Veritex Holdings, Inc.

Q2 2021 Earnings Conference Call


spk01: Good day and welcome to the Veritex Holdings Second Quarter 2021 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. Please note this event is being recorded. I'll now turn the conference over to Ms. Susan Cottle, Investor Relations Officer and Secretary to the Board of Veritex Holdings.
spk00: Thank you. Before we get started, I would like to remind you that this presentation may include forward-looking statements, and those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statement. At this time, if you're logged into our webcast, please refer to our slide presentation, including our safe harbor statement, beginning on slide two. For those of you joining us by phone, please note that the safe harbor statement and presentation are available on our website, All comments made during today's call are subject to that safe harbor statement. Some of the financial metrics discussed will be on a non-GAAP basis, which our management believes better reflects the underlying core operating performance of the business. Please see the reconciliation of all discussed non-GAAP measures in our filed 8K earnings release. Joining me today are Malcolm Holland, our Chairman and CEO, Terry Early, our Chief Financial Officer, and Clay Reby, our Chief Credit Officer. I will now turn the call over to Malcolm.
spk08: Good morning, everyone. My team and I are excited to discuss our second quarter earnings. We're back to business as usual. It feels like momentum is continuing to pick up. For the quarter, we announced operating earnings of $0.60 a share, or $30 million, while producing a pre-tax, pre-provision return of 1.66%. We also announced a dividend increase from $0.17 per share to $0.20 per share, an 18% increase. We have been communicating for several quarters the people investments we've been making over the last year. I think we're beginning to see some of the early results of those investments. For the quarter, we grew loans excluding PPP and mortgage warehouse 21 percent annualized, while for the year, we are at 14.5 percent annualized growth. We expect that for the year, we will remain in the 14 percent range due to our level of unfunded commitments early signs of increased CNI usage, and our pipeline strength. Our mid-July pipeline is up over 50% from the same date in mid-April, and it is at its highest funding forecast in the company's history. On page 7, bottom right, we're showing you that our lenders are incredibly productive with 26% of our top producers generating $47 million in average production for the quarter. It should also be noted that the new loan production for the quarter is made up of 545 loans with an average commitment of just under $2.5 million, proving out that all areas of the bank are participating in our growth initiative. Additionally, we provided a quick snapshot of our construction loans that will give you some indication of the underwriting and ultimate approval metrics of new credits that were booked during the quarter. Deposits continue their positive trend upward, growing 4.3% annualized length quarter, but more impressive is the growth in the non-interest bearing category. We now sit at non-interest-bearing deposits greater than 34% of total deposits. With this growth and deposit pricing focus, we continue to drive our deposit costs down from 31 bps to 23 bps quarter over quarter. Our asset quality continues with all trends in a positive direction. NPAs reduced for the third straight quarter to 0.86% of total assets. Past dues declined to their lowest point over the last five quarters. Our ACL decreased to 1.59, excluding mortgage warehouse and PPP, with no credit loss provision and net charge-offs of $5.4 million for the quarter. Terry and Clay will provide further details momentarily.
