Q1 2025 Veritex Holdings Inc Earnings Call
Speaker Change: Good morning, and welcome to the Veritex Holdings First Quarter 2025 Earnings Conference Call and Webcasts. Our participants will be in the listen only mode. Please note this event will be recorded and will now turn the conference over to Will Holford with Veritex.
Speaker Change: 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 anticipated results to differ.
Speaker Change: The company undertakes no obligation to publicly revise any forward-looking statement.
Speaker Change: If you're logged into our webcast, please refer to our slide presentation, including our Safe Harbor Statement beginning on slide two. For those on the phone, please note that Safe Harbor Statement and Presentation are available on our website VeritexMate.com
Speaker Change: All comments made today are subject to that St. Barbara statement Some financial metrics discussed will be a non on a non-GAAP basis which management believes better reflects the underlying core operating performance of the business
Speaker Change: Please see the reconciliation of all discussed non-GAAP measures in our final 8K earnings release. Joining me today are Malcolm Holland, our Chairman of the CEO , Terry Earley, our Chief Financial Officer, and Curtis Anderson, our Chief Credit Officer. I'll now turn the call over to Malcolm.
Malcolm Holland: Thank you, Will. Good morning and welcome to our first quarter earnings call. For the quarter, we reported that operating brother is 29 million or 54 cents per share. Pretax, pre-provision earnings were 43.4 million or 1.41 percent.
Malcolm Holland: Overall, Veritex had a very good quarter. Our balance sheet remains in a very strong position with capital continuing to grow.
Malcolm Holland: Our continued pursuit to achieve a ROA exceeding 1% of the back half of the year is very much in focus and realistic. Our challenge, much like the rest of the industry, remains disciplined
Malcolm Holland: For the quarter, we saw a decrease in loans of 125 million or 5% annualized, while our average balances were down 135 million over Q4.
Malcolm Holland: Payoffs over the last four quarters were 1.5 billion, while payoffs for the four quarters previous were 1.3 billion, a 17% increase year over year. Although these payoffs continue to put pressure on our loan totals and validates the credit worthiness of our loan boom.
Malcolm Holland: Despite loan totals lagging, we're very encouraged by a bank-wide loan production.
Malcolm Holland: For Q1, we had 750 million in gross production, although a 31% or 237 million dollar of that production was funded.
Malcolm Holland: The last four quarters, our production exceeded 2.8 billion, while the four quarter freefist production equal 1.2 billion, 130% increase year-over-year That boasts well for our future long growth over the next several years
Malcolm Holland: From a deposit gross standpoint, we had another solid quarter bringing in lower price relationship dollars and moving out higher price, non-relationship dollars.
Malcolm Holland: The recorder removed out over 440 men in OCEL funding. Continued great work by the team to move our deposit costs down. More from Terry and Will in a moment on that topic.
Speaker Change: Credit continues to remain stable with positive trends in almost all categories, with lots of work being accomplished by the team below the surface.
Curtis Anderson: Thank you, Malcolm. We continue to make progress in managing credit risk as reflected in our first quarter results.
Curtis Anderson: Our relationship teams are focused on risk identification and managing cycle times to resolution.
Curtis Anderson: In the quarter, we realized a net decrease in past dues and criticized loans [inaudible]
Our charge-offs are balloon forecast forecast.
Curtis Anderson: An MPA, we've left our focus on moving names to final resolution.
with the page 5.
Curtis Anderson: Nonacruals increased 17 million from year in as we took target action on select names to bring them to final resolution.
Curtis Anderson: Accordingly, non-performing assets increased from $79 million at year end to $97 million at the end of the first quarter The increase was primarily from two loans representing retail and office exposures [inaudible]
Curtis Anderson: We expect resolution on a majority of our current non-accrual exposure by early third quarter. Property and sales agreements are in place with buyers on a number of these aspects.
Curtis Anderson: As do loans reflect strong oversight and management by the team and decline from 31 million at your end to 11 million at the end of the first quarter.
Curtis Anderson: Net charge us total 4 million for the quarter, primarily reflecting loss exposure on commercial office and retail real estate loans with final resolution. Our 2025 full-year charge dog forecast of 20 basis points has not changed.
Moving to page 6
Curtis Anderson: Criticized assets were down 4.3% or 18 million from year-end and down 26% or 135 million from the first quarter of 2024. CRE Criticized totals continue to show meaningful reduction.
