit rates lower.
The Q3 resolution of our largest PCD lawn, including the forgiveness of substantial accrued interest.
Negatively impacted the NIM by four basis points. This was offset by higher purchase accounting adjustments of three basis points.
Also worthy of note in Q3, our loan production carried a weighted average rate of just over 4% at 4.06, and our Q3 interest bearing deposit production is right around 30 basis points.
Next there are two primary factors, which should help the NIM to improve in Q4 2020 and beyond first we have 1.2 billion and CD maturities over the next four quarters.
These mature at a rate of 1.29% and should be renewed at a rate of about 30 basis points second the forgiveness of PPP lines and the redeployment of this asset and the higher yielding asset classes.
For Q3, the pp portal PPP portfolio represented a 12 basis point drag on the NIM.
Proximately, 25% of the outstanding PPP lines have submitted applications for forgiveness. Another 20% is under 150000 and loan size and is eligible for blanket forgiveness. The remaining 55% will likely stretch into 2021.
Moving on to slide nine and deposits.
Maritechs had another strong quarter on the deposit front, the transactional deposits grew $120 million rubber 10% annualized.
The mix of the deposit portfolio has improved significantly since the beginning of 2019 and noninterest bearing deposits are at 31% of total deposits and reliance on time deposits has dropped to just under 24% in the.
The graph in the bottom left of the page shows the trend in quarterly deposit cost.
Average cost of total deposits declined by 30, Bips and now sits at 46 basis points.
Looking past the third quarter the table in the bottom right corner of the page shows the Tom departure time deposit repricing opportunity that by quarter that I mentioned earlier.
On slide 10, another strong noninterest income quarter with $9.8 million in revenue. This result was led by our government guaranteed business, excluding PPP fees, which we recognized in Q2. This was the strongest quarter for that line of business. Since Q1 2019 production is up pipeline.
These are stronger and gain on sale premiums have increased substantially since rates. We also dramatically in Q1.
We also had improved quarters, and treasury management fees and mortgage origination fees expense.
Expenses on the graph on the far right side of the page were down in Q3 and very much in line with management expectations.
Now on to slide 11, which focuses on our allowance for credit losses. This slide lays out the impact from Cecil on each loan pool for Q2, and Q3 forecast of Texas, unemployment and GDP or the key economic inputs into our Cecil model and are supplied by Moodys.
Focusing on the column labeled September 32020, the improving economic outlook, coupled with waiting of the forecasted scenarios combine to positively impact our allowance for credit losses on pooled loans to the tune of almost $3 million.
We increased our specific reserves on non accrual loans, the 18.9 million or reserve level of approximately 21%.
It will go into additional depth on the Npls in a minute. Additionally, our reserves for PCD loans declined 4.1 million driven by the resolution of an approximately 14 million.
Lending relationship. This resolution came in better than their specific reserves to be in the range of 450 to $500000. Even after the forgiveness of interest that was previously discussed while npis were up during the quarter. It was nice to see such a large P.C. Dillon resolution with favorable economics.
As in prior quarters. In addition to the loss history and the economic forecast. We also added in qualitative factors that increased their final lounge.
38 basis points up to 210.
Additionally, we still have $18 million of loan interest rate marks on the balance sheet from the Green acquisition. This translates into 31 basis points of additional cushion on the inquired portions of our portfolio.
On to slide 13 capital ratios at the holding company and bank started the quarter from a strong position and were generally steady on a quarter over quarter basis. The exception is the leverage ratio, which grew about 30 basis points tier one capital increased almost 21 million and total capital increased over 25 million we declare.
At our regular quarterly dividend of 17 cents per share or 37% payout ratio after consent after considering the risk profile of the balance sheet and the potential loss content in the loan portfolio also.
Also we're acknowledging our intent to resume our share buyback, we have $31 million remaining on the prior authorization and that now expires March 30, Onest 2021 fine.
Finally, subsequent to the quarter end Veritex issued a 125 million and subordinated debt with a fixed interest rate of 408 for the first five years. This will add 130 basis points to our total capital ratio slide.
Slide 14 shows that liquidity remains very stable and robust with that I'd like to turn the call over to clay.
Discussion on credit.
Thank you Terry and good morning, everyone I'd like to begin my comments on page 17 of the deck that highlights the status of deferrals in our loan portfolio.
As Malcolm mentioned deferrals have dropped from a peak of 20.9% of the portfolio to 2.3% as of October 22nd.
As you would expect the majority of our remaining deferrals or in the hospitality portfolio with the rest spread fairly evenly across the book.
