Welcome to the
Texas Capital Bancshares Q3 2020 Earnings Conference Call. All participants will be in a listen only mode during the presentation. Please note this event is being recorded. I would like now to turn the call over to Sharon Wherry, Director of Communications. Please go ahead.
Good afternoon. Thank you for joining us for TCBI's Q3 2020 earnings conference call. I'm Shannon Wherry, Director of Communications. Before we begin, please be aware this call will include forward looking statements that are based on our current expectations, future results or events. Forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from these statements.
Our forward looking statements are as of the day of this call, and we do not assume any obligation to update or revise them. Statements made on this call should be considered together with the cautionary statements and other information contained in today's earnings release, our most recent Annual Report on Form 10 ks and subsequent filings with the SEC. We will refer to slides during today's presentation, which can be found along with the press release in the Investor Relations section of our website at texascapitalbank.com. Our speakers for the call today are Larry Helm, Executive Chair, President and CEO and Julie Anderson, CFO. At the conclusion of our prepared remarks, our operator will facilitate a Q and A session.
And now, I will turn the call over to Larry for opening remarks. Larry?
Great. Thanks, Shannon. And look, really appreciate everybody being on the call today. I know you have a busy calendar these days and so I appreciate it even more. Julie will walk you through the results for the quarter.
But before that, let me make a few comments about where we are and where we're going. Last quarter, I talked about the steps we were taking and the plans we put in place to get us back to a sustainable earnings trajectory that would support a broad range of strategic options, while managing strong liquidity and capital levels. This quarter's results demonstrate the progress we're making. Most notably and as expected, we had a profitable quarter with solid revenue bolstered by mortgage finance, which just continues to provide us with the flexibility while generating strong risk adjusted returns. We reduced our non interest expense run rate, while continuing to invest in key frontline new hires.
We continue to strengthen our balance sheet and actively managed our assets, redeploying some of our prudently held excess cash into securities to enhance yield. We said last quarter that we had addressed some large exposures as we derisked our energy and leverage loan portfolio. That progress is reflected in this quarter's lower loan loss provision. While COVID-nineteen and oil prices continue to provide some headwinds, we're confident that proactive approach to identifying and dealing with problem credits will continue with provision levels much lower than we experienced in the first half of this year. We said we would capitalize on the investments we have made through a renewed back to basic strategy focused on deepening relationships with our middle market clients and delivering better products and results.
We're seeing the fruits of that as client activity picks up and loan, deposit and treasury pipelines improve. These improvements are driven by the incredible talent we have and continue to recruit. We hired a number of C and I bankers during the quarter and are in the final stages of recruiting several more as we focus on the frontline talent that will drive growth of our middle market franchise and leverage our best in class specialty groups. The bankers we hired are just hitting their stride and bringing in new relationships and they have strong pipelines. Also our technology and HIG teams who joined us in the Q4 of last year continue to bring in quality relationships.
With this team, I am more confident than ever in our ability to deliver strong results while gaining market share over the coming years. And I'm pleased to report that we are well into the process of finding a new CEO to build on that progress. I am very excited by the quality of the candidates that we're considering, so much so that I'm confident we'll have an announcement to share before the end of the year. So stay tuned. With that, I'll turn the call over to Julie to review the quarterly results in detail.
Julie?
Thanks, Larry. We're pleased with our Q3 results and the return to profitability, which we expected. Total revenue for the 3rd quarter was $268,000,000 and while not a record like last quarter, it was down only slightly compared to Q3 last year. We've continued to capitalize on market conditions in our mortgage finance business to drive meaningful revenue using our lowest risk loan category. The optionality of the mortgage finance business gives us an advantage by reducing revenue volatility through rate cycle.