Malcolm Holland: In summary, we're pleased with the risk management discipline of our relationship teams. As Malcolm noted, their focus in partnership with special assets delivers results that are not fully evident in the top line numbers.
Malcolm Holland: These results include criticized payoffs and paydowns, restructuring, resulting in positive great changes, and early risk identification that ultimately mitigates further downgrade and loss. We are committed to this continued focus.
Malcolm Holland: I'll now turn the call over to Terry. Thank you Curtis, starting on page 7.
Terry Earley: When I look at the results since the end of 22, I'm encouraged, the balance sheet is in a good place, liquidity is strong, Reliance on wholesale funding is down under 14 percent.
Terry Earley: Capitol and Reserves are up and Creek concentration levels arrive where we want them. Just below the regulatory guidelines.
Terry Earley: Moving to page 8. Capital ratio is held relatively steady, quarter over quarter, except for the total capital ratio.
Terry Earley: Attempted to decline in total capital is a function of a $75 million tranche
Terry Earley: of Sub-Dat that was repaid in the middle of the quarter after the rate converted to so per plus 347 basis points. Over the last two years, a significant contributor to the expansion in the capital ratio has been a $700 million decline in risk-weighted assets.
Tangible book value for shares $22.33 cents
Terry Earley: Up from $21.61 at year-end and a 13.8% increase on a year-over-year basis.
Terry Earley: including the dividends we paid. It's worth noting since Veritex went public in 2014 it's compounded tangible book pay for share at a rate of 11.5 percent, including the dividends they've been paid to share olders.
Terry Earley: Considering our growth outlook, organic capital generation, and risk profile, the bank has increased its quarterly dividend by 10% to 22 cents per share per quarter.
Terry Earley: Finally, Veritex repurchased 377,000 shares during the quarter, detangible book value dilution was minimal, and the yarn back is just over two years.
Terry Earley: We have 37 million dollars remaining on the authorization, which is the current stock price is sufficient to repurchase just over 3% of the company. We intend to be opportunistic in a choice.
Terry Earley: Moving to page 9. The allowance now sits at 119 basis points, up significantly in the last eight quarters. Additionally, when you exclude the mortgage warehouse, the ACL coverage rises to 127 basis points.
General reserves comprise 95% of the total allowance
Terry Earley: We continue to use conservative economic assumptions in the Cecil modeling with 65% of the weighting on downside scenarios.
Terry Earley: In Q1, we shifted the weighting toward the most pessimistic scenario, part of the weighting we shifted towards the most pessimistic scenario. This seems reasonable considering all the economic uncertainty from tariffs, interest rates, reduction in government spending, I could go on and on.
Terry Earley: Bottom line, the combination, the Q factors and the economic forecast waiting, just Veritex, a very conservative allowance result.
Moving to page 10
Speaker Change: As Michael said, total loans declined 1.3% during Q1 and 3% on the year-over-year basis. We made significant progress in reducing our CRE and ATC concentrations and ended the quarter at 297 and 85, respectively.
Speaker Change: The significant decline during Q1 in Korean ADC can be seen in the top right graph.
Speaker Change: As shown in the bottom right, loan production has increased by 1.6 billion from the four quarters ending to 124 to the four quarters ending to 125.
Speaker Change: Funding on these two loans, blacks for several quarters as the borrowers equity goes into the projects first. Alonem Brotherhood will remain muted in 2025 through the higher the normal payoffs.
Speaker Change: With his production over the last several quarters, we'll translate into loan growth as we move into 2026 and beyond.
Speaker Change: , , , , , , , , , , , , , ,
Thanks a lot, a lot.
Speaker Change: Provides the details in the term of free and agency portfolios by asset class, including what is out of state Also shown is the breakdown of our out of state loan portfolio, including the significant impact of our national businesses and mortgage The true percentage of the out of state portfolio was only 10.7% and this is predominantly where we have followed Texas real estate clients to other geographies [inaudible]
Speaker Change: on the page 12. Our strong deposit growth and low loan growth has allowed Veritex to reduce his loan-to-deposit ratio from 104% to 89% over the last two-plus years.
Speaker Change: We intend to remain below 90% going forward. Please note the London deposit ratio would be 82.8 if you exclude mortgage warehouse.
