Q3 2024 Veritex Holdings Inc Earnings Call
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Operator: Good morning and welcome to the Veritex Holdings 3rd quarter 2020 for earnings conference on webcast. All participants will be in the listen-only moment. Please note, this event will be recorded.
Speaker Change: Good morning, and welcome to the vertex Holdings third quarter 2024 earnings conference call and webcast all participants will be in listen only mode.
Speaker Change: Please note. This event will be recorded I will now turn the call back over to Bill Boor for Pittsburgh types.
Will Holford: I'll now turn the conference over to Will Forford with Veritex. Thank you.
Will Holford: Before we get started, I'd like to remind you that this presentation may include forward-looking statements, and those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any board-looking statement. If you're logged into our webcast, please refer to the slide presentation in our safe harbor statement beginning on slide 2.
Bill Boor: Thank you before we get started I'd like to remind you that this presentation may include forward looking statements and those statements are subject to risks and uncertainties that could cause actual.
Speaker Change: The results to differ.
Speaker Change: Company undertakes no obligation to publicly revise any forward looking statements.
Bill Boor: Locked into our webcast. Please refer to slide presentation, and our safe Harbor statement beginning on slide two.
Will Holford: For those on the phone, please note that the safe harbor statement and presentation are available on our website, VeritexBank.com. All comments made today are subject to that safe harbor statement.
Bill Boor: Please note the safe Harbor statements and presentation are available on our website <unk> com.
All comments made today are subject to that safe Harbor statement.
Will Holford: Some financial metrics discussed will be on a non-GAAP basis, which may at least be better, requesting underlying poor operating performance of the business. Please see the rectification of all discussed non-GAAP measures in our file of 8-K or an extra lease.
Bill Boor: Financial metrics discussed will be on a non-GAAP basis, which means at least better reflects the underlying core operating performance of the business.
Bill Boor: Please see the reconciliation of all discussed non-GAAP measures in our filed 8-K earnings release, joining me today are Malcolm Holland, our chairman and CEO, Terry Earley, our Chief Financial Officer, and Curtis Anderson, Our Chief Credit Officer, I'll now turn the call over to Marcus.
Will Holford: Joining me today are Malcolm Paul and our Chairman and CEO, Terry Earlier, Chief Financial Officer, and Curtis Anderson, our Chief Credit Officer.
Malcolm Paul: I'll now turn the call over to Malcolm. Thank you, Will.
Malcolm Paul: Good morning, everyone. And welcome to our third quarter earnings call. We review our third quarter highlights as well as discuss the balance sheet transformation that's taken place over the past two years. To accomplish these needed changes on the balance sheet, it's taken a conviction and focus of our executive team and, candidly, our entire company. For the corner reported operating earnings at 32.2 million dollars or 59 cents per share, pre-tax pre-provision earnings were 44.6 million or 1.38 percent. Then continues to increase slightly while capitals growing the C21 now of 1086. Increased profitability and efficiency is our primary priority in goal as we're dedicated to move our 1% ROA higher.
Marcus: Thank you will good morning, everyone and welcome to our third quarter earnings call. We will review, our third quarter highlights as well as discuss the balance sheet transformation. That's taken place there was a lot over the past two years.
Marcus: To accomplish these needed changes on the balance sheet, it's taken a conviction and focus of our executive team candidly.
Marcus: Entire company.
Marcus: For the quarter reported operating earnings of $32.2 million 59 per share pre tax pre provision earnings were $44 6 million or 138%.
Marcus: <unk> continues to increase slightly while capital is growing the seat you want about 10 86 inch.
Marcus: Increased profitability and efficiency as our primary priority and goal.
Marcus: We're dedicated to move about 1% or higher.
Malcolm Paul: Our balance sheet continues to get stronger through our focused efforts on deposit gathering and client-read selection that are full relationships and not just transactions. For the quarter, deposits group 311 million or 11.6 percent annualized, proving our strategy to grow an attractively priced deposit funding sources. Terry's going to detail for you what we call a desirable non-disarmable cost deposit shortly that'll give you some insight on the source of these deposits. On the loan side, we're still experiencing some large payoffs, which has kept our loan growth down, resulting in a decrease of over a quarter of 126 million.
Marcus: Our balance sheet continues to get stronger through our focused efforts on deposit gathering.
Marcus: I agree selection that are full relationships not just transactions for the quarter deposits grew $311 million or 11, 6% annualized proving out our strategy to grow and attractively priced deposit funding sources Terry is going to detail for you what we can what we call desirable.
Marcus: Non deductible cost deposits shortly that'll give you some insight on the source of these deposits.
Marcus: On the loan side, we are still experiencing some large payoffs, which has kept our long growth down resulting in a decrease quarter over quarter to $126 million I would also like to mention our CRE concentration ratios are virtually back in line and our 300 100 buckets and we will continue to manage these.
Malcolm Paul: I would also like to mention our CRE concentration ratios are virtually back in line on our 300 100 buckets, and we will continue to manage these below 300 and 100 going forward.
Marcus: Below 301 hundred going forward.
Malcolm Paul: Moving to credit, couple of highlights. Curtis and his team remain committed to a top-tier credit bank. We're not where we want to be yet, but we continue to make huge strides toward that goal. Third quarter results reflect our ongoing drive to address credit issues, issues as quickly as possible, and to achieve final resolutions. Criticized soils were lower for the quarter, primarily reflecting the impact of payoffs. While the bank had a number of restructuring that improved risk profiles during the quarter, the bank realized 80 million crooks and payoffs. O'Reilly O'Negrees from 24 May, at 9 May, and primarily from the successful sale, and closing the student housing property, without loss to the bank.
Marcus: Moving to correct a couple of the highlights.
Marcus: And his team remain committed to a top tier credit bank.
Marcus: We're not where we wanted to be yet, but we continue to make huge strides towards that goal third quarter results reflect our ongoing drive to address credit issues issues as quickly as possible and to achieve final resolutions criticized totals were lower for the quarter, primarily reflecting the impact of chaos, while the bank.
Marcus: And a number of restructurings that improved the risk profiles during the quarter. The bank grew by eight.
Marcus: Criticized payoff and Paydowns.
Marcus: Oreo decreased $24 million to 9 billion, primarily from the successful sale and close at a student housing property without loss to the bank.