As expected, the 3rd quarter provision was significantly less than 1st quarter and second quarter and is reflective of some continued specific reserve changes for certain non accrual loans. As we noted in the second quarter, we believe that the larger credits in energy and leverage have been addressed. We still have problem loans in both portfolios that are being worked to resolution, but the remainder is more manageable. Additionally, deferrals totaled $166,000,000 at the end of September, down significantly from the $1,200,000,000 at the end of June. We would expect 4th quarter provision to be similar to that of Q3, assuming economic factors don't deteriorate significantly compared to our assumptions.
We began to see some of the results from the Q2 actions we took in resetting our cost structure. Additionally, we took another $15,000,000 in software write off. The write offs coupled with the charges last quarter is improving our core non interest expense run rate going into 2021. We're continuing to focus on frontline hires, primarily corporate and commercial bankers. We had some meaningful additions in the 3rd quarter and continue to have a strong pipeline.
Now I'll move on to some more details for the quarter. Our average loan held for investment, excluding mortgage finance was down on a linked quarter basis as we work to reposition the book in energy, CRE payoffs have accelerated and overall line utilization rates are down. Despite the negative impact to loan yields from the full repricing of LIBOR loans, we've been able to offset a portion of it with continued decreases in funding costs and overall loan spreads have been resilient. As expected, we experienced another quarter of meaningful deposit growth. While we still remain focused on opportunities to further reduce interest bearing costs, including those presented as more expensive CDs mature, our emphasis on growing existing client relationships and onboarding new clients will continue.
Net interest income was consistent with the 2nd quarter level despite some decline in NIM. We're always focused on maximizing net interest income despite some fluctuations in NIM. When we evaluate the drop in NIM, net of the liquidity build, since year end, the decrease is only 10 basis points. NIM will continue to fluctuate some based on shifts in earning assets. There was some cash build during the quarter, but we were also able to deploy over $1,000,000,000 to securities.
We will continue that strategy into 2021 and would expect to grow the securities portfolio to $4,000,000,000 or so, roughly 10% to 12% of earning assets in 2021. Warehouse yields declined slightly linked quarter as a result of less volume pricing in place. Core LHI yields realized the full impact of LIBOR pricing repricing with the impact partially counteracted by existing loan floor. As of the end of September, roughly 30% of our core LHI loans had floors in place, which is a meaningful improvement from Q2 level. An already increasingly competitive environment will likely slow the pace at which we can continue to add floors over the coming quarters.
We believe the deposit pricing still has some room to come down over the next couple of quarters as higher priced CDs roll off, but obviously the most dramatic shift has already occurred. Our provision for the quarter was $30,000,000 and was primarily related to some continued migration and specific reserve changes on certain non accrual loans. The 3rd quarter provision is consistent with what we signaled last quarter after the resolution of the larger energy credit. Certainly, we expect to continue to have some additional migration as the cycle matures, but the remaining book, specifically energy and leverage, is more manageable after the multi year repositioning. We believe we are appropriately reserved, most specifically in energy and leverage.
In CRE, we have lower levels of exposure in the most exposed risk segments and with strong equity positions, the loss given default at this time is expected to be manageable. We experienced a slight increase in total criticized of $62,000,000 with the migration including downgrades from special mention to substandard and some from past to special mention, predominantly driven by COVID impacted industry. And about half of that came from the leverage book. It's important to understand that we're seeing more undiscounted payoffs from the criticized portfolio than we've seen in the past. So while the net number is up, there were there was a fair amount of ins and outs that made up that net increase.
Our linked quarter decrease in non interest income was driven primarily by the gain on sale, which was expected. Based on the environment, we would expect the positive trend in gain on sale to continue for the next several quarters, but at lower levels than the 3rd quarter. The second quarter was the peak. The 3rd quarter was lower, but came in a little stronger than originally expected, and we would expect 4th quarter to be more modest, say $10,000,000 to $12,000,000 for the quarter. Non interest expense for the quarter included some benefit from the actions taken in the 2nd quarter.