Speaker Change: Dependent Growth is also allowed us to reduce our wholesale funding reliance [inaudible]
Speaker Change: The 13.7% and it was 24% the same period the last couple of years.
Speaker Change: As you can see from the bottom left graph, we've kept the time deposit portfolio short and have 1.9 billion in CD maturities over the next two quarters with an average rate of 4.57 percent.
Speaker Change: A short, maturity profile helps us to manage the interest rate risk, given the floating right nature of the London Portfolio.
Speaker Change: On the bottom right, we showed the monthly cost of total deposits. No 63 basis point decline since the month of June 2024, including 24 basis points since
Speaker Change: If you look at interest bearing deposits, they decline 37 basis points in 2-4 and we follow that up with another 33 basis points of decline in 2-1-25. Veritex is very focused on reducing deposit pricing where possible owning existing accounts.
Q-125 was another successful quarter of deposit rebixing.
Speaker Change: Growth from our core lines of business allowed us to reduce our relies on unattractively priced deposits, like broker to public. These unattractive deposits carry a cost, there's approximately 185 basis points above our core business deposits.
And now turn it over to Quill for commentary.
That interesting kind of investments in liquidity
Will: Next, Terry's flood 13 reflects a NIM increase to 11 basis points to 331 in Q1, which is slightly higher than the previously guided range of 325 to 330.
Will: The primary driver of the dim increase is the result of continued repricing and re-basing efforts within the deposit portfolio of Terry mentioned on the previous slide. The cost of interest paying liability is declined 33 basis points in Q1, while the yield on earning assets only declined to 12 basis points.
Will: On a dollar basis, net interest income was down 700,000 for the quarter driven by two fewer days in the quarter lower earning asset volume in the full quarter impact of rate cuts late in 2024 on loan yields which were mostly offset by interest expense savings from deposit repricing efforts in lower interest varying average deposits. [inaudible]
Will: On a go-forward basis, we expect them to return to the 325-330 range for the remainder of the year as an outsize or accelerated rate cuts.
Terry Earley: As we mentioned in previous quarters, a $250 million pay fixed, balance sheet swap matured in late Q1, which will be partially offset by the interest savings from paying back the $75 million trance of sub death to Terry mentioned.
Terry Earley: We expect continuous deposit events in repricing efforts against muted loan growth to result in a relatively stable name throughout 2025.
Speaker Change: Slide 14 shows certain key metrics of our investment portfolio, key takeaways. It's only 11.6% of total assets. The effect of duration is 3.6 years and 88% of the portfolio is held in AFS.
Total available equities, it's $7.2 billion, $7.2 billion, SS331. [inaudible]
Speaker Change: The decline in available liquidity since Q3 2024 as a result of the decision to tighten wholesale liquidity policy limits in the fourth quarter, reflecting a lower liquidity risk appetite Thank you.
Speaker Change: Finally, please note the economics of the bully exchange trade completed in the first quarter in which we exchange an 18.1 million dollar portion of our existing bully policy at a 276 yield for a new investment yielding 4.73
Terry Earley: We took a $517,000 one-time loss on the transaction which equates to an annual pickup of $356,000, equating to a $1.4-year earnback. I'll now turn the call back over to Terry.
Terry Earley: Brinnell Slide 15, operating non-interest income increased 2.4% to 14.8 million on a link poor basis.
Terry Earley: The income as a percentage of total revenue has increased to 13.4% in Q125 from 12.3% in Q124. The goal is to drive the income about 15% of total revenue.
Terry Earley: Operating non-interest expense to climb 2.8 million for the quarter would look good execution across all the categories. The operating efficiency ratio to climb 2.5% to 60.4%.
Terry Earley: To wrap up my comments, I see a lot of positives. The balance sheet continues to strengthen with more valuable liquidity, lower Cree and ADC concentrations, less reliance on unattractively price deposits and higher capital levels.
Terry Earley: Q-Warnings were in line with internal expectations, the NIM expanded by 11 basis points to 331 driven by deposit cost.
Terry Earley: The income continues to build momentum all caught across every category. Increased attention to expenses is showing encouraging results. And loan production has increased painfully.
Terry Earley: The negatives I see are the lack of loan growth that driven by elevated payoffs and elevated deposit cost from overreliance on expensive funding sources and earlier higher growth periods were working hard to address these negatives with that I'd like to turn the call back over to Matt.