Malcolm Paul: This sale was also the driver to a reduction earned the NTA, from 83 May into 67 May, and now down to 0.52% of assets. Charge loss were nominal at 269,000, and 1.6 May in charge of a long-standing credit problem was all set by 2 May and in recoveries. Task duties including non-accurals for flat to second quarter as a percentage of total loans at 0.8% and down mainly, with 1.5% in here in. We continue to build our credit loss reserve, now at 1.21% of total loans, or 1.3% excluding mortgage warehouse. Our credit team's efforts and early surveillance and priority to move undesirable loans out is producing some nice results.
This sale was also the driver to a reduction or an NPA is from 83 billion to $67 million now down to five 2% of assets.
Marcus: Charge offs were nominal at 269000.
Marcus: One 6 million charge offs, our longstanding credit problem was offset by $2 million.
Marcus: And recoveries.
Marcus: As students, including non accruals were flat the second quarter as a percentage of total loans at 48%.
Marcus: Easily one 5% at year end.
Marcus: We continue to build our credit loss reserve now at one 1% to 1% of total loans or one 3% excluding mortgage warehouse our credit teams efforts in early survey and priority to move undesirable loans out is producing some nice results more work to do but encouraged by positive.
Malcolm Paul: More work to do with courage by thousands of trends.
Terry Earley: I'll not turn it over to Terry Persian comments. Thank you, Malcolm. When I look at the results for the third quarter, I'm encouraged. The space took out the position of the balance sheet, the credit trends, and 7.2% revenue growth, quarter of a quarter, including the expansion. Starting on page 7, the allowance now sits down to 21 vacant points, up significantly in the last six quarters, and we've increased the reserve by almost 19% or $19 million. Additionally, when you exclude the mortgage warehouse, the ACL coverage rises to 130 basis points, and general reserves comprise 97% of the total allowance.
Terry Earley: I'll now turn it over to Terry for some comments. Thank you Malcolm when I look at the results for the third quarter I'm encouraged especially about the position of the balance sheet the credit trends at seven 2% revenue growth quarter over quarter, including NIM expansion starting on page seven the allowance now sits at 121 base.
Points up significantly in the last six quarters, and we've increased the reserve by almost 19% or $19 million. Additionally, when you exclude the mortgage warehouse. The ACL coverage rises to 130 basis points of general reserves comprise 97% of the total allowance we continue to use a concern.
Terry Earley: We continue to use conservative economic assumptions in the space of modeling, with 75% of the weighting on downside scenarios. This seems appropriate given the level of economic uncertainty, election uncertainty, and global geopolitical risk. Moving to page 8, over the last six quarters total capitals grown approximately $132 million on the loan portfolio, excluding more work mortgage warehouse, as declined by just over 200 million. A clear indication that the balance sheet is in a better position and more resilient. The CET 1 ratio expanded by 37 basis points during the quarter, and by 75 basis points year over year, and now stands at 10.86%.
Terry Earley: But if economic assumptions in the seasonal modeling with 75% of the waiting on downside scenarios. This seems appropriate given the level of economic uncertainty election uncertainty and global geopolitical risk.
Terry Earley: Moving to page eight over the last six quarters Southern capital has grown approximately $132 million, while the loan portfolio. Excluding mortgage warehouse is declined by just over $200 million.
Terry Earley: Clear indication that the balance sheet is better positioned and more resilient. The CET one ratio expanded by 37 basis points during the quarter and by 75 basis points year over year and now stands at 10.86% a significant contributor to the expansion in the capital ratios has been a 400.
Terry Earley: A significant contributor to the expansion in the capital ratios has been a $450 million decline in risk-weighted assets over this six-quarter period. Tangible book value for share increased to $21.72. That's a 15.8% increase on a year-over-year basis, including the shareholder dividends. It's worth noting that since Veritex with public in 2014, it's compounded tangible book value for share at a rate of 11.1%. Inclusive, including the dividends, it's been paid to shareholders. Finally, Veritex only repurchased 2,000 shares during the quarter as a trading valuation improved from 102% of tangible book at the beginning of the quarter to 128% of tangible book at the end of the quarter.
Terry Earley: Third $50 million decline in risk weighted assets over this six quarter period.
Terry Earley: Tangible book value per share increased to $21, 72%.
Terry Earley: Eight 8% increase on a year over year basis, including the shareholder dividends, it's worth noting that since <unk> went public in 2014, its compound tangible book value per share at a rate of 11, 1% included including the dividend that's been paid to shareholders.
Terry Earley: I think very takes only repurchased 2000 shares during the quarter as the trading valuation improved from 102% of tangible book at the beginning of the quarter to 128% of tangible book at the end of the quarter, we have 93% of the authorization remaining and it tended to be opportunistic and to choose if the values.
Terry Earley: We have 93% of the authorization remaining, and it tend to be opportunistic, and it's used if the valuation shows significant width. On the page 9, our strong deposit growth and discipline loan growth allow Veritex to reduce its loan to deposit ratio from almost 95% a year ago to 88% at 9.30.24. We intend to remain below 9% going forward. Please note that the loan to deposit ratio would have been just 182% if you exclude mortgage warehouse. This seems to be the more relevant metric you consider the short amount of time. More can just stay on the warehouse lines.
Terry Earley: <unk> showed significant weakness on the <unk>.
Terry Earley: Page nine our strong deposit growth and disciplined loan growth allow vertex to reduce its loan to deposit ratio from almost 95% a year ago to 88% and $30 24, we intend to remain below 90% going forward. Please note the loan to deposit ratio would have been just under 82%.
Terry Earley: If you exclude mortgage warehouse.
Terry Earley: Some will be the more relevant metric you considered the short amount of time mortgages stay on the warehouse lines.
Terry Earley: As you can see in the bottom left graph, we've kept the time deposit portfolio short and have 2.6 billion in seeding maturities over the next two quarters with an average rate of 5.14%. We're certainly glad to have this maturity profile, given the potential for three to four credit cards over the next six months. On the bottom right, we showed them monthly calls to deposit. Now, if you'll have the basis point to clients since the month of June, Veritex has done Veritex did a good job this quarter in preparing for and executing on deposit pricing. The Veritex cut rates by 50 basis points in September, and our interest bearing transaction accounts declined by 40 basis points from June 30 to September 30 and 80% data.
Terry Earley: As you can see in the bottom left graph, we've kept the time deposit portfolio short and have $2 6 billion and CD maturities over the next two quarters with an average rate.
Terry Earley: One 4%.
Terry Earley: Certainly glad to have this maturity profile given the potential for 3% to four fed cuts over the next six months.
Terry Earley: On the bottom right, we show the monthly cost of deposits.