spk07: Terry. Thank you, Malcolm. On page five, you're going to see multiple graphs. I'm going to make a comment on a couple of these. First, tangible book value per share increased to $17.16 in the second quarter. This is a 20.1% increase on a linked quarter annualized basis. It translates to just over 21% year-over-year increase after adding back the impact of our quarterly dividends. Growing tangible book value per share remains an important priority for our management team. The second graph is on our operating return on average tangible common equities. It remained very strong in the second quarter and has averaged 15.6% over the last four quarters as Veritex weathered the pandemic. Rising capital levels and lower balance sheet leverage is putting downward pressure on this important metric. Moving to slide six, Malcolm's already mentioned our growth for the quarter. We saw growth in all loan segments except multifamily. Average mortgage warehouse balances declined 10.8% in the second quarter, reflecting lower mortgage origination activity and shorter dwell times. This portfolio sits at 7% of average total loans, excluding PPP. It has grown 49% year over year. I'm talking about the average mortgage warehouse balances. This growth in the portfolio has been a great tool to absorb the excess liquidity generated during the pandemic. It remains our intent to keep the average mortgage warehouse portfolio at 10% or less of average total loans. Skipping over to slide eight, net interest income increased 1.5 million or 2.3% from Q1 and totaled 67.1 million in Q2. The most significant drivers of the increase were loan growth and lower deposit rates. This was partially offset by lower loan yields and interest reversals on certain non-pooled PCD loans. Next, the net interest margin declined 11 basis points from Q1 to 3.11%. For Q2, the PPP portfolio represented a nine basis point drag on the NIM, and average liquidity was approximately $350 million higher than our normal target level. This had the impact of depressing the NIM by 11 basis points. So in the aggregate, PPP and excess liquidity represented a 20 basis point drag on the quarterly NIM. Also note that Q2 loan production was at 3.9%, And Q2 interest-bearing deposit production was at 24 basis points. As you look forward to Q3 and model net interest income, keep the following three things in mind. First, quarter-end loans, excluding mortgage warehouse and PPP, are $175 million above the average balance for the second quarter. Second, the PCD accrued interest reversals of $1.3 million should not reoccur in Q3. Lastly, day count is always important. These factors give us optimism that the growth in net interest income from Q2 to Q3 will be meaningfully higher than the growth we just experienced in Q2. Please note the asset sensitivity information on the slide, including that 67% of our floating rate loan book are eligible to reprice immediately. On slide 9, another strong non-interest income quarter with $12.5 million of revenue or $10.8 million excluding the fair value impact of PPP. All categories except mortgage were up for the quarter, with the single biggest contributor being the origination and sale of SBA guaranteed loans. Gain on sale premiums are the strongest we've seen in years. Operating expenses on slide 10 increased $1.5 million, excluding the severance costs associated with our previously disclosed branch restructuring. Over 60% of the increase is attributable to marketing costs, and this increase is a function of our sponsorship of the Corn Fairy Golf Tournament held in Q2 in Dallas-Fort Worth. On slide 11, Veritex had another good quarter on the deposit front as we grew $307 million, or a little over 4% on a linked quarter basis. The graph at the bottom left of the page shows the trend in quarterly deposit costs and are down 8 basis points from Q1 to Q2, now sitting at 23 BIPs. We still have just over 1 billion in CDs repricing over the next four quarters at a rate of 59 basis points. On to slide 12. Capital ratios at the holding company and banks started the year from a strong position and remain that way. Most ratios declined slightly due to the balance sheet growth, while absolute capital levels grew by about 26 million. Our capital deployment priorities, given the current valuation of our stocks, are organic growth, dividends, strategic growth, and lastly, share repurchases. On slide 13, I want to end with a few comments related to Thrive. As we announced last week, we closed our 49% investment in Thrive, and we couldn't be more excited about this partnership. Q2 earnings for Thrive were at $5.2 million, as compared to $6.3 million in Q1. Gain on sale margins declined due to competitive pricing pressures, offset by origination growth and lower expenses. Thrive's business continues to build momentum. It closed $2.25 billion in originations in 2020 and is on track to achieve between $2.8 and $3 billion in 2021, an increase of over 25%. This strong growth for 2021 is in contrast to the most recent MBA forecast, which reflects a decrease of approximately 7% from 20 to 21. Additionally, Thrive has achieved its growth with 63% purchase volume when the MBA is projecting purchase originations to only account for 46% of 2021 volume. There are many synergies between Thrive and Veritex. We're working to execute on those now and believe they will start to bear fruit in the back half of 2021. With that, I'd like to turn the call over to Clay for some comments on credit.