Thank you. Thank you. Thank you.
Terry Earley: As you've heard, the Veritex Team continues to manage our balance sheet, capital, deposit costs and earnings to add additional value to our company.
Terry Earley: We obviously have no control over the nationally commonly in the various decisions made in Washington.
Uncertainly as once again entered the system [inaudible]
Terry Earley: But we remain focused and committed to our shareholders, team members who are amazing.
to bring the best veritex we can.
Operative will be happy to answer a few questions.
Speaker Change: Thank you. To ask a question, you need to press Star 1-1 on your telephone and wait for your name to be announced to withdraw your question, please press Star 1-1 again. Please stand by, we can part of Kenny Roster.
One moment for our first question.
Speaker Change: Our first question will come from the line of Brett Rabatin, from Hold, you're now connected, you're now open.
Hey, good morning guys.
Wanted to start with the-
Speaker Change: Hey, I want to just start with deposits and just obviously strong core deposit growth and just wanted to...
Speaker Change: I wanted to see if that DDA was sticky and just, you know, what the success of that was mostly related to and then, you know, on the CDs that are repricing in the next two quarters, the $1.9 billion at $457, what level you think those might go to.
I think Brett's Terry, I think on the deposit side.
Speaker Change: Some of this is a for this seasonality and some of it is new new customer attrition.
Um...
Speaker Change: on the DDA side. You know, one of the things that's in DDA is our mortgage escrow. And Q4 is historically, especially with the TNI escrow, there's a lot outflows during that period. So that's a contributor and then just, you know, some some some. [inaudible]
Speaker Change: Good work by their banking teams on bringing in and allowing us to remix. Regarding the question on deposits, we, you know, 457 so far in the second quarter, we're originating in the 415 to 425 range.
Speaker Change: So, there's definitely, as you think about them, and will factor this into his comments, you know, you've got the heads rolling off, but we still got the opportunity to help compensate for that. You know, from the heads rolling off is this repricing opportunity.
Thanks everybody.
Speaker Change: Thank you for watching. See you next time. Bye. Bye. Bye. Bye. Bye. Bye. Bye.
Speaker Change: Okay, that's helpful. And then obviously strong performance on managing expenses. What do you guys think the expenses do from here and there are any initiatives that would?
Grow Expenses Relative to the First Quarter
Speaker Change: Yeah, Brett, I'm just saying on the expense side, it's been a it's been a hot topic for the last couple of quarters to say the least amongst my team. And we we talk about expenses often. One of the things that I would mention is that.
Speaker Change: You know, we're still investing in people. We made some really key hires that you all know about in the third quarter last year, some leadership hires. Those hires are going to be filled in their teams. [inaudible]
Speaker Change: So there will be some investments that we make in people. In fact, we have three.
Speaker Change: Pretty serious commercial bankers that are all starting with them either started the last 30 days are going to be starting the next 30 days and so, you know, we're working really hard on the expense side knowing that we have some investments coming out to people's side.
Speaker Change: So we're doing a good job of trying to manage the poor performers, but also invested in ones coming.
Speaker Change: I'll be a little evasive just to say that expenses are not going to go down from where they are, and we do have some folks coming on, Terry, by the way. Yeah, I would add two things. One, I don't think the attention to expenses in the history of Veritex has ever been greater. [inaudible]
Speaker Change: Secondly, I'm going to make three points. I think I think Dom has done a really good job.
of Moving Out
Unproductive or not attractive result bankers and replacing them.
Speaker Change: and a good way with people who think are going to drive this business model where we want it to go.
Speaker Change: And third, you can't, I wouldn't annualize where we are in Q1 and say that's a good estimate for the quarter It's gonna go up a little, but I don't think you're gonna see it get back to the levels you saw in Q4 [inaudible]
Okay.
Let's open that arm.
Speaker Change: Yeah, that's really helpful. And then if I could sneak in one last one you mentioned, you know commercial bankers and new buyers, you know, it sounds like given payoffs that maybe you're backing off long growth expectations for the
Malcolm Holland: for the year. Maybe Malcolm, do you think loans are flat this year with the first half being down and then the second half you grow with all the commitments or what your updated thoughts maybe on the on the loan pipeline relative to the loan growth?