Additionally, we had a final software write off of $15,000,000 Continued benefit will be evidenced in 4th quarter core expenses and into 2021. For the second half of twenty twenty, our normalized non interest expense will be in the low to mid-two ninety and that's excluding the $15,000,000 write off. We're in the formal planning process now and we'll have more detail about specific non interest expense targets in January. But bottom line, we feel good about the actions we've taken in positioning us to continue to invest in frontline talent while driving meaningful improvement in PPNR. Larry?
So thanks, Julie. Before we go to Q and A, let me just take a moment to recognize and thank the outstanding leadership team, bankers and employees at every level of Texas Capital Bank who continue to do extraordinary work under these extraordinary circumstances we're all living through. While we will address the 2021 outlook in January, I would leave you with a few thoughts about what our focus will be. Continuing to attract frontline talent and targeted loan growth, while maintaining our focus on managing credit through the cycle. The recruiting process that we are executing on this year, whether at the CEO or the banker level, has given me even more conviction than I already had that the Texas Capital brand and the Texas market continue to be held in high esteem.
With that, Julie, John Turpin, our Chief Risk
Our first question comes from Steven Alopoulos from JPMorgan. Please go ahead.
Hi. Good afternoon, everyone.
Good afternoon. How are you doing?
Maybe to start. So if we think about pretax pre provision income as the mortgage contribution moderates in coming quarters, can you talk about your ability to continue driving pretax pre provision growth?
Sure. So I'll make a few comments and then Larry can add. So yes, we would expect mortgage to moderate some, and that's obviously dependent on what the overall mortgage industry does. I think Larry talked about there certainly we are seeing some pickup in client activity. Some of the newer bankers that we've added this year are seeing pickup in client activity.
And then we have more bankers that we're hiring. So I think that we would expect to see growth in some of those targeted areas happening starting later this quarter and into next year. That's where we would expect it to come from. In addition, Stephen, the resetting that we've done on the cost basis, is certainly going to help earnings going forward.
Yes. I would agree with everything Julie said. Clearly, the 2 that I out in my comments, technology and HIG, I've just seen a number of new relationships popping up here over the last couple of months. I think we'll continue to see that. The bankers that are focused on the rest of C and I that we've hired this year, starting to see the pipeline build on that.
So I think will continue to see a good loan experience in our specialty groups. We know mortgage will be down some, but I think we can make it up depending on what happens with the economy. Now look, if the economy changes substantially, then it won't be any different than anybody else. It will depend on the market.
Steven, one other thing to keep in mind on the warehouse is that
we have over $1,000,000,000 in sub
I think into securities will help with that going forward.
So Julie, do you think you guys will be able to drive net interest income growth? I mean the decline is moderated, but do you think you can actually grow it from here?
Yes, absolutely.
Okay.
Q4, obviously, Q4, we could see I would expect it to be flat to down some in the Q4 depending on what goes on with warehouse. But yes, we're absolutely expecting to expand revenue going forward into 2021.
Okay. And then finally for Larry. So a lot of talk about new hires. I'm somewhat surprised, right, you have a very uncertain macro environment and you guys are under a CEO search. So one, is that impacting your ability to recruit at all?
And then second, the company had a good history of hiring bankers, getting loans, but not getting the full relationship. Are you changing the hiring strategy to go after bankers where you get that more complete relationship? Thanks.
Absolutely. And the bankers that we've hired going back to the Q4 of last year in those two specialty areas I talked about as well as the C and I bankers we're talking to today, they've all been trained on this activity and how to deepen the relationship and grow the wallet with other non credit services. I mean, I've been doing that and I hadn't been in banking specifically for 15 years, but I certainly did it before that. And if you can't do that, then obviously you're not going to be as successful. So absolutely, we're not talking to lenders that are just lenders, if that's your question.
Yes. Okay.
And with that comes treasury deposit. So that's certainly the focus now and will continue to be the focus, which will improve revenue.
All right, great.
Thanks for all the color.
Thank you.
Our next question comes from Jennifer Demba with SunTrust. Please go ahead.