The reduction in deferrals combined with the reduction in past due credits are positive indicators for future credit migration in my view.
The third quarter saw a migration of 43 million in credit to mph status through our continued survey surveillance of the loan book.
Page 18 in the deck highlights the 10 largest mph, which we have in the book, which make up 80% of total npis.
Our goal here is to provide some granularity so that you get a flavor for low.
Status.
I'd like to cover the cop three loan relationships with some additional color.
Our largest NPK is to real estate secured childcare centers.
This relationships have been in mph status since fourth quarter of 19, when the loans exceeded 90 days past due from the bankruptcy of the former tenant.
The bar were spent the last nine months obtaining control of the collateral property from the former tenant through a bankruptcy court and replacing the tenant with a new child care Center operator.
That was accomplished in the third quarter and the loan was restructured with the addition of the new tenant we expect this loan to continue to perform but as a TDR.
The second loan relationship as a three building office project. The project was on track until Cobot hit and they lost several tenants, which reduced cash flow to the point that the property could not surface that.
A major lease to achieve say 10 has been executed and the T. out work is being done with expected occupancy for this tenant to occur in the first quarter of 2001.
This is a game changer for the project and will allow the project to be liquidated and 21 with no expected loss of the bank given the current LTV of 76% from an appraisal completed this summer.
The third relationship is a scene our relationship that provides wholesale parts to contractors and the refining and midstream sectors.
Revenues as a company have decreased significantly since the company was acquired in 2018.
Although the company was current on payments as quarter end.
All indications are that the company will not be able to continue service this debt and their questions as to the viability as a going concern it's.
It's important to note the 46% of all Npis were not past due at quarter end.
Page 19 provides a summary of the third quarter pandemic portfolio review as well as the second quarter risk rating projects summary.
We did a very deep dive on the portfolio in Q2 that covered 55% of the loan book focused on relationships and high risk industries loans, receiving deferrals and relationships receiving PPP loans.
We carried on that work in the third quarter with the review of relationships that had received a new referral.
Around two.
Ed changed in risk rating between March 31st and August Thirtyth.
I was in the C store business or a busted, a covenant or borrowing base recently.
Our third quarter risk rating review covered $1.9 billion or 15.9% of the committed book.
We have credits moving both ways as you would expect with actually more credits being upgraded and downgraded during the process.
Less than 1% of total commitments were downgraded to a criticized risk rating as a result of the effort with downgrades evenly split split between special mention and substandard.
We will continue to make credit surveillance, our main priority as we manage the loan book.
We've been encouraged by our discussions with our regulatory agencies as we reviewed our risk rating efforts in our recent visit.
Our high risk portfolios are highlighted starting with hospitality on pages 20, and 21 of the debt.
Page 21 should be a familiar page from last quarter hospitality loans affirmative dropped from 59% at 724, 20% to 20% as of October 22nd.
Criticized assets and hospitality book have gone up from 34.7% to 38.6% of the book as we continue to evaluate the performance of individual properties.
Moving on to page 21, you will see a summary of the top 10 loan balances in the hospitality book, which makes up 51% of our current outstandings.
To the loans are construction loans for properties that have not opened yet.
Revenues for the top eight properties have increased 124% in the third quarter over the second quarter average occupancy for the properties rose to 55% as of September up from 43% as of June.
Seven of the 10 properties did not receive around to differ.
Our special assets team is closely monitoring the performance of these assets, which has for the most part continued to recover as travel restrictions and travel hesitancy have loosened.
Moving onto retail Cree, which is on page 22.
Deferrals have dropped to 3% of the book from 52% of the book as of Q2.
There's one loan that makes up the majority of our past due non accruals in this space the loan in the amount of 3.4 million a secured by 530000 square foot property in Marietta, Georgia.
That is struggling from an occupancy standpoint, but as more than sufficient value to secure.
The significant reduction in loans on deferral, when combined with limited deterioration in credit metrics in this portfolio make me feel comfortable with the prospects of this portfolio continued to perform.
Page 23 highlights the restaurant portfolio, the criticized and past due portions of this book are almost exclusively in the SP. A portfolio that are typically made up of new concept startup restaurants that had been hard hit from the occupancy restrictions during this pandemic.
Deferments or minimal at this point given the payment support provided by the SP a non SP a portion of this book continues to perform well.
I will turn it back over to Malcolm for closing remarks. Thanks Clay as you can see our clarity and conviction on our credit is becoming clearer and clearer I feel like our executive leadership team is really jelling in our prospects for growth are exciting.
Although not completed until after the quarter close we're super excited by recent sub debt raise of 125 million at a rate of four and an eighth.