Malcolm Holland: Yeah, you nailed it. I think we're looking for flat from year over year, obviously down the 1st quarter, 2nd quarter we're hoping is going to be.
about Swara.
Malcolm Holland: Maybe a little down, but the back half certainly, I mean, we could see it in our pipelines. I mean, you don't grow pipelines out of 30% without getting some
Malcolm Holland: Benefit of that down the road. So I think you nailed it flat for the year and 26 looks pretty good. Yeah, we have given the pipelines and given the production is already on the books.
Malcolm Holland: The outlook for lung growth in 26 is more in the mid to high single digits, something like that.
Yes, I think [inaudible]
Thank you. A moment for an excursion.
Stephen Scouten: Our next question will come flying out. Stephen Scouten from Piper Sandler. Your line is open.
Thank you. Good morning, guys.
Speaker Change: Could you just be staying on that long-growth topic? Is there kind of a-
Speaker Change: A high level number that you guys think about in terms of the CRE headwind in terms of what you think you might face and pay down throughout the rest of the year.
Speaker Change: I'm just kind of trying to frame that up versus the 2.8 billion in production you gave over the last four quarters and just maybe if you have any numbers on where that unplunded book is today and kind of where that's been trending. Thank you very much.
Thank you. Bye.
Speaker Change: I may not be able to give you exact numbers, I can give you some directly [inaudible]
Speaker Change: Accurate comments. We're going to manage, I think it's Terry's says, we're going to manage that.
Speaker Change: CRE number at the high 290s and at the 290s and in the 90s.
Speaker Change: on the ADC. The ADC stuff is paying off quickly, I think, with the other recorder, we're at 85, and we're not going to exceed that the next quarter.
Speaker Change: We're going to see that number start to grow hopefully in the back half. Now we'll see it grow in the back half but it probably isn't going to see any real growth until you get 26.
It's just those things, they have a long, funding time.
But we're going to, we're- [inaudible]
Our real estate team is doing an incredible job.
Speaker Change: You know, they've kept the pricing that are really nice pricing
Speaker Change: They deal with the best clients in the state of Texas, and it just takes a while to fund that stuff [inaudible]
The payoff candidly has been pretty
Speaker Change: They've been pretty stable of the past couple of quarters. We expect that to continue through the next couple of quarters, for sure. And the back half could see a little bit of a raise, but that's not grossly over what we've already done.
So the goal is to keep this a steady business.
Speaker Change: Instead of the wide fluctuations, I'll put down and try to manage it, you know, right under the 300 and 100 buckets. And we have a great core discipline and you can tell by our payoffs.
Speaker Change: But that's going to be, that's going to be a focus. But we don't, our teams are doing exactly what we want to do on that side of it. The investments we're talking about making are all in the commercial and industrial space, so in the CNI space. And that's the area where we're really placing emphasis and the investment dollars. [inaudible]
Thank you. I appreciate it. Thank you.
Speaker Change: Okay, really helpful color, and I appreciate that. And then obviously you can see in the presentation where the acid sensitivity of the balance sheet has been reduced fairly significantly. Just kind of curious how you think that plays out in practice if we get
Speaker Change: I don't know what the expectations are for today, two cuts, four cuts, two the heck knows, but kind of how you think the balance sheet will respond especially as there continues to be room on the on the funding side to lower cost.
Speaker Change: Sure, no, great question, and that's definitely been a big area if this is...
Speaker Change: This with ASCII, look at where we stood a year ago.
Speaker Change: Say, the down 100 case, for example, it was over double what it stands right now and so, you know, we really look at our profile. It's pretty right neutral with the caveat that it takes us.
Speaker Change: Three to four months to catch up when we get a rate cut because our because of our loan look being so variable rate you know 76% of our loans are floating and so when we get a rate cut loans immediately price down and it takes us
Three months
Speaker Change: 3-4 months for the CD book to catch up, which…
Speaker Change: That's why you see the name expansion in Q1 because we've had three months of stable race. If we get, you know, the dot clock correct and we get two cuts, one per quarter in the back after the year, I think, I think the name remains in that range that we got it if we get. [inaudible]
Speaker Change: Three or four, and they start coming back to back. I think you'll see a little bit of nip pressure in the short run, and then should stabilize and return to that range. Really, that's where we see it, unless we see something outside of the expectation, which is entirely possible.