spk06: Thank you, Terry, and good morning, everyone. The credit picture continues to improve as we move through the fallout of the pandemic here in Texas. As Malcolm mentioned, our MPAs dropped over the quarter. MPAs improved by $5.1 million. Our MPAs have dropped 17 percent from the high-water mark experienced in the third quarter of 2020. We continue to see encouraging signs of resolution in our problem loan portfolio, and we're working on meaningful additional reductions to MPAs in the third quarter. Page 14 contains the credit metrics for the bank for Q2. You can see in the top left chart that past dues for the quarter declined to their lowest levels since the beginning of the pandemic. We booked $5.4 million of net charge-offs for the quarter that were centered in three credits. The first charge-off in the amount of $2.5 million was a loan to a franchisee restaurant group that failed. The second charge off in the amount of $1.7 million was for equipment related to an entertainment operator that filed for bankruptcy protection during the pandemic. And the final charge off in the amount of $1.2 million was related to a contractor that filed for bankruptcy protection as a result of the pandemic. All of the charge-offs this quarter were fully accounted for with specific reserves in previous quarters, so no provision was required for any credit surprises. You can see in the chart on the top right of the page that our allowance for credit losses to loans held for investment, including mortgage warehouse and PPP, dropped from 1.76 percent as of Q1 to 1.59 percent as of the end of Q2. The reduction was driven primarily by the $5.4 million in net charge-offs with the ACL requirement for this quarter's significant loan growth covered by the improving Moody forecast for Texas GDP and Texas unemployment. The chart in the bottom right of the page reflects movement in criticized assets over the last four quarters. After a run-up in criticized assets due to the pandemic, we've experienced a 22 percent improvement in our levels of criticized assets from the high watermark that occurred in the third quarter of 2020. Classified assets have decreased by 15 percent over the first half of the year. Our special assets team is doing a great job of reducing our levels of criticized assets, and we expect that to continue through the balance of the year. The migration of credits from the line to our special assets team due to deteriorating trends has almost come to a stop, which is really encouraging. Our hospitality book continues to perform nicely. We're tracking and logging data on 75% of the hospitality book relative to occupancy, revenue, and rev par. For the month of June, REVPAR for the book was 34% higher than the previous high watermark set in March of this year. Average occupancy was 69% for June, up from 65% for March of this year. We're tracking about $50 million in hospitality loans, which have the potential to pay off by the end of the year. And we're seeing some liquidity return to the hospitality market in the form of non-distressed property sales, which is encouraging as well. With that, I'll turn it back over to Malcolm.
spk08: Thanks, Clay. We couldn't be more excited about our bank's performance and our prospects for the future. It's encouraging to see the upward trends and results in so many categories, as well as our talent investments paying off in such a positive way. I've said it many times. We're fortunate to be in arguably two of the best markets in the country, in addition to incredibly strong in-migration of new residents that continues to drive real growth and GDP in our state. On the M&A front, things continue to be quite dynamic. We're having discussions with institutions of various size, located in both our current metro markets and non-metro Texas markets as well. Additionally, there are a few opportunities in the fintech non-bank space that we have engaged with recently. All this to say, I do see the second half of 2021 being a very active time for M&A in our markets. In closing, as Terry mentioned, we finalized our investment to purchase 49% of Thrive Mortgage, and I would like to formally welcome Roy, Barbara, Michael, and the entire Thrive team to the Veritex family. The quality of this company's personnel, its technology, and processes will greatly add to the continued growth of our company. At this time, I would like to open the line up for any questions.
spk01: At this time, if you would like to ask a question, please press star and the number one on your telephone keypad. Your first question line, Michael Rose with Raymond James.
spk10: Hey, good morning, guys. How are you? Good, Michael. Good. You know, so I appreciate the comment on loan growth. You know, it looks like you guys, ex-PPP and warehouse, did about, $425 million so far year to date. It looks like if you keep it at that level, it's about the same amount in the back half, which implies a little bit of a slowdown from this quarter, which is understandable. Obviously, it was a really, really strong quarter. Can you just give us some color on what the drivers are, what paydowns are doing? We obviously saw a nice pickup in utilization through the quarter. Does that factor into the outlook, too, to continue higher? Thanks.