Hey, good afternoon. Just curious about what you're expecting in terms of mortgage warehouse activity over the next few quarters. Could the typical holiday and winter seasonality be a lot more muted this year, given the level of home buying and upgrading we're seeing right now?
Yes. I think that's right, Jennifer. I would expect overall volumes averages to be flat to down, yes, for the Q4. But conservatively, I would tell you, I would expect it to be down. It could absolutely come in more flattish.
And you said you have the ability to bring in more participations. What kind of how many participations are out there right now and what's the capacity to
So we have it's I think yes, I think in the warehouse, we have sub participations of probably 1,400,000,000 dollars and you've seen us do that in the past where certainly in times of high refinance activity, we increase separate stations, but we certainly have the ability to bring them back onto the balance sheet. There's a 90 to 180 90 to 1 180 day notice period that we would give, but you could see that happening into 2021.
And Larry, question, what's the company's propensity and interest in share repurchases at this point? In the past, the company has not really used that as a tool. I'm just curious what's thought on that?
Well, we're really working on improving our bank, our capital ratios, our earnings, as I said before, we're not really focused on share repurchases. I would never say we would rule that out, But right now, it's not part of what we're looking at. So if you're asking me propensity, we've never had a propensity to buy shares back. But look, we're going to look at all alternatives and we get a new CEO in. It will be up to them to determine a longer term strategy and what role share repurchases or other capital activities play in that is going to be up to him or her and the management team.
Thank you.
You're welcome.
Our next question comes from Brad Milsaps with PSC. Please go ahead.
Hey, good afternoon.
Hey, Brad.
Julie, I wanted to ask quickly maybe on the margin, specifically around some of the deposit rates. I noticed that the cost of interest bearing demand and the cost of savings, actually interest bearing demand went up about a basis point linked quarter and savings down just 3%, still well above kind of the levels we saw when rates were this low last time around. Is there anything that's precluding you from bringing those down further? Or is there a chance we might see a bigger drop off in some of those deposit rates over the near term?
Yes. I think that we absolutely have the ability to bring some of those costs down. I mean the first thing you would see is in the CDs that we have. Those are going to be rolling off. It will be rolling off over the next few quarters and they're at much higher rates.
I think we've even given the detail on that in a slide. And then on some of the other interest bearing, absolutely, there's opportunity to opportunistically reprice going forward based on relationships.
Okay. But it doesn't sound like you're poised to sort of bring those back. I think it's just bearing demand last time around. Those rates were down in the teens, you're sitting at 62% right now. Is that something that happens over a number of quarters or how are you thinking about that?
Yes. I think there's not any we're not planning any wholesale rate changes at this point. I think that's something that you would see happen over time. And as you know and we've talked about as we as with treasury services and with these onboarding of some of the new bankers and more holistic relationships, I think that you're going to see that mix change some and that's where you're going to see that come down.
Okay. And as a follow-up, maybe to ask the mortgage warehouse question a third different way. If the MBA is sort of forecasting mortgages and the originations in 2021 to look a lot like 2019, would you expect sort of your averages to look similar to 2019? Or do you think you guys have taken more share, have more customers to where you could do a little bit better than you did, all else equal, than you did in 2019? Okay.
Well, first, I would say that I'm not going to we're not going to give any real 2021 guidance. So we'll defer to January for that. But I guess I would tell you Brad that we that I think we historically have will beat the MBA estimate. So I think we would generally beat that. And yes, I think that we have continued to be in the market share takeaway business.
So I guess stay tuned for more specifics on that in January. We're still talking about all of that internally right now.
Our next question comes from Brett Rabatin from Hovde Group. Please go ahead.
Hi, good afternoon.
Hey, Brett. How are you doing?
Good. Wanted to ask about the deferrals and second round here, you had $61,000,000 of 166 $1,000,000 Can you just talk about the deferrals that are remaining and the ones that you're getting requests on now? Like how you managing those and what do you expect to happen with those as they go through this last round?