Speaker Change: Thank you for watching. I'm Terry Earley. I hope you found this video helpful. If you did, please like, share, and subscribe.
Speaker Change: Definitely anything is possible. No, that's helpful. And then maybe just a last thing for me on the share repurchase. I know you said, I think opportunistic was the verbiage used there. You know, even with the snapback today, which we all hope holds for the group, it looks like.
Speaker Change: You know, the repurchase this quarter was done around like 25, 20th, my mass is correct. So, you know, would it be fair to assume that at or below that kind of level from the first quarter you guys would continue to be fairly, fairly aggressive around the repurchase?
Speaker Change: I would say that that if it's below tangible book value
Speaker Change: See, we're the limit of our activity is and we're going to stay close, rest is not strong enough because it's a creative immediately and they'll learn back and et cetera, et cetera. But now, I mean, look, we know what we've got left. I wouldn't expect the share by back three or seven thousand shares. I wouldn't expect that to go down.
And if it's, if it's trading anywhere
Speaker Change: You know, if it were to be below tangible buckets,
Adetty Over [inaudible]
Speaker Change: Yep, that makes sense. I appreciate it guys. Thanks for the time.
Alright, thanks, David.
Thank you. One moment for the next question.
Speaker Change: Our next question will come from the line of Michael Rose from Raymond James. Your line is open.
Hey, good morning guys. Thanks for taking my questions.
Speaker Change: I just wanted to get some color and visibility. I'm just given some of the uncertainty in Washington just around the North Avenue capital business, the government guaranteed business. Any sort of outlook there that may be different from a couple of months ago is just from what you're seeing here. Thanks.
Speaker Change: No, in fact, we're probably bullish on that business as any business that we have at the company.
Speaker Change: Governor McGarranty. Yeah, yeah, yeah, yeah, he said North Avenue. Oh, he said he I'm talking about the old government. I just want a minute. Okay, sorry. Yeah, I mean we split up
Speaker Change: Again, we put them all in one basket, I know they're different, but our reliance is more on the SBA side than it is on the knack side. And so we branded it a Veritex government lending, but I understand your question.
Speaker Change: But we're still seeing some USDA opportunities. Actually, some really good ones. We had our first.
Speaker Change: Approval through the Veritex System, if you will, because now it's running through Veritex and not through NAC anymore. So we're pretty encouraged. Now, we're not going to have the volumes at one time that we add, but what's happened is...
Speaker Change: Those, those folks that were at North Avenue Capital are now into the SBA space and they have a huge pipeline. It's, you know, you're dealing with the similar type folks.
Speaker Change: out there, whether it's a broker, comedian, what have you?
Speaker Change: that have been able to produce some nice volume. We've made some substantial investments in government guaranteed, and just recently is this week.
Speaker Change: And when I say substantial, I mean some central people across the country. And so it's going to take them a little while and get ramped up, but I think you're going to see that business be an out performer.
Speaker Change: Back out for this year and into 26. It's had the SBA businesses had two incredibly strong quarters on the road.
Speaker Change: and all indications are that's not slowing down, even as these people come in and get on board an economy that arguably may be going down a little bit. This is a space that actually gets more active.
Speaker Change: helpful. And I know it's a difficult question to ask, but you guys did about 10.1 million in that line item last year the year before it was roughly double that. Any sort of outlook just given what you laid out just in terms of some of the momentum, you know, in this quarters, you know, start of where that could end up for the year.
Speaker Change: We're not to the point where we can get back to where we worked two years ago, but we would also be very disappointed if we don't do materially better than last year.
Speaker Change: So in between the two numbers is a good place to be.
Exactly.
Speaker Change: Okay, helpful. Yeah, just because it's it's pretty hard from the outside looking into the kind of forecast that so I appreciate it. And if we said we're trying to flatten that out, Michael, you know, we know it's
Speaker Change: Discouraging for you guys and it's discouraging for us to be able to forecast and so we're working really hard to flatten that out and that's why SBA is such a more a greater emphasis.
Speaker Change: It's more granular our average loan size is a million and a half dollars [inaudible]
Speaker Change: And in the USDA space, the average loan size in 2023 was probably $18 to $20 million or something like that. And so it's just way more granular, it's easier to forecast, and it's a more stable revenue stream that we can abandon.