Terry Earley: 11 basis point decline since the month of June we are at.
Terry Earley: <unk> has done vertex did a good job this quarter and preparing for and executing on deposit pricing the fed cut rates by 50 basis points in September and our interest bearing transaction accounts declined by 40 basis points from June 30 to September 30, and 80% beta Similarly total.
Terry Earley: Similarly, total interest-bearing deposit accounts declined by 30 basis points from the end of Q2 to the end of Q3 on slide 10. It's been a great quarter in attracting in producing a tractively price deposits with 397 million raised in an average rate of 2.84%. This allowed us to reduce broker CDs by 294 million and public funds by 117 million. Our reliance on wholesale funding sits at 15.7%, down from 21% a year ago. Moving to page 11, total loans declined 1.3% during the quarter and are virtually flat for today. Given the excess liquidity we've been carrying, it was good to see the increase in mortgage warehouse outstandings.
Terry Earley: <unk> bearing deposit accounts declined by 30 basis points from the end of Q2 to the end of Q3.
Terry Earley: On slide 10, it's been a great quarter detracting.
Terry Earley: <unk>.
Terry Earley: Producing attractively priced deposits with $397 million raised at an average rate of 2.84%.
Terry Earley: This allowed us to reduce brokered Cds by 294, Megan and public funds by $117 million and our reliance on wholesale funding sits at 15, 7% down from 21% a year ago.
Terry Earley: Moving to page 11, total loans declined one 3% during the quarter and are virtually flat year to date, given the excess liquidity we've been carrying it was good to see the increase in mortgage warehouse Outstandings, we made significant progress reducing our create ADC concentrations and ended the quarter at 302 and 97%.
Terry Earley: We made significant progress in reducing our Korean ADC concentrations, and it is the quarter of 302 and 97% respectively. The query material profile is shown in the bottom right grass. We have just over 400 million in fixed rate materials at an average rate of 5.93% over the next four quarters. As shown on the bottom left, loan production increased by about 75% from Q323 to Q324, but loan payoffs remain high. This payoff activity reflects the vibrant economic activity in the taxes market, but it does make organic loan growth challenge. The office portfolio is down 112 million in the last year or 18%, and now comprises 5.3% of total loans.
Terry Earley: Actively.
Terry Earley: Pretty maturity profile is shown in the bottom right graph, we have just over $400 million in fixed rate maturities at an average rate of 593% over the next four quarters.
Terry Earley: As shown on the bottom left loan production increased almost 75% from Q3, 23% to Q3, 'twenty four but loan payoffs remained high.
Terry Earley: Off activity reflects the vibrant economic activity in the Texas market, but it does make organic loan growth challenging.
Terry Earley: <unk> portfolio is down to $112 million in the last year or 18% and now comprises five 3% of total loans slide.
Terry Earley: Slide 12 provides the detail in the term Korean ADC portfolios by asset class, including one is F state. Slide 13 illustrates a breakdown of our out-of-state loan portfolio, including the significant impact of our national businesses and mortgage. A true percentage of the out-of-state loan portfolio is only 10.7%, and this is predominantly where we have followed Texas rule of state class to other geographies. Slide 14 that interest income increased by $3.9 million to just over $100 million in Q3. Possibly impact and results were higher loan rates on the mortgage warehouse in higher fixed rate yields of 24 basis points, which all set the decline in so far and prime.
Terry Earley: Slide 12 provides the detail and the term Korean ADC portfolios.
Terry Earley: Asset class, including what does that state.
Terry Earley: Slide 13 illustrates illustrates a breakdown of our out of state local portfolio, including the significant impact of our national businesses and mortgage.
Terry Earley: Percentage of the out of state loan portfolio is only 10, 7% and this is predominantly where we have followed Texas real estate clients to other geographies.
Terry Earley: On slide 14, net interest income increased by $3 9 million to just over $100 million in Q3, possibly impacting results were higher loan rates on the mortgage warehouse and higher fixed rate yields up 24 basis points, which offset the decline in sofa and fraud.
Terry Earley: Also, possibly impacting results were higher loaning asset volumes in day count. The net interest margin increased one basis point from Q2 to 3.30%; the NIM was negatively impacted by the average level of cash being approximately $400 to $25 million higher than our target. This lowered the NIM by approximately 12 basis points. We believe the NIM will remain in the range of 325 to 330 over the remainder of 24, assuming we get 50 basis points of pickups during the fourth quarter. While we're discussing the impact of the excess cash levels, this also reduced Q3-ROA return on average assets by three basis points and lowered the TCE to TA ratio by 40 basis points.
Terry Earley: Also positively impacting results were higher earning asset volumes and day count.
Terry Earley: The net interest margin increased one basis point from Q2 to three 3%.
Terry Earley: The NIM was negatively impacted by the average level of cash being approximately $425 million higher than our target. This lowered the NIM by approximately 12 basis points we.
Terry Earley: We believe the NIM will remain in the range of $3 25 to $3 30 over the remainder of 'twenty four assuming we get 50 basis points of fixed cost during the fourth quarter.
Terry Earley: While we are discussing the impact of the excess cash levels. This also reduced Q3 <unk> return on average assets about three basis points and lowered the TCE to ta ratio by 40 basis points before leaving this topic I want to remind analysts and investors that we have a $250 million 42.
Terry Earley: Before leaving this topic, I want to remind analysts and investors that we have a $250 million, 42 basis point fixed pay hedge that was put on in March of 2020 and the tours in March of 2025. On slide 15, the shirts certain metrics on our investment portfolio, the key takeaways: it's only 10.9% of assets, durations, 3.6 years, and 87% of the portfolio is held and available for sale. Finally, on this slide, you see a snapshot of our cash in borrowing capacity at 9.30, 24, and the trim since Q1 of last year. The current available liquidity represents two times the level of uninsured and uncollateralized deposits.
Terry Earley: <unk> fixed pay hedge that was put on in March of 2020 and matures in March 2025.
Terry Earley: On slide 15, the shared certain metrics on our investment portfolio. The key takeaways. It's only 10, 9% of asset duration is three six years and 87% of the portfolio was held in available for sale.
Terry Earley: On this slide you see a snapshot of our cash and borrowing capacity at $930 24, and the trend.
Since Q1 of last year. The current available liquidity represents two times level of uninsured and under uncollateralized deposits.