Sure. Brett, this is John Turpin. I'll take that. $61,000,000 at the end of the quarter, the current number is $39,000,000 just to show you the pace of which that is coming down. So I think that that looks very positive.
It's important to understand that first round of deferrals was more of a customer request and we granted those requests. The 2nd round of deferrals are with the longer term vision of a holistic resolution and so there is a deeper conversation and refreshing of projections and really taking a look at those deferrals for the long term benefit of the client and how we see that playing out. So it really is something that we continue to remain diligent on, but the volume is pretty low at this point.
Okay. And then secondly, the criticized loans in the energy book actually declined this quarter after building for the last 4. Do you guys feel like you turned a corner in that portfolio and that continues to happen? And do you think you've marked a lot of the problem credits in that piece of the portfolio enough that essentially it's not going to be a driver relative to the other pieces that are more at risk?
Yes. We've been through a multi quarter proactive actions as you know in that portfolio and resolving some of the larger exposures that we have that are not reflective of what remains in the portfolio is what we've been working on for a few quarters now. And the reserve that we have against that book is either near or at historical highs. So we feel pretty good about where we're at in the reserve against that book as well as the assumptions that we have on what the macro looks like sector. We also supplement our reserve analysis with a loan by loan stress analysis and cash flow analysis on those names.
And I can tell you that when we looked at it in February and we looked at it within the last 30 days, our view hasn't materially changed on what those stresses look like in specific names. So we're at a very comfortable place right now with the reserve against that book.
Okay. And then Julie, just really quickly, the purchases that you're going to do in the Q4 in the securities book, I'm presuming that they're Okay. Great. Appreciate all the
color. Okay. And then
Our next question comes from Michael Rose with Raymond James. Please go ahead.
Hey, thanks for taking my question. Just as a follow-up to the last question, is there a certain size you want to build the securities book to that you're targeting at this point?
Yes. What I said in the comments was that we would expect that to grow to $4,000,000,000 so, maybe 10% to 12% of earning assets into by 2021.
Okay. Sorry if I missed that.
And then just as we think about the
hiring that you guys are think to kind of achieve your goals? Just wanted to see how aggressive you might be given the dislocations out there and what that could mean for the expense base? Thanks.
Sure. So, look, I think we stated previously, we were looking to hire 10 to 15 bankers between now and the first half of twenty twenty one. I think that's still a good number. We find that there are highly qualified candidates out there and we'll see what next year looks like if we want to increase that number or decrease it. But right now, we're certainly looking to fill that number.
Okay. And maybe finally for me, Julie, any updated thoughts on capital or is that something that would happen potentially after a new CEO came on board at this point? Thanks.
Yes, I think that's I mean, I think that's right. I think we certainly don't need capital. We feel comfortable with overall capital. Consistent with what we've said in the past is we would be we would perhaps be open to some optimization of capital and replacing some sub debt. So that might be something that we look to do.
But yes, it would be in the future.
Okay. Thanks for taking my questions.
You bet.
Our next question comes from Brady Gailey with KBW. Please go ahead.
Yes, it's Brady. Good afternoon, guys. Hey, Brady. So I just wanted to ask about expenses. You're guiding to the back half of this year.
We already know what 3Q looks like. So it looks like indirectly you're guiding to 4Q expenses of about $140,000,000 to $145,000,000 I just want to make sure that was right. And then longer term, I mean, you're making some hires, but you're also getting more efficient. I mean, would you expect that number to be fairly flat for the next couple of years or would there be growth?
So yes, that math your math is correct for the Q4. And so kind of when you look at the normalized for the year, we would expect because we did that reset and because we did those we've done those reductions, we would expect and again, we're not going to give guidance for 2021 yet, but we would expect normalized twenty 20. We would expect 2021 to be down from that, down from the normalized 2020.
Okay. That makes sense. And then I was just wondering what new loan yields were in the quarter. I know if you look at your held for investment loans, excluding mortgage, the portfolio yield was about 3.84. What was the new loan yield in 3Q?