spk08: Yeah, I mean, so payoffs have been fairly normal. Nothing outsized, if you will. We did have a big paydown week after the end of the quarter, you know, $100 million plus, actually. But we've already made that back up this quarter. You know, the drivers of this is really a Texas economy that's doing quite well. Again, I mentioned the in-migration of people. There's real business going on here. I continue to see also some of these banks that have come together. You know the big ones. There's some unrest in the marketplace, if you will. Our 12 months or 15 months that we've been focusing on growth, even during the pandemic, it's just starting to pay off. You know, one of the areas I think, you know, we put a builder group together January 1st, and they're hitting their stride, lots of great originations, but their fundings have been very light. So they're not even in there yet. And the reason is because these builders have so much cash, they're just using cash and not much leverage. And so, you know, community bank is contributing a huge way to having its best year it's ever had. So it's coming in all areas, Michael. It's just not the dominant. We do have a, you know, construction has been very, very strong, but everyone's playing.
spk10: That's helpful, Malcolm. I appreciate it. Maybe for Terry, it seems like there was some, on the expense side, there was some non-recurring, you know, charges. You know, you mentioned the golf sponsorship. I assume that's a once a year. fee that we'll kind of have to bake in, and then it seems like there were some items in other non-interest expense that could come out of the run rate. Can you just give us a sense for what the expectation would be, at least for a starting point for the third quarter? Thanks.
spk07: Well, I think you just start with taking the expenses for the second quarter and adjusting for marketing, because it's going to be lumpy. I mean, it benefits us. I mean, it's not like, yeah, we absorb the cost in one quarter, but the benefit is much more longer-lasting given the investment in brand that we're making there and the recognition we're getting. You know, past that, Michael, you know, I think we're going to be opportunistic on the people side. In spite of all the recruiting and talent investments we've made, we're out there trying to make more because there are people, as Malcolm talked about, the disruption coming from M&A, there are people looking for new homes, and they're talented, and they will bring success. loyal clients to us. And if we think about what we're trying to do on the growth side and the revenue it's driving for us, I'm okay. If you get the revenue right, especially the growth and the spread revenue right, the expenses are going to go up as we continue to make investments, but the efficiency ratio should be just fine. And so, yeah, I wouldn't make a lot of adjustments down other than just thinking about marketing and and realizing we're going to be opportunistic when we get the opportunity to hire the right people. They're going to continue to drive growth. Okay, so maybe expenses. Yeah, they're not going down, in my opinion, not really, not much. I tend to think, I mean, in a quarterly time, I just don't think there's a lot that calls them to go down a whole lot. Because, look, it's not just about hiring front-end talent. It's the credit team to support it and the back office as well. And the last thing we can afford to do is not be able to deliver on the new business we're bringing on and support it the right way. So those are less expensive, I know, but we've got to stay up to speed.
spk08: And there's a couple of teams right now, candidly, that we're really close on, like really close. So those are going to be costly, and they take six months to get some sort of traction. Yeah. I would expect expenses to be pretty close to where they are.
spk10: Helpful. Maybe just one final one for me. You mentioned that I think you said NII would be, I think you said, meaningfully higher in the third quarter. Any stab at what that means? Can you give us some quantification? Thanks.
spk07: Well, I think if you start with Q2's net interest income and you add back the reversal we had on the non-pool PCD loans going, okay, I'll take their word for it. They don't see that happening again. And you go to day count and you go, okay, well, day count is about $750,000. And then the key thing is go to the average balance for the Q2 versus the ending. And then you think, okay, well, let's layer on growth from the ending and let's look at what the average balance in Q3 might be. That's how you get there. It is honestly the math's it's encouraging when you do that math.
spk10: Very helpful. Thanks for taking my questions. Yes, sir.
spk01: Your next question, Brad Millsap from Piper Sandler.
spk02: Hey, good morning, guys. Morning. Hey, Brad. I appreciate all the color. Terry, just kind of wanted to talk through the moving parts of the balance sheet. It sounds like you've got you know, at least, you know, 400 million, you know, more of growth coming in the back half of the year. Obviously, you got some PPP runoff, too. Is the plan to just simply, you know, fund that growth with that, you know, liquidity you've got on the balance sheet? And then we'll just be curious kind of how much cash flow you're getting, you know, by month or by quarter off, you know, the investment portfolio to sort of fund loan growth going forward.