Terry Earley: On slide 16, operating non-interesting income increased 2.5 million to 13.1 million. The increase was driven by $428,000 increase in treasury management fees, a $1 million increase in loan fees from syndications and loan repayment fees, and 1.2 million in revenue from operating in the piece of Oreo that was sold during the third quarter. Our SBA business continues to build momentum, and we remain disappointed by the lack of USDA fee revenue and are evaluating every aspect of the business as we work to improve the performance. The $6 million increase in operating non-interest expense for the quarter was a function of a higher interest incentive accrual, Oreo expenses, and marketing.
On slide 16.
Terry Earley: Operating noninterest income increased $2 5 million to $13 1 million. The increase was driven by $428000 increase in Treasury management fees, a $1 million increase in loan fees from syndication and loan prepayment fees and $1 $2 million in revenue from operating the piece of Oreo that was sold during the <unk>.
Terry Earley: Third quarter.
Terry Earley: SBA business continues to build momentum.
Terry Earley: We remain disappointed by the lack of USDA fee revenue and are evaluating every aspect of the business as we work to improve the performance.
Terry Earley: $6 million increase in operating noninterest expense for the quarter was a function of a higher.
Terry Earley: Oreo expenses and marketing.
Terry Earley: The 2 million incentive increase replaces moving our cruel target, our cruel up to 80% of target. This increase was more to give improvement in earnings, credit, and deposits. The Oreo expense included about a million dollars in cost associated with the piece of Oreo that was sold during the quarter, as well as two office buildings in Houston that were foreclosed earlier in the year.
Terry Earley: $2 million incentive increase reflects us moving our accrual target.
For our crude oil up to 80% of target. This increase was warranted given the improvement in earnings credit and deposits.
<unk> expense, including about $1 million and costs associated.
Terry Earley: With the piece of Oreo that was sold during the quarter as well as two office buildings in Houston that were foreclosed earlier in the year.
Terry Earley: Recognizing the need to improve our operating leverage and efficiency, Veritex in the second quarter engaged a national consulting firm with extensive banking expertise to look at all aspects of the company. This review is considered a staffing, operational processes, and technology. We've identified many full opportunities to improve and will be working to execute on those through the remainder of 2024 and 2025.
Terry Earley: Recognizing the need to improve our operating leverage and efficiency vertex in the second quarter engaged in Nashville, Nashville consulting firm with extensive banking expertise to look at all aspects of the company. This review has consisted of staffing operational processes and technology, we've identified meaningful opportunities to improve.
We will be working to execute on those through the remainder of 2024 and 2025.
Terry Earley: To wrap up my comments, I see a lot of positives in the quarter. The balance sheet is in a much stronger position with excessive liquidity, lower pre and ADC concentrations, higher capital, and improved credit metrics. We successfully executed at the best quarter in the history of Veritex and attractively priced deposit production. In our NAM expanded, led by good execution when the Fed reduced rates, but there's still things we need to work on. Continuing the past two quarter trend and improving our credit risk profile, continuing to remix our deposit portfolio towards attractive, attractively priced, and improving our USDA revenue performance.
Terry Earley: Wrap up my comments I see a lot of positives in the quarter.
<unk> sheet is in a much stronger position with excess liquidity lower Korean ADC concentrations higher capital and improved credit metrics.
Terry Earley: We successfully executed and had the best quarter in the history of bear attacks and attractively priced deposit production.
Terry Earley: And our NIM expanded led by good execution when the fed reduced rates, but there are still things we need to work all continue in the past two quarter trend in improving our credit risk profile.
Terry Earley: <unk> to remix our deposit portfolio towards attractive attractively priced improving our USDA revenue performance with that I'd like to turn the call over to Martin.
Malcolm Paul: With that, I'd like to turn the color of the mountain. which included comments. Thank you, Terry.
Martin: Concluding comments, thank you Terry.
Malcolm Paul: Two years ago, we embarked on a journey to remake and change our balance sheet. We knew at the time we had to build a company that could withstand all market swings and changes. In the middle of this journey, we all have to deal with liquidity challenges in the first quarter of 2023 that further validated our need to change. Let me be honest, it has not been an easy couple of years, and our work is not done, but it is nice to see the amazing progress our team has made two years. Every metric has moved positively and made our company stronger.
Martin: Two years ago, we embarked on a journey to remake and changed our balance sheet. We knew at the time, we have to build a company that could withstand all market swings and changes.
Martin: In the middle of this journey, we all have to deal with liquidity challenges in the first quarter of 2023 further validated our need to change.
Martin: <unk> be honest it is not that easy couple of years.
Martin: And our work is not done.
Martin: But it's nice to see the amazing progress. Our team has made two years every metric has moved positively and made our company stronger.
Malcolm Paul: Thank you to our early 900 team members who embrace their challenge to better position Veritex. But like I said, our work is not done.
Martin: Each of our nearly 900 team members, who have embraced our talents to better position bear attacks like I said, our work is not done we have more to accomplish.
Malcolm Paul: We have more real accomplished.
Operator: Operator, we'll take any questions. Thank you. At this time, we'll conduct the question-and-answer session.
Speaker Change: Operator, we will now take any questions.
Speaker Change: Thank you at this time, we will conduct a question and answer session and ask a question you need to press star one on your telephone away from your name to be announced to try. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Operator: That's the question you need to press star one on your telephone, and we pre-named to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster.
Michael Rose: Our first question comes from the line of Michael Rose and Raymond James. Your line is now open. Good morning, everyone. Thanks for taking my questions. I just wanted to dig into long growth this quarter. Obviously, some pay downs continue to impact the net balances. I think previously talked about a mid-single-digit growth expectation for the back half of the year. I think what we're seeing across the industry, though, is that being ratcheted back in the hope for some re-acceleration once you get past the election and kind of know what the rules are, so to speak. Can you just talk about trends in your pipeline, things like that, and then just separately outside of a core loan, just any expectations for the warehouse?
Speaker Change: Our first question comes from the line of Michael Rose Raymond James Your line is now open.
Michael Rose: Hey, good morning, everyone. Thanks for taking.
Michael Rose: Taking my questions.
Michael Rose: I just wanted to dig into loan growth this quarter.
Michael Rose: Obviously, some some pay downs.
Michael Rose: <unk> impact.
Michael Rose: Net balances I think previously kind of talked about a mid single digit growth expectation for the back half of the year.
Michael Rose: I think what we're seeing kind of across the industry, though is that being ratcheted back and the hope.
Michael Rose: For some re acceleration once you get past the election and kind of know what the rules are so to speak can you just talk about.