So, Marie, I don't have that in front of me, but that's not something that we normally give. Obviously, the rate can vary depending on the area that it's coming from, whether it's real estate, whether it's C and I. I guess, I would just what I would tell you is that we are focused on quality credit and only for onboarding quality clients. And so we will certainly deal with rate competition as needed.
Maybe to ask
it a little differently.
Do you expect that core loan yields excluding mortgage have bottomed here and they'll be pretty stable or is there more downside to come in the future?
I mean, it just depends on the mix. Again, we had pretty good we've had pretty good success for a couple of quarters at getting floors on new deals, which certainly helps offset the reset from LIBOR that we've had. But I hear from the frontline that that's becoming harder competitively. So I'm not I guess I would tell you it's just going to depend. It's going to depend on where the new deals come from and what competition does.
Okay. And then finally for me, it's great to hear that you all got some success hiring. I'm just curious, if you look at the RN count today, how does that compare to a year ago? Do you happen to have those numbers? And if not, is it higher or lower than a year ago?
Yes. I think that I think the numbers are I don't have that in front of me, but I would say that the numbers are about the same because I think there was some kind of normal attrition as we've changed kind of our focus. So I don't have it in front of me, but I would say it's probably on the RM side, I would say it's probably net flat.
Okay, great. Thanks for the color guys.
Thanks. Thank you.
Our next question comes from Ebrahim Poonawala from Bank of America Merrill Lynch. Please go ahead.
Good afternoon.
Good afternoon.
Hi, Ebrahim.
Yes. Just wanted to follow-up on a few things. 1, Julie, on expenses. So I guess Q4, just want to make sure I understand this correctly around your response to one of the earlier questions. Your full year expenses for this year will be somewhere around $592,000,000 $595,000,000 based on how you've talked about it in the Slide 14.
So we should expect 21 to be lower than that 5.19 and clearly the Q4, Rania, is going to be somewhere around 140,000,000 dollars Am I thinking about these pieces correctly?
That's fair.
And should the message of this be that we should expect more on the expense front or are we at a point where you did what needed to be restructured and now we are more in terms of managing costs slightly, but at the same time investing, so we shouldn't expect a lot more in terms of just outright cutting of costs?
Yes, I think that's fair. I would tell you that the support areas of the company, we are all very focused on remaining flat and continuing to find efficiency, because we want to support the frontline investments that we need to make. So we're not going to we're certainly not we have no plans to do anything drastic in the short term that would affect what we're trying to accomplish in the long term. But yes, I think we're focused on efficiencies and we're focused on maintaining and reducing on the support side to offset the investments that we need on the front line.
Got it. And I guess just moving to I think you talked about deposit costs on like savings deposits at 40 bps transaction at 62. On the other side, you've got $11,000,000,000 sitting in 10 basis points cash. Just remind us why that negative carry makes sense? Why not shutting down some of that cash outside of what you want to deploy into securities?
Like how much more excess cash do you need and why not be more aggressive in bringing down costs to kind of, I guess, free up capital?
So again, we're going to deploy some into securities and then I think as you see us go into 2021, we absolutely will be focused on optimizing the funding side. So I would expect to see some of that come down into 2021. I can't tell you exactly what level, but yes, I would expect that to come I would expect a portion to be deployed into securities and we would expect some optimization happening on the funding side that we're already working on. So I would expect that cash, the actual cash to come down into 2021.
Got it. And just lastly in terms of I guess for Larry in terms of the hiring that you're doing with some of the responses that you gave to the previous questions. What's your intent for that hiring and also the new CEO that you're bringing on strategically is the idea to have someone in, I'm assuming it's an external candidate who reorients the focus of the franchise or just talk to us in terms of how the Board thought about who that candidate should be? And what were the number 1, 2 or 3 priorities that you were looking for in that candidate?