Stephen Scouten: I totally get it. Terry, maybe just one on the, on the warehouse outlook, you know, obviously
Speaker Change: You know, this quarter, but still up material and an average basis year over year. Any sort of thoughts there, you know, I know more is right to remain, you know, particularly sticky and then any sort of RWA release that you guys are expecting just with some of the changes that are out there. Thanks [inaudible]
Speaker Change: It's on our radar. That's something that over the balance of the year, et cetera, the RW Relief there and in the FI are an important priority for us.
Balances, you know, Michael, it's so hard.
Speaker Change: I mean, last week they were apps for down 12 to 13% week over week, I saw, and it's so tied to rates and yet, you know, a month ago, they were having unbelievable volume. So, we like the business. I'd like it even better.
with the RWA Relief.
but the risk-adjusted returns are still really, really good. So.
I would expect there's a lot of seasonality.
and hopefully with some clarity on the Washington Economic Front.
Speaker Change: If rates can come down, I like what they're doing today on the long end, then hopefully volumes pick up in the averages. I would love to see averages 100 to 150 million dollars higher than they are, but it's a functional rate. You just asked for clarity in Washington.
Everyone's got a prayer every now and then.
Open up there.
Stephen Scouten: Well, that's all I had guys. Thank you. And Terry, I think this is your last earnings call. So just want to say congrats on a great career. Thanks for all the help along the way.
Thank you, Mark. Very kind. Thank you.
One moment for our next question.
Speaker Change: Our ex-questionable conflign of Catherine Mealor from KBW, Your Line is Open
Catherine Mueller: Thanks, good morning. I just wanted to have a follow-up just on the gross outlook. And I guess two questions. One is how do I know a lot of the
Catherine Mueller: I mean, the pipeline has built, which is so great to see. So maybe the question is how much risk do you see in that pipeline maybe not following through just given kind of the volatility that we're seeing in the market?
Catherine Mueller: versus how much of that you feel like is money good and is, you know, loan commitment that will be falling through for the next couple quarters. And then within that, my second question is just you talked about how the lot of your investments are in this D&I space. I'm curious how much of that pipeline is in CRE versus D&I. Thanks.
Catherine Mueller: Yeah, she's talking about the risk in that pipeline, you know, obviously the answer for me is going to be, oh it's great, we just approved it but I guess if you...
Catherine Mueller: You know, pull them till back the sheets a little bit. The underwriting on that business is actually better than it's ever been. You've got huge amounts of equity, whether it's
40 to 50% in a couple of cases.
You still got good rates.
Catherine Mueller: And at the end of the day, it's who the sponsor is. Our team has done a great job at dealing with the cream of the crop.
and so when folks were still out of the space.
Catherine Mueller: And we've got in maybe a quarter or two before the rest of them, you know, you could dictate the terms. Now, the terms you could see, they're starting to break down a little bit. When I say break down, I'm not talking about materially, you know, instead of getting 45%, you may get 40%.
Catherine Mueller: And so we feel really, really strongly about the type of stuff we're put on. We're not going to go, we're not going to put stuff on that we think we're going to have to deal with later.
Catherine Mueller: In terms of the percentages of that pipeline, I don't know how I would say it's two-thirds C&I, third Cree, I don't have it in front of me, but it's somewhere in the end being close to that.
Speaker Change: You and I haven't talked about this, but my confidence is much greater in the creed sign.
Catherine Mueller: because of all the invagration and all the things that are going on. On the CNI side, I mean, we've seen it in revolver utilization. It's come down some. So I think I think, you know, you would, I would say the risk of not getting the pull through of this IRC and not in a discreet. [inaudible]
Yeah, but I don't know if you agree I agree.
Speaker Change: Yeah, that, you know, that makes sense. Okay, great helpful follow up. Thank you
Thanks, Katherine.
Thank you. A moment for our next question.
Speaker Change: Our next question, cuffline of Gary Tenner from DA Davidson, your line is open.
Gary Tanner: Hey, thanks. Good morning, guys. I want to ask you a couple of questions. First, in terms of the security portfolio, I think you have highlighted 175 million and cash flows expected the next 12 months. Are you?
Gary Tanner: Currently reinvesting, or are you kind of using that as a source of cash to further reduce
What we are.