Michael Rose: Trends in your pipeline things like that and then just separately outside of our core allows us that ex any expectations for the warehouse.
Malcolm Paul: Thanks. I think we'd be in line with everybody else that's reported. Our pipeline just speaks to that. It's actually pretty good. We enjoy pipelines that are building, specifically in the CNI side, but emailed it. I mean, the payoffs have been really strong. I think over the last couple of quarters, it's been a billion dollars as ever. Something in that line. So we had a billion dollars in payoffs.
Michael Rose: Yes.
I think we'd be in line with everybody else that's reported.
Our pipeline just speak to that is actually pretty good we enjoy our pipelines that are building.
Michael Rose: Typically in the C&I side, but you nailed it.
Michael Rose: Payoffs are bad.
Michael Rose: Really strong I think over the last.
Michael Rose: A couple of quarters, it's been a $1 billion is that right well just into that line. So we had $1 billion in pay offs.
Malcolm Paul: If you remember, back in 2022, we had this massive loan growth, and we're starting to see the cliff on that loan growth payoff, and we actually expect the fourth quarter to be a pretty heavy dayoff quarter, and in the early 25. So, yeah, I mentioned, probably, on the last two calls, Michael, mid single-digit loan growth. I don't see it. The payoffs are endless. That's a sign of a positive, healthy loan portfolio. The other side of the point is that we did the right deals. But I do see the pipelines building, and we've invested, as I told you, in some people on the commercial side. The middle market side, our community banks doing and business banking are doing well, and it's just hard to move the needle in those spaces.
Michael Rose: Remember back in 2022, we had this massive loan growth.
Michael Rose: And we're starting to see the cliff on that.
Michael Rose: Loan growth pay off and so we actually expect the <unk>.
Michael Rose: Fourth quarter to be a pretty heavy payoff quarter and into early 'twenty five.
Speaker Change: So, yes, I've mentioned, probably in the last two calls Michael kind of mid.
Michael Rose: Mid single.
Michael Rose: Single digit loan growth.
Michael Rose: I, just I don't see it.
Michael Rose: The payoffs are endless.
Michael Rose: A sign of a positive healthy loan portfolio.
Michael Rose: The other side of that coin is that we did we did the right deals.
Michael Rose: But I do see the pipeline building and.
Michael Rose: We've invested as I've told you and certain people on the commercial side the middle market side.
Michael Rose: Our community banks.
Michael Rose: Banking are doing well its just hard to move the needle in those spaces.
Malcolm Paul: But I would probably say it's going to be a little bit less than single-digit.
Michael Rose: But I would probably say, it's going to be a little bit less than.
Michael Rose: And then single mid digits.
Terry Earley: Michael, let me jump in a couple of things. One. And when we hear this from our bankers, it is a dirt bed. I think this holds a like uncertainty, is weighing on companies and what they're doing. And we hear that pretty consistently. And it's also added, there's a silver lining to these payoffs; look at the fall off in our commercial real estate concentration for 320 to 302. I mean, you couldn't have done that without significant payoffs. So there's definitely a silver lining there. Three, the mortgage warehouse, you know, was strong for us as a quarter week expected for in Q3.
Speaker Change: Yes, Michael let me jump in a couple of things one.
We hear this from our bankers.
Michael Rose: Sure.
Michael Rose: I think this whole election uncertainty is weighing on.
Speaker Change: Companies and what they're doing and we hear that pretty consistently.
Speaker Change: There is a silver lining to these payoffs look at the fall off in our commercial real estate concentration from $3 20 to 302.
Speaker Change: I mean, you couldn't have done that without significant pay offs.
Speaker Change: So theres definitely a silver lining there three mortgage warehouse.
Speaker Change: It was strong for us this quarter, we expect it for in Q3, we're looking forward to be strong again in Q4, having said that what's going on with the 10 year and mortgage rates.
Terry Earley: We're looking forward to be strong again in Q4 and to send that. What's going on with the tenure and mortgage rates? It may not be as strong as we would like, or at home. It's already even as it was at the end of Q3 because you got a seasonality. And you've got what's going on in it and right. So, you know, it'd be flat in the back half the year. I would be pretty happy with that. I don't think that's going to be easy.
Speaker Change: It may not be as strong as we would like or it.
Speaker Change: Even as it was at the end of Q3, because you got seasonality and you've got what's going on in rates.
Speaker Change: It being flat in the back half of the year.
Speaker Change: That would be pretty happy with that I don't think thats going to be easy.
Terry Earley: But we've got, I think not from said it well that the baritacks is shifted from getting liquidity to repositioning the balance sheet to now the focus is on revenue growth, discipline growth, discipline loan growth and inefficiency. So, but that's just where we are in our evolution as a company, and it's good to be at the stage. Okay, perfect. And then just a question on the that the heads that you mentioned is it relates to kind of a margin. I mean, is the expectation that you would look to maybe renew that, you know, closer to expiration or not.
Speaker Change: But we've got I think Malcolm said it well the vertex has shifted from.
Speaker Change: Getting liquidity to repositioning the balance sheet to now the focus is on revenue growth.
Speaker Change: <unk> growth.
Speaker Change: Disciplined loan growth.
Speaker Change: And inefficiency so.
Speaker Change: But that's just where we are in our evolution as a company and it's good to be at this stage.
Speaker Change: Okay Perfect and then just just a question on the.
Speaker Change: The hedge that you mentioned as it relates to kind of a margin I mean is the expectation that you would look to maybe renew that closer to exploration or not and then what is the what is the impact if it if it were just to roll off in context of the margin. Thanks.
Terry Earley: And then what is the what is the impact if it were just to roll off in context of the margin. Thanks. Well, if I could redo that head to 42 basis points, believe me, I've been on the phone and not talking to you right now. But the market wouldn't give me that head again. I put it all on March the ninth, and if you remember what was one on March the 9th of 2020 when COVID kicked off, and we just had the work that the presence of mine to see the opportunity and grab it. Good fortune.
Speaker Change: If I could if I could do that hedge at 42 basis points to late May.
Speaker Change: On the funding not talking to you right now.
Speaker Change: But the market, we can give me that hedge again that put it all on March nine and if you remember what was going on March nine 2020.
Covid kicked off and we just have to work.
Speaker Change: The presence of mind to see the opportunity and grab it good fortune goodness, sometimes it's better to be lucky than good.