spk07: Yeah, that's a great question, and I appreciate it. You know, Yeah, I do think, I mean, certainly PPP acceleration or forgiveness has accelerated, and that's going to be a good source of liquidity. What we have not done, and nor do we intend to do, is make significant increases in the investment portfolio. Because when we look at our growth profile and we look at our pipelines, I don't feel the need to go up. And so... I feel like we can absorb the X-list liquidity in a suitable time frame given the growth profile. When you look at the cash flow coming off the portfolio, over the next 12 months off the investment portfolio, we've got about 10% of the balance in forecasted cash flows at current rate levels. So the reinvestment risk and the yield on those reinvestments is not as great as it could be for a lot of folks. You know, Brett, that's the best way I know. I think we can pretty well fund it with the liquidity, the PPP, and the cash flow in the investment portfolio. We don't look to grow it because I'm afraid of inflation pressure and the TBV risk that long-duration growing portfolio could create.
spk02: Great. That's helpful. And then just on the fee income side of the equation, kind of similar to Michael's question, sort of in other fees. I think you've mentioned, you know, maybe some BOLI. There are some syndicated loan fees. Is that BOLI kind of permanent run rate from investments that you made, or is there anything kind of one-time and sort of, you know, the other fee line items outside of just the PPP income that you recognize in the quarter?
spk07: No, I would say that the BOLI is lumpy, but what we didn't have a great quarter end was swaps. And we probably just had the best month we've ever had as a company in July. So in my mind, it's, you know, my belief is that the lumpiness of BOLI could be offset with much better execution on the customer's back-to-back swap program.
spk02: Got it. And then just a final question for me. I know you'll get, you know, the first impact of Thrive in the third quarter. Any change to sort of your initial guidance that you guys talked about there kind of based on, you know, kind of what you saw from them in the second quarter? I'm just kind of curious if, you know, kind of anything has changed in your mind about their contribution going forward.
spk07: It really, if anything, it's only gotten stronger. And I say that, you know, as we went into this year and went into this transaction with the folks at Thrive, they are delivering. You know, I said I used the numbers $2.8 billion to $3 billion in production. That's exactly what we thought when we announced this transaction. Their quarter was exactly where we thought it would be in terms of production. The gain on sale was down a little bit, but they mitigated a lot of that with growth in production and expense management. And so, you know, we're feeling pretty good that given what's happened. I mean, the 10-year is down about 50 bps from last year. where it was at its peak, you know, late in Q3. And so, you know, I think the mortgage business for everybody, but certainly for Thrive, is looking good. And so I'm expecting better gain on sale and continued good production. And so our belief is that the earnings contribution is going to be pretty much in line with what we were expecting when we did the transaction, if not maybe a little better.
spk02: Great. Thank you.
spk01: Your next question is from Brad Galley from KBW.
spk04: Yeah, thanks. It's Brady. Good morning, guys. Hey, Brady.
spk01: Hey, Brady.
spk04: If you look at non-PPP loan growth, that's 14% year-to-date. You're saying the full year is going to be 14%. So you have more good growth in the back half. Is that just a really good – 2021 kind of as we're coming out of COVID, or do you think that, you know, this kind of mid teens growth rate is sustainable for the next couple of years?
spk08: Oh, wow. That's a big question, Brady. You're looking out way far. So I do think some of it is COVID, but here's, here's what I, what we really think is there's two things. One is, and I beat a dead horse about the investments that we've made and, and continue to make in people. But if you take us back to first quarter of 20, we were cranking. And we felt like what we had put together with green and retooled green a little bit, retooled with some people, that we were going to start seeing some great growth and efficiency there. And so obviously pandemic showed up, stopped everything. So we think this is a culmination of getting out of the pandemic and the green combination. It's just a year later because of the pandemic. And so we are really focused on growth. I'm not going to sit here and tell you that we're going to do 15% or 20% for the next several years. But I wouldn't be surprised if we're close to that. It's just a major focus for us. And keep in mind, the credit side of that is the legacy Veritex credit process, policies, and what have you. And so we feel really confident in what we're putting on right now. I think that goes maybe unsaid or undiscussed, but the quality of stuff we're bringing on is really good. And we've changed out some clients. We've changed out some lenders. And so I think the future years, the prospects are really, really bright.