Gary Tanner: We're targeted investments. I mean, we're picking up stuff if we see if there's market opportunity, but no words.
Gary Tanner: Sits Longs, Sits Longs, had been viewed as the last couple of quarters leaves [inaudible]
Gary Tanner: We've been using funds to pay down wholesale as you saw, so once you see a long growth pickup, obviously we have to fund the other side of that and to stay at our LDR target, so you'll see us be more active in the investment portfolio once earning asset growth picks up.
Thank you for watching. Bye.
Speaker Change: Okay, great. And then just a quick follow up on the feast side. I know you've kind of talked about...
Gary Tanner: You know, wanting a 60-pandle on fees for the full year and operating basis, you were basically right at that run rate or a hair below it. Anything as you think about the pipeline and sounded very positive on government guarantee, anything that kind of increases that kind of baseline or too early to tell.
Gary Tanner: I think the momentum I think is going to build. I feel like the customer's swapping come.
Gary Tanner: is a place that they're having a good first quarter, and I'm encouraged by how the second quarter has started.
Gary Tanner: There are some things we got going in the card and been sponsorship space. We did a treasure, we got a lot going on in Treasury.
So, to me, it's really across the board, syndications.
Gary Tanner: As we've gotten more active in Cree and were the size of the projects and the ability for Andrew and his team to sell down and has been really strong too and I'm expecting a strong year there so that's why I said to me it's it's
Gary Tanner: You don't see it all yet, but you can feel the momentum. And I'm hanging on one area. Every single area is contributing. So that's where we get some pretty high confidence. The 60 annual is a pretty decent number. Yep.
Gary Tanner: Great. Thanks. And just lastly, you've kind of noted the increased weightings in the Moody's downside scenario. Can you just remind us where the weighting was last quarter?
Gary Tanner: It was at 65%, but we shifted some way towards scenario 4, just, okay, Adam and Abundance Accaution, you know, the overall downside stayed the same, but some of it went from scenario 2 to scenario 4.
Stephen Scouten: Okay, got it. Appreciate the color there. Well, Terry, keep on praying. It seems to be working today.
Good boy, back upstairs [inaudible]
Speaker Change: Thank you, one moment for the next question. As a reminder, let's start with one for questions.
Speaker Change: My next question, Confilina Matt Olney from Stevens, Atlanta is open.
Speaker Change: I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: Hey, thanks for wanting guys. Just want to go back to the discussion around, around capital and you mentioned you increased the dividend.
Speaker Change: Really active by back at the first quarter, and it sounds like you want to remain active on that by back curious about the I think there's a sub dead instrument that becomes callable later on this year just just curious about on the radar if there's any appetite to to pay this down later on in the year.
Speaker Change: It's definitely on the radar. It's a $125 million tranche. It's mid-October. You know, I don't think
Speaker Change: We're certainly watching it, watching the market where you could refinance the death, etc.
Speaker Change: I think the outlook for the probability of paying it all off [inaudible]
Speaker Change: So I'm sorry I don't I mean it's just it's there we're watching it all the time but we've decided we're not it's not the time to make a definitive decision to we see more we need to see things play out a little bit from an economic and right perspective.
Speaker Change: The other thing that I mean even is on the table is a complete refinance depending on what happens in the rate markets.
Speaker Change: There might be a place where we want to go ahead and redo it and maybe even increase it because we could use some more of that but it's all dependent on three or four factors and rates being the probably the greatest one as well as our you know our pre forecast. [inaudible]
Speaker Change: Yep. Okay. Appreciate that. And then on the credit, overall trends are good in the quarter, lower criticize loans. I think the only
Speaker Change: Will Images that Curtis mentioned was some migration into the Nanakru alone bucket. I think office and retail property was mentioned in any any any more color on on on those migrations.
All right.
Speaker Change: They were their longstanding names that we've been working with. We're taking the action to move them through and it moved forward. So I would just say that there's strategies in place to have those moved off by beginning of the third quarter and we feel confident in our ability to do that.
Thank you very much.
Terry Earley: Perfect. Okay. Thank you, Curtis and Terry congrats and keep in touch.
All right. Thank you, Matt. Appreciate you.
Speaker Change: Thank you. This concludes the question and answer session. Thank you for your participation in today's conference. This doesn't include the program. You may now disconnect everyone. Have a great day.
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