Terry Earley: Good. Yeah, sometimes it's better to be lucky than good. But that's what we can't ignore when we want to, if you believe what's what the four occurred and what the Fed dot lots says, I will just call, I mean, if I would re-hatch it as current rates. Because, as you don't think we need to do that, I would rather have these things. They have a beta of 100%. It's because they're they're hedging broker CDs. So they're going to, they're going to price down this the market and move down, and we keep these things pretty short as you know.
Speaker Change: That said, we can't nor would we want to if you believe what the forward curve and what the fed dot plot says.
Speaker Change: I mean, if I wouldn't re hedge it at current rates.
Speaker Change: I just don't think we need to do that I would rather have these things they have a beta of 100% because they're hedging brokerage CD, so they're going to they're going to price down as the market moves down and we keep these things pretty shortage.
Terry Earley: The effect of this is a million dollars a month and then. Okay, very helpful.
Speaker Change: The effect of this is a million dollars a month of nib.
Speaker Change: Yeah.
Speaker Change: Okay very helpful. And then maybe just finally for me.
Terry Earley: And then maybe just finally. Let me have one of them. One other thing we'll reminded me of this, we have some collars and six petty hedge. So they're going to get more and more in the month. So they're going to help mitigate some of this. It's not, it's not just dollar for dollar; what's going to happen to them. We've got hundreds of millions of dollars of fixed receipt hedges. They're going to help mitigate.
Speaker Change: Yes, Michael let me add one other thing will reminded me of this we have.
Speaker Change: Some colors fixed pay hedges, though theyre going to that.
Speaker Change: That are going to get more and more in the months so they're going to help mitigate some of this it is not.
Speaker Change: It's not just dollar for dollar what's going to happen to them. We've got hundreds of millions of dollars of fixed receive hedges.
Speaker Change: Mitigate this.
Speaker Change: Probably 375 million if my memory serves me right.
Speaker Change: Alright, so like a net impact of like 600000, a month in that ballpark is fair to consider.
Speaker Change: Maybe a little less than that but okay.
Speaker Change: Okay, Perfect and then maybe just finally for me I know you.
Speaker Change: Kind of mentioned last quarter that you had engaged a consulting firm you mentioned it again today any early read on.
Speaker Change: Things that they.
Speaker Change: Were targeting or that you plan to kind of implement and.
Speaker Change: Just would love any sort of color there. Thanks.
Speaker Change: I mean look we're excited about the opportunity you have actually worked with them in two previous lives.
Speaker Change: If you will and so I have a lot of confidence in.
Speaker Change: They are working with a fair number of our peers.
Speaker Change: Just you a lot about the need for scale in our industry.
And efficiency.
Speaker Change: Look.
Speaker Change: It's pretty broad based I touched on it but the big parts are around process and technology and fully leveraging the technology we have negotiating.
Speaker Change: Negotiating down the prices and some of our technology contracts.
Speaker Change: Moving our commercial lending processes.
Speaker Change: Just so.
Speaker Change: These are these some of these are.
Speaker Change: Easier some are pretty hard and complex.
Speaker Change: Not just expenses there are revenue opportunities as well, we can do a better job on certain things around.
Speaker Change: We had a good quarter Treasury management face, we can do better we're underpenetrated there et cetera.
Speaker Change: There's no silver bullet here, Michael it's about making our company more process driven.
Speaker Change: Focused on efficiency.
Speaker Change: It won't happen in a quarter or two it will take some time, but it's all really good stuff.
Michael Rose: That's great color I'll step back thanks for taking my questions.
Speaker Change: Thanks, Bob.
Speaker Change: Thank you ma'am for next question please.
Speaker Change: Churn comes from the line of Catherine Mealor with <unk>. Your line is now open.
Catherine Mealor: Thanks, Good morning.
Speaker Change: Alright, Thank you Catherine.
Okay.
Catherine Mealor: Follow up on the margin you mentioned, a $3 25 to $3 30 margin this quarter, which makes sense.
Catherine Mealor: Should we think about the margin as we move into 'twenty, five and Youre asset sensitive clearly, but you've got a lot of opportunity on the deposit cost to lower deposit costs, probably more than most asset sensitive banks. So just kind of trying to think about do you think theres enough on the funding side, where you can still keep that margin.
Catherine Mealor: Stable to maybe even higher as we move into next year or is there still kind of asset sensitive downside.
Speaker Change: It's a great question, then if I had a crystal ball on what to do.
Speaker Change: Given up on the forward curve.
Speaker Change: Moving to the fed dot plot, which I think is probably the most reliable.
Speaker Change: But who knows I mean.
Speaker Change: I mean, especially when you look at the recent.
Speaker Change: Employment employment and inflation data on what's going to happen we've gone from them.
Speaker Change: A lot of cuts to now there is less than 100% guarantee of the cut in November we'll see.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: I don't see the NIM expanding 25, I think that the best we can hope for.
Speaker Change: As is.
Speaker Change: Two to just do a good job on pricing down and we did that we did the first cut I talked about the 80% beta on the interest bearing transaction accounts.
Speaker Change: Before it goes I don't think.
Don't think it's going to go that deep I mean, once the dot plot say three 5% fed funds in the next year, so with that if it's gradual and whatnot and we can execute well and if we can get the balance sheet. The excess cash I think we can stay somewhere in that three and the 300 <unk>, but I just don't see it getting right now I don't see.
Speaker Change: Getting into the 300 <unk> now what are the next wave.
Speaker Change: Interesting for me to have that point of view because when you look at our new our new loan production rates were just over 8% and you look at our new deposit production rates, excluding brokered and all and I talked about attractively priced we have some production thats not attractively priced with the new production rates there in the mid <unk>.
Speaker Change: 60 square a spread of almost 390 basis points. So I feel good about what we're doing on the margin in terms of just how we're pricing on the margin we do need more loan production as we've talked about we need growth.
Speaker Change: Yeah.
Speaker Change: I don't want to see it staying in that 320, plus somewhere in the $3 27.
Speaker Change: Okay, Yeah that makes a lot of sense and that's about where we are.
Speaker Change:
Speaker Change: On the USDA outlook any any additional commentary you can give us on what's the let's see.
Speaker Change: Good way to model that I know it's there.
Speaker Change: Lumpy and has come under your expectations for the past couple of quarters, but just curious kind of what youre doing there and maybe what a good run rate at the target.
Speaker Change: I'll answer your good way to model that no there is no right Bartlett.
Speaker Change: A good a good USD.
Speaker Change: <unk> is going to close between eight and 12 ounce. So and if there are bigger that gets really really lumpy and it's hard to model.