Taking this up who many tier two capital gives us additional capital stability and flexibility as we evaluate our options for growth opportunities, both organic and M&A. It also keeps our real estate concentration levels, well below or below regulatory guidelines and it provides additional flexibility.
And our stock buyback analysis.
As most of you would probably agree Covidien has taught us that scale is becoming more and more important.
Being able to spread our expense on a larger asset base only make sense not to mention our focus on building and maintaining a positive operating leverage.
It's certainly been a challenging seven months, but in the midst of challenges opportunity and that is where we are to look at it.
When the situation does turn back positive we want to be prepared and fully equipped to serve the needs of our markets.
Jesse I now open the line for any questions.
Thank you presenters participants we will now begin the question and answer session.
To ask a question over the phone. Please press star one from your telephone keypad.
Otherwise please press the pound key to withdraw your request.
Our first question is from the line of Michael Rose from Raymond James Sir Your line is now open.
Hey, good morning, guys how are you.
Good Hey, Michael.
Hey, maybe we could just start on the buyback.
Good to see that you guys extended it.
Quarter. It does seem based on the language that you guys are probably going to be active and use the rest of it you obviously raised some more sub debt above the the remaining authorization, what's what's the appetite for for share repurchases beyond the current authorization and would you expect to be active but with the stock at these levels.
She finished up program.
Michael It's a great question.
Obviously, it was important to extend the deadline.
Al for quarter on the current authorization as you said just to give us time.
I think we will you know I think if it depends on valuation if you know and if capital and credit behave as we think they will and if the equity prices are weak then certainly something we would consider we certainly wouldn't rule it out today, but I wouldn't say we're necessarily.
Ready Ted I think it depends on strategic things that could come up.
But it's there we have I think we're in a place where we have the most flexibility and I think that's what we really want heading into 2021 with the proceeds from the sub debt and thinking about organic growth strategic growth credit and buybacks and they're all very much in the mix.
So you know we've been active over 19 and the early part of 20.
And we believe it's the buyback is an important tool to manage capital to optimize the capital stack and to help enhance earnings per share. So.
And let me just add one other thing it's not a huge number as you know you know it's $31 million. So.
We can move the needle a little bit.
But Terry is right, we got to evaluate a whole bunch of different potential opportunities and then make sure credit and capital stay in good stead, which they are.
But I would I would guess that you'll see us do a little bit out of it but again, it's not a big number. So it's you can't move the needle a whole lives.
Yes completely understand thanks for the color.
Moving on you know that.
The next thing I wanted to kind of address was you know another deep dive in the portfolio this quarter little bit smaller in terms of.
The dollar amount of credits that you covered but we did see the the increase in MPS is despite the other credit metrics.
Moving in the right direction.
The way to read that you guys are trying to get ahead of the curve and maybe getting ahead on some properties and property types and credits that.
Could face some issues some greater issues. If we do go into more of a lockdown scenarios, if koby cases pick up and.
With the expectation that we could see a lot of properties, you're going to hit the market in the earlier part of next year is this your guys' effort best effort to try and get ahead of this is that the way we should read it. Thanks.
Yes, I mean, our efforts since day one of this thing back in late March when it started was okay, let's let's be as a conservative as we can.
It's all about capital preservation, and and that's been our philosophy since the start and.
You know I think what you see in the M.D.A. movement is.
Our effort to be.
As conservative as possible. The one thing Clay said that you may not have picked up on is 46% of those npis were current at the end of the quarter.
Usually find a current loan in a nonperforming category.
But we feel like that right now prudence would have us.
Just to be Super Super Conservative and so.
You mentioned something about a second closure and I know the cases are getting higher you know that.
That would be a game changer for all of US if everything gets shut down again, we don't see that in Texas, but then again, we don't we don't control all of that so.
No I don't think that we as management are ex egg supply.
Surprised by any of this move in fact this is kind of what we had anticipated.
Okay and then maybe finally for me that you know the warehouse has been pretty strong can you talk about some of the trends there and it does seem like the MBS.
Origination data at least this is fairly strong in severe party next year should we expect.
Average balances to kind of hover around these levels. Thanks.
Yes, I think this is the.
Fair assessment of where we think we should keep our balances.
I mean, we're seeing a lot of opportunities.
Amy said ski he's been with us about a year and a half has done a great job in leading that business and in our view. It's got some of the best risk adjusted spreads right now that you can see the turn times are great and.
The market for production that you know and that the mortgage world is so strong let's take advantage of this and we don't want to let it get outsized, but right now we like what we see and not opposed to let that drift up a little or stay steady.