spk04: All right. And then, Malcolm, it's great to hear your comments about M&A. you know, being pretty active in the back half of the year. I know y'all did thrive, which was a nice, nice deal. But you know, as you look at the, you know, traditional bank M&A where you guys buy a smaller downstream community bank, but we haven't seen a ton of that in Texas, uh, yet. Um, so what, what, what in your mind is, is the holdup there? Is it sellers pricing expectations or is it volatility in bank stocks? What, why haven't we seen more kind of traditional bank M&A yet in Texas?
spk08: Yes, so I'd answer to both of that. The other thing is the smaller deals, they take a lot of bandwidth, and when you can only move an accretion number 2% or 3%, some guys are really happy with that. That's a hard one for me, so I think there's got to be something more than just the 3%. percent or four percent that you can get, whether it's a strategic play geography-wise or they have a business unit you think you might be able to exploit and grow a little bit. So I think there just needs to be a reason. And the reason I say that is, you know, if we grew in the first half of the year $425 million in loans, well, that's a small Texas bank. And I had no execution risk, and I didn't have to pay extra for it, a premium for it. And so... The trade for me is, well, if I can keep up that growth, it's got to be a real compelling reason for the smaller ones. But I do think everybody's stock price kind of got back about 30 days ago, and then the rate thing came, and we all got hit again. And so I think just some stability somewhere. If we could see some stability, I think you're going to see some of those deals trade. But the smaller ones are hard to do.
spk04: All right. Thanks for the conversation.
spk01: Your next question comes from the line of Gary Tenner with DA Davidson.
spk09: Thanks. Good morning, guys. Good morning. I want to ask a couple of questions. I know you talked about fee income a little bit. I don't think I heard much comment in terms of the SBA outlook in terms of production and kind of, you know, you had a real solid quarter there. Any thoughts on production and premiums going forward?
spk07: I mean, yeah, I mean, we're pretty bullish on the back half of the year. Part of that is the 90% guarantee on, you know, new production allows you to certainly sell down more. And, you know, gain on, you know, 25-year prime plus 175, you know, you're getting about 15% premium. You have to split two and a half with the SBA, so you're netting 12 and a half. So think about that. You're You're selling 90, you're holding 10, and you're more than making up your hold with your gain on sale. So we'll do all that we can, and the pipelines feel good. And we've made some hires in that line of business over the last quarter or two. And so it just gives us reason of optimism to think that kind of what you saw this quarter, somewhere it's always lumpy. And, you know, you can have a big transaction that you think is going to close in the quarter and suddenly it gets pushed to the next one. But we feel good about how the back half of the quarter looks in the SBA space. Probably the best we have since pre, before the pandemic. They've been so busy with PPP and we needed to given the needs that our customers had coming through the pandemic. But, you know, pipelines, talent, team is the best we've seen. And Post-green, I would say.
spk09: Great. Thanks. And then as it relates to the back half of the year loan growth, does that incorporate any kind of meaningful growth in the single family portfolio of loans you may purchase through the Thrive channel or given the strength of the commercial fundings and outlooks, does that channel of growth become a little less important, at least for the rest of this year?
spk07: Well, I would say our outlook for growth is not anticipating a big pickup in growth in the single-family mortgage side. It's more continuing kind of what we've been doing. We were up a little bit this quarter, but we were down in Q1. But it's always a lever that we can pull if we need to. If we've got liquidity and loan growth is a little lighter than we thought, we're certainly in a position, and we want to grow that part of the portfolio over time because it's You know, it's 7%, 8% of average loans, and I would sure love it to be 10% and then go on up from there to 12.5% to 15%. High-quality, you know, arms, 5171-type arms, well underwritten.
spk08: But I think it's fair to say we don't have that in our forecast for the back half of the year, so it's another lever if deposits allow to pull that lever.