Speaker Change: Tried to change some of the focus with USDA to move down market, let's not chase the big elephants easier too.
Speaker Change: To model it and what we're really trying to dig Catherine trying to trying to leverage the USDA and SBA businesses together, there's a lot of similarities specifically on the loan production side and so we're trying to match those people together in fact over this last quarter for the first quarter.
Speaker Change: We have our USDA group originating some SBA loans, and hopefully they'll cross pollinate on that a little bit.
Speaker Change: It's what we were trying to get to is where we don't have the lumpiness and this cross pollination will help create some of that going forward, but I can't give you any huge.
Speaker Change: On how to model USDA, because if you get a big one.
Speaker Change: Got it blows with out of the water and so we're just trying to.
Speaker Change: We're just trying to guide to a low number and it's a big one pops up it pops up.
Speaker Change: I would say that's helpful. Thank you.
Speaker Change: Catherine I would say if you look at it.
If you think about the way <unk> said think about it in total I would say 24, it's going to be a down year.
Speaker Change: We bought talked about that AD Nauseum 23.
Speaker Change: Just don't look at USDA look at government guarantee look into 'twenty three government guaranteed earnings.
Speaker Change: Our goal is to get back to that but it's going to have a really different mix much more heavily weighted and the SBA less on the USDA.
Speaker Change: In terms of product mix in terms of what drives that revenue, but just really trying to get back to 2023 tax levels.
Speaker Change: Yes.
Speaker Change: That's helpful. Thank you very much.
Speaker Change: Q1 moment for our next question.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: Our next question comes from the line of <unk> of D. A Davidson your line is now open.
Speaker Change: Hey, guys.
Speaker Change: On for Gary Tenner, good morning.
Speaker Change: Good morning.
Speaker Change: Quick one regarding expenses.
Speaker Change: Fences ticked up a little bit this quarter, so how should we be thinking about it.
Speaker Change: In the near term.
Speaker Change: Okay.
Speaker Change: Do you need to be thinking we want them to go down.
Speaker Change: Okay.
Speaker Change: I mean I may have said.
Speaker Change: Some of this incentive driven based on performance.
Speaker Change: Look our accrual.
Speaker Change: That accrual is not coming down in Q4, some of its Oreo related and that property has gone so that that's going to that.
Speaker Change: That seven $800 million in expenses it inflated both the fee side and the expense side largely it was an offset so that's going to come down.
Speaker Change: Marketing, probably is not going to be as high.
Speaker Change: So.
Speaker Change: <unk>.
Speaker Change: And we're working off some of these.
Speaker Change: Efficiency initiatives, so I don't I don't see expenses coming they're going to come down a little bit from this oriented thing, but the incentive accrual in.
Speaker Change: Some of the other things we need to do as the expenses.
Speaker Change: Staying staying higher.
Not not that much higher from here, but I don't see them coming back down a lot.
Speaker Change: Not yet as we work there.
Speaker Change: Five and some of these efficiency initiatives I think thats a longer term question in Q4, and if you just can't move the needle.
Speaker Change: Okay.
Speaker Change: Alright that makes sense.
Speaker Change: And then maybe one on deposits you guys are pretty good deposit success, specifically niv.
Speaker Change: Can you talk about changes you have made on deposit pricing I know you touched it on a little bit.
Speaker Change: <unk> remarks.
Speaker Change: But how are you thinking about deposit pricing.
Speaker Change: Given the expected rate.
Speaker Change: We want to execute as well as we did at the September rate cut.
Got in front of that we were talking to our bankers. We made it we certainly made some exceptions where relationship profitability warranted it.
Speaker Change: But we just got to continue to do that and remix deposits by continuing to attract.
Speaker Change: Attract.
Speaker Change: Continuing to produce attractively priced deposits and reducing wholesale.
Speaker Change: Reducing.
Public funds reducing.
Speaker Change: Some other that have very high.
Speaker Change: Hi, Thanks, a lot.
Speaker Change: Active rates. So that's just what we've got to continue to do that.
Speaker Change: The key thing to our good quarter in deposits is every line of business is contributing theyre contributing in production growth at good rates.
Speaker Change: Retail small business to middle market specialty.
Speaker Change: It's just been across it's been across our community group, it's the first time.
Speaker Change: Max Fair tax, perhaps seeing good quality deposit productions at attractive rates across all lines of business and that's the key and it's about the changes that Don and his leaders are making in terms of prospecting outbound calls.
Speaker Change: Targeting the right.
Speaker Change: <unk> segments et cetera that fits in with our strategy and it's just about continuing to execute there.
Speaker Change: Okay.
Speaker Change: That's good to hear and maybe a follow up.
Speaker Change: Do you have a quarter end spot rate for total or interest bearing deposit costs.
Speaker Change: Oh.
Speaker Change: I'm sure.
Speaker Change: 330.
Speaker Change: Alright.
Speaker Change: Net interest bearing notes.
Speaker Change: Interest rates $4 38.
Speaker Change: Total is $3 33 sure.
Speaker Change: That does include by the way.
Speaker Change: So that doesn't include hedges, that's just that's our contractual rates on our deposit franchise our deposit accounts.
Speaker Change: Alright.
Speaker Change: Thank you for taking my questions.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you Mahmud for next question.
Speaker Change: Our next question comes from the line of Matt Olney of Stephens. Your line is now open.
Matt Olney: Yes, thanks for taking the question guys.
With that deposit growth that we just talked about.
Matt Olney: It looks like that allows you to build the overnight liquidity position.
Matt Olney: Pretty strong levels of just over $1 billion, just curious about the plans for that should we just assume that this maintain this level of next few quarters.
Matt Olney: Or do you expect to deploy this into securities just any thoughts on that bill.
Matt Olney: No.
Speaker Change: Success is not carrying that much excess liquidity.
Speaker Change: It will be a combination of three things.
Speaker Change: We have we have wholesale brokered deposit pay down opportunities.
Speaker Change: With rates of 5% that starting here next week.
Speaker Change: So that so you will see us continue to reduce that to.
Speaker Change: Two.
We will probably put some money at security three we wanted to have a better loan growth quarter and four we want to move out some very expensive deposits other than brokered.
Speaker Change: We're currently working on and expect to move out so that.
Speaker Change: It is going to look a little bit different but it's everything I just said is NIM enhancing.
Speaker Change: So.
Speaker Change: And so that I said about $450 million above our target.