It's just it's good place to park liquidity.
Thanks for taking my questions.
Thanks, Mike.
Our next question is from the line of Mr., Brad Milsaps of Piper Sampson, Sir Your line is now open.
Hey, good morning, guys.
Hey, Brad.
Just to follow up on Michael's question regarding the.
The loan review loan reviews, I guess, just I know, it's probably hard to make this a blanket statement, but just kind of curious sort of what you mentioned there are more upgrades and downgrades you know what we're sort of criteria you know to see an upgrade versus.
Versus the downgrade I know that might be tough given all the different categories, but just getting back to the point of maybe how how stringent you are kind of as you walk through this.
Sure. Thanks, Brad for the question yes.
Yes, so the criteria that we use is really just based upon how we expected the bar were to be performing and it was done you know with any.
Our views not only with the lending managers, but with the the lenders themselves on specific credits and so we looked at whether or not the the bar worst performing as we expected or.
You know not and so.
And another thing that I think is important to note that the upgrades we.
Came in some instances for credits that we had downgraded in the first quarter based upon industry types and so as we looked at those credits that had been automatically downgraded because they were in the at risk industry and we looked at the performance and saw well they are actually performing.
Fine through this we upgraded and so that's where a lot of the upgrades came from.
Okay, Great and then if I'm looking at.
Slide the slide you disclosed around the allowance this quarter I guess.
If there are no more.
More a lot more negative migration, where you need specific reserves.
One could assume that you know your provisioning you are most significant provisioning is it's pretty well behind you at this point, if not could be pretty minimal if not zero or negative is that is that a fair assessment.
Yeah, I mean, that's how we got to think it's a high watermark on the reserve side today.
Obviously, there's a lot of unknowns.
Things that could happen, but yes, I think you're thinking the way were thinking.
Okay, and then just one final follow up for Terry I appreciate all the color around.
New loan yields and I.
Deposits you.
You guys have done a great job of holding that the yield on the bond portfolio fairly flat for.
It looks like basically four consecutive quarters can you talk a little bit about you know kind of what we should be seeing there.
Is there some risk that we do see a reset lower there or base.
Based on the duration you have and some of the some of the mix do you feel like you can continue to hang on to that.
Well it has performed very well and that to appreciate the question.
Well and his team have done a.
Excellent job in getting the portfolio positioned.
For down market for down rates.
Sometimes it's just good to be Lucky and we we were positioning for down rates, but had no idea.
That they would fall off in the end we started that process.
In the second quarter of 19, and so what the what the bed not only have we got a good yield but the amount of cash flow coming off the portfolio is substantially less than you would expect and the convexity in the portfolio is is flat to positive so it's going to trend lower.
That's just because of the pay offs in the reinvestment rates, but I don't think you I think it's going to be a bright spot for us continuing pretty well as I look forward into the rest of this year and next year.
And so you know, but it's definitely going to it's going to trend up a little bit Brad, but it's not I'm not we don't have huge premium risk, we don't have huge prepayment risk.
And so I think it's going to continue to perform well for us.
Great Terry that's helpful. I appreciate it.
No.
Our next question is from the line of Matt Olney of Stephens. Sir Your line is now open.
Hey, Thanks, good morning, guys.
Hey, there thanks, I want to go back to slide.
18, and those 10 largest NPL.
I appreciate the break down that that's that's very helpful. I didn't see any any hotels within this top 10 list and it sounds like it's just too early to see the migration still lots of standing.
Stimulus money out there can you talk more about the timing of when any potential migration of hotels could occur beyond kind of where the current loan grades are thanks.
Yes, I think you're right. It is a little bit early with the deferrals that had been going on.
But you know we're we're not seeing many on second deferrals as you can see there.
In our in our deck and as those wind down then we're going to naturally see some some winners and losers.
And that emerge and we'll call those out as we see.
Yes.
The hotels are just improving the performance I mean, you guys were all over it and their performance is just trending the right way and some of these occupancy levels or even cap based on.
Based on percentage occupancy the government said.
Gold that's allowed so sure yes.
Okay I appreciate that and then circling back on on the mortgage warehouse. It sounds like you expect some of the strength to maintain any commentary on on how much. This is from just current customer base, which is higher volumes versus adding.
Newer customers from just dislocation.
Yes, I mean really we kind of a revamp of our customer base over last year NASA thing. He was here and we've upgraded client just the credit quality of our clients. We've also increased our usage capacity on the lines that we do have.
And.
Candidly that you have a market to little fragmented right now down year for for a bunch of different reasons and we've been able to obtain some really really high quality.