spk09: Great. I appreciate it. And then last question for me, just to clarify, Terry, your comments earlier regarding the cash flows of the investment book. It sounds like not only will you not build it from here, but the bias is to not even reinvest those cash flows to more favorably use them to fund loans. Is that correct?
spk07: Yeah. We'll reinvest cash flows, but we're not looking for meaningful growth in the portfolio. And I'm certainly glad that we don't have a lot of cash flows to reinvest given where yield is at.
spk09: Great.
spk07: Thank you very much.
spk09: All right. Thanks, Gary. Thanks, Gary.
spk01: And your final question, calling line of Med Only with Stevens.
spk11: Thanks. Good morning, guys. Morning, Matt. Everyone's asking questions on loan growth, so I'll try to ask mine here. I guess taking a step back, any commentary you can provide about just the number or how many new producers you've hired recently or even – What percent of your total producers today at the bank are relatively new to the Veritex team?
spk08: So the total number of producers is not up very much, but I would venture to say I'm looking at my lending guys. We're probably, I'm going to guess, and you can nod, you know, 50%? Up five, that's it? So up five total on producers, but we've changed out. a good third, 40%, from where we were two years ago. So it's more of a change out, but in terms of actual body count, it's not up a whole bunch, Matt.
spk11: Okay, that's helpful. And then on slide six, you guys gave us a good illustration of the unfunded construction portfolio. It's pretty sizable. Any more color you can add about the lag from the commitment growth to the actual funded growth that you expect?
spk08: You know, that's a little bit of a crapshoot, but, you know, you're six to nine months probably until you start getting some funding because we require so much equity up front, you know, 30% to 40% are pretty much in every deal. And so depending on the type of deal, you know, the industrial deal travels at a lot faster rate than a multi-deal does. But it's about a six to nine-month lag from putting it on until you start seeing some fundings.
spk11: Okay. So if the team just started in January, then I guess we're just now about to start seeing some actual growth in third quarter.
spk08: So you're speaking about the builder portfolio specifically? And the builder portfolio is a different issue. The builder portfolio is that the builders around our markets are doing so well. They have so much liquidity. We're seeing several guys putting houses on the books. And the next thing we know, they're paying them off, and they hadn't funded anything. And so, you know, one of our largest lines that we have in the whole bank, the builder owes zero to the bank, and they have hundreds of houses under construction, and they don't owe any bank. So that's a function of just great cash flow from the builder specifically. The ones I was speaking to before that was more on the commercial side. You know, as some of this liquidity dries up, you're going to start seeing some more builder funding. I guess the point is that our builder group has not added much to our loan growth in the first six months of the year. I do see them adding in the back half and certainly into the first half of 22. Okay.
spk11: Thanks for the clarification on that. And then lastly for me on the mortgage warehouse, a little slower in the second quarter. I think one of the items that you attributed the slowdown to was some slower dwell times. Any numbers you can put behind this and any outlook we can see for the back half of the year?
spk07: I don't. I don't have the actual dwell times. I just know that they have shortened up, but I don't have the exact number in front of me. I think they're going to stay pretty short because there's really no spread for the mortgage lenders to carry it there. They're going to push it as hard as they can to get it off the line and get it to cash because they're just not picking up anything. So, I mean, I think what's going to drive – I mean, I'm actually pretty encouraged as I've watched other banks who are in this space report. You know, at first I was kind of – I thought this is really odd. Mortgage warehouse is never down from Q1 to Q2, but on average it is. But I think that's a function of what – I mean, Q1 was just unbelievably good. But I do think that what's going on with rates is going to help that. And the government's done some things, too, that I think are going to be beneficial in terms of that. There was a 50 basis point fee in Q3 around the negative market fee. I don't know exactly what they called it, but they wiped that out. So I think there's multiple things that are going to contribute to better volume, better originations, and I think that will help. The activity will help warehouse balances, but I don't see dwell times moving much.
spk11: Okay. That's all from me. Thank you, guys. Thanks, Matt. Thanks.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect.

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