Speaker Change: Good quarter as if we can get down from.
Speaker Change: And I am looking at averages more if we can get down from that and do those things.
Speaker Change: Then that'll that'll be good thats the plan.
Speaker Change: Okay, great Thanks for that Terry.
Speaker Change: And then going back to the balance sheet repricing, just remind us of the of the dollar amount of the.
Speaker Change: Our floating rate loans, and the index liabilities and just remind us how quickly these will reprice reset.
Speaker Change: Index liabilities are floating rate loans are about 75% bear attack certain effort it never moves around very very much.
Speaker Change: Our index deposits.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Two two and a half about $2 $5 billion.
Speaker Change: It's either contractually or functionally indexed.
Speaker Change: Yeah.
Speaker Change: And then Terry just how quickly.
Speaker Change: Those reset following the fed.
Speaker Change: Immediately.
Speaker Change: Okay.
Alright, Thank you guys.
Speaker Change: <unk> or.
Speaker Change: Or contractually indexed to the fed funds rate. So that's why I say immediately.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Brent <unk> of <unk>. Your line is now open.
Speaker Change: Hey, guys good morning.
Speaker Change: Wanted to.
Speaker Change: Hey, guys wanted to talk a little bit about the.
Speaker Change: Classified criticized and Terry I think you said that you would reduce the criticized $80 million this quarter with with pay offs. So I guess there were some in and out migration can you just maybe talk about.
Speaker Change: How you see the classified criticized bucket from here and then specifically I know about a third of the criticized as his office and maybe just an outlook on the on the office book, that's criticized and kind of how you see that playing out.
Speaker Change: Yes.
Good morning Breakfast Curtis Anderson.
Speaker Change: I'll address that we're working through our criticized classified carefully we have got multiple strategies in flight.
Speaker Change: With our special assets team for working to manage the cycle time on that.
Speaker Change: Grupo <unk> loans quickly and carefully.
Speaker Change: Using all of the strategies that are at hand to address them payoffs of course is the key one if we can.
Speaker Change: I have a property owner for example solid property.
We get alignment on that we will do that.
Speaker Change: We actively use our team actively use this note sales so all the strategies are in place.
Speaker Change: Sure.
Speaker Change: My view is.
Speaker Change: That that category should be relatively stable given the focus that we've got on it for the near term.
Speaker Change: We could have something pop up.
Speaker Change: But again the team has done such a good job anticipating risk and looking out and getting ahead of risk at all risk categories.
Speaker Change: I'm fairly confident.
Speaker Change: Based on what we know today that we should see relative stability in that asset class.
Speaker Change: So if theres anything Mount commentary you'd add to us, but really pleased with the work by the entire bank, but in particular, our special assets team.
Speaker Change: I think the key is just been to the effort.
Speaker Change: Yet that Curtis and team have been have done it really started in the past what stage and.
Speaker Change: And thinking about because when the loans and past watch there's options.
Speaker Change: And as that thing migrates, a number of options available to you shrinks as everyone knows so I just think the work they've done and getting looking out anticipating six months. Nine months ahead is what is paying dividends for us and even though you may see it would be relatively stable Trust me, there's a lot going on underneath.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: That's helpful.
Speaker Change: And then maybe Terry any thoughts sort of capital from here and you've obviously been in a reduction mode on on commercial real estate and construction.
Speaker Change: And improving your capital ratios are we to the point that Youre Youre happy with the capital ratios and maybe you might use excess capital or something or do you still think you want to build capital levels further.
Terry Earley: Yes, Brett.
Malcolm.
Listen we are happy with the capital ratios, where they are we're grateful we've been able to grow at a lot of change on the balance sheet has helped us with that reduction of risk weighted assets and obviously profitability over the year.
Terry Earley: And we're going to continue to build capital.
Terry Earley: But I think it's prudent today to have some dry powder.
Terry Earley: We brought a pretty we run our own peer group, which is very very high performing peer group and candidly. We're we're below the median <unk> CET. One so it's not just us it's a lot of people that are holding onto this capital one so.
Terry Earley: I think thats, what youre going to see us do over the next period.
Terry Earley: <unk>, we're not really interested in a buyback at these levels. It's more of a defensive play for us our dividends in a good place and so youre going to see is built a little capital.
Terry Earley: And we will still give us the ability to test potentially.
Terry Earley: Work on some opportunities in the future.
Terry Earley: I would add that if we hit our growth profile to where we want it capital ratios will stabilize.
Terry Earley: And you are so also where you are.
Terry Earley: Given where our ratios are a cree.
Terry Earley: We're already looking at <unk>, we have been in the Creek production business in any significant way in two years.
Terry Earley: And so that's that's ticking back yet so you're going to see some decreases in the ADC unfunded as we look out over the next four to six quarters and so that's going to have an effect on risk weighted assets to I think for me the reality is key.
Terry Earley: Okay.
Terry Earley: More capital gives you more options.
Terry Earley: And that's what we want strategically right now and the market doesn't the market's focused on profitability not return on tangible common equity right now and so let's don't worry about capital and equity, let's improve profitability and get this growth profile earnings profile, where we want it and the.
Terry Earley: Our capital levels to take care of themselves.
Okay. That's helpful and then.
Speaker Change: Then just lastly on back on fee income and.
Terry Earley: <unk> kind of.
Terry Earley: North Avenue staff.
Terry Earley: The other bucket, obviously had some hiring ori income in it how should we think about that other bucket from here.
Terry Earley: Yes.
Terry Earley: Okay.
Terry Earley: Look I think about it more.
Terry Earley: We had a good quarter.
Terry Earley: Even if you back out the work of our income and you net out the already expense net net we still grew fee fees. We've got to continue to do that whether it's swap fees syndication fees loan prepayment fees government guarantee fees Treasury management fees.
Terry Earley: Our mortgage.
Terry Earley: Our mortgage business growing more and selling more of that product. So.
Terry Earley: It's an important focus for us.
Terry Earley: <unk> fees that we've introduced some new card products on the commercial side. So it's an ongoing effort.
Terry Earley: And others.
Terry Earley: Boldly buried in there.
And some real estate, we own like our office building here in rental income stuff like that but I think I think Brett it's more about the totality of fee income and we've got a huge focus there because it's certainly a good driver of profitability in ROA.
Terry Earley: Okay.
Speaker Change: That's helpful guys appreciate all the color.
Speaker Change: Okay. Thanks, Brad.
Speaker Change: Thank you. This concludes our question and answer session. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: Okay.
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