Clients and so not only is our book bigger, but it's stronger in the usage is better that turn times, our way quicker. So I mean that just positive positive positive not dimension.
The return on this book is is is good as we've ever seen it.
Okay. Thank you guys.
Thanks, Matt.
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Our next question is from the line of Woody Lee from KBW. Your line is now open.
Hey, good morning, guys.
Yes.
Wanted to touch on the loan growth Ron.
Excluding any impact of PPP and the mortgage warehouse you sort of noted that the pipelines are getting stronger into the fourth quarter do you think it.
Reasonable to expect loan growth to occur in the fourth in the fourth quarter.
Yes, yes, I think it will be positive.
You know, it's the obviously the pipelines are there.
Clear forecast or the future.
You know the the one you can't it's hard to harder to forecast is the payoff side, but you know we've talked long and hard you know with our portfolio at 6 billion. Just round numbers you know, we're going to pay off 25% to 30% of that every year, we got about a four year life.
Book, and so you got to do a fair amount of new business to keep up with those pay off but it looks right now like the fourth quarter or be a another positive quarter, we were very pleased with 4.4%.
Annualized last quarter and.
I hope to do that in the fourth quarter, but things are better.
Got it that's helpful.
And then I appreciate the breakout on slide 21 of the top 10 hospitality relationship. So I was just curious about what sort of surprising to see that two hotels with 30% occupancy rates not on deferral at lease round to deferrals that is do you think in the hotel portfolio. There's a chance, we see deferrals increased and that and that portfolio.
Yes.
We may see some additional debt.
Deferrals I don't think its going to be wide spread.
But we.
We may see some additional overall as Terry pointed out we feel like the trends are that all of these properties are trending in the right direction and.
Pretty good overall about the performance.
But all of that is that really going to be dependent upon you know travel hesitancy and business travel as it returns.
And just speaking to that third one, though that's got a really strong strong ownership base with massive massive deep pockets.
So capital calls for those guys are no brainers just specific to number three.
Got it that's helpful. All right. That's all for me thanks, guys. Thank.
Thank you ma'am.
Yes.
Our next question is from the line of Gary Tenner of D.A. Davidson. Your line is now open.
Thanks, guys good morning.
A couple of questions I guess first on loan growth for the quarter.
The commercial segment, obviously drove a good bit of that growth separate for mortgage warehouse.
Just wondering where are you seeing that show itself and you know new.
New business or.
Some level of utilization rates that would drop we saw in the second quarter.
You know most of its new business.
Not necessarily new clients, although I will tell you our Houston market is activity is picking up new clients.
Quite a bit but dates it's a new business Gary the either the utilization is really.
I'm going to guess now, but it's probably it's down from I mean people pay back their lives.
A lot in the second and third quarters, but it's we see a lot of business I mean, our loan committees are pretty dark hole.
Okay. Thank you.
And then in terms of just just to clarify the government guaranteed loan income in the quarter to two point.
3 million, that's it that's pretty exclusively SP, a gain on sale for the quarter nothing related to the to the valuation allowance related to the PPP.
They would have been a little bit of the PPP Trail. If you will that said there, but that's sub.
10% at most somewhere in that range. So it's really driven by we did it's not like we brought in all the valuation allowance to show that income Trust me. We did not we just had a really good quarter selling.
You asked you asked the SP a seven day on seven April it's brought predominantly 25 year real estate secured and so that's where we're really focusing that business and again gain on sale premiums are good and we just we had a we had a really good quarter and hopefully that momentum is going to continue.
Okay, Great and then just one last question for me I think you mentioned in a restaurant portfolio.
Support that a lot of those esperion lunch have gotten over the last six six months yes.
Okay payments now expired.
You know.
What are your thoughts about that kind of the residual risk in that portfolio.
Yes, so once those has expired.
Gary that we are considering deferrals on those that the SP is.
Is a proponent of working with these borrowers to provide them every opportunity to to succeed and so we'll be considering some some deferrals in that SBH book and.
As as those deferrals play out there.
Business returns, we'll see how they they migrate going forward, but that that's what you can expect in that.
Thank you.
Thanks Barry.
Again participants its star one to ask a question over the phone or the pound key to withdraw your request.
Yes.
Yes.
Looks like they're out of questions Jesse.
Yes.
No further questions on queue speakers.
Great.
I appreciate it very much.
And anybody any specific questions. They are more than welcome to contact us directly thanks have a good day.
Thank you speakers that concludes today's conference.
Thank you all for participating.
You may now disconnect.
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