Sure. So look, I'm not going to tell you who it is, but when we know, we'll let you know. But I think I've said before, look, we're looking for somebody that really understands this business, who can look at the entire landscape of our markets and other markets, determine which businesses we ought to invest more in, invest less in, looking for somebody with great leadership, talent and qualities. We're looking for somebody with a track record of execution of the strategy. And so clearly, the candidates that we've seen all have those qualities and many more.
We went through a pretty exhaustive process with our search firm to build a succession planning process over the last 18 months or 2 years. And now that it's time to execute on that, we've hit the ground running. And so we had lots of criteria that we're looking at and the candidates that we've looked at, many of whom have met all of those and more. So I'm really excited about it. I'm happy to work with a new CEO for whatever period of time and either as executive or non executive Chairman.
And so we'll have that done by the end of the year we'll go from there and then you'll know exactly what they look like.
Thanks, Ait. Well, thanks for taking my questions.
Thank you.
Our next question comes from Gary Tenner with D. A. Davidson. Please go ahead.
I wanted to ask on
the loan portfolio. You gave in the slide deck a pretty good kind of year over year kind of walk through of the beginning balance to the September 30 balance. I wonder if you were to look at that on a sequential quarter basis in of targeted reductions, line utilization, etcetera, what the biggest deltas would have been on the $700,000,000 or so sequential quarter change?
I don't know. I mean, I don't know that there would have been I think the line utilization has come down more in the last quarter or 2. I don't know that it would be that different than the than kind of generally how this is. I think the line utilization is probably the thing that would be more dramatic in the last quarter or 2 than over the year over year. And then I would say the targeted reductions, I would say those were more weighted toward last year Q3, Q4 in the 1st part of the year.
Does that help? Yes. No, it does. I guess on the line utilization, obviously, the more recent thing item and of course we've heard that from most banks. Do you have a sense of do you think we're at the bottom of volume utilization at this point to where LHI loans might begin to stabilize here or do you think there's some additional deleveraging from your customers to come?
So I think yes, I think it is because I think we're starting to see some pickup in activity. In March, we were all braced for line utilizations to go through the roof and ours picked up a little bit, but not much and then they just continue to come down. I don't know, J. T, do you have any comment? T.
Moriarty:] Yes,
I can just add. I mean, certainly, I think where we're at, the line utilization in the last 90 to 120 days has probably fluctuated off the baseline, plus or minus 10% is where I would say. I won't give you what those numbers are, but it's from historical levels, it's plus or minus 10% within the last 90 to 120 days starting at the end of the Q1. Okay. Thank you.
And then just for kind of margin building purposes, could you give us the effective yield for the PPP loans in the quarter?
I don't know what it is. Is it
Yes, it's the standard 2% or 3%.
Yes. Yes. It's pretty definitely it's a pretty immaterial impact on our overall number based on the amount of PPP loans that we had.
All right. Fair enough. Thank you. Thanks.
Our next question comes from Brock Vandervliet with UBS. Please go ahead.
Thanks for taking the question.
I think I saw in
one of your slides, you mentioned almost $3,000,000,000 of FHLB borrowings coming due pretty soon. Would the plan be to just pay those off? Is that part of the optimization on the funding side?
Correct.
Okay. And
Most of what we normally keep at FHLB is overnight money and it's we get advances on our mortgage finance portfolio. And so these were some, if you remember, in the March timeframe, we did some extended maturities. And so, yes, these will just roll off.
Okay. And this has come up on other calls as well. I think a lot of us assume that the deposits, whether PPP or otherwise, that pounded in, in the last couple of quarters would kind of go the other way. But more recently, it seems like some bankers are intimating that they may hang around longer for any number of reasons. What's your view on your deposit flows and how much you may retain there?
Do you any sense of that?
Yes. So I don't and I don't know that PPP, I mean, yes, there were some in deposits. I don't know that that's been a meaningful driver one way or the other on our deposits. I mean ours has come from our deposit growth has come from mainly from existing clients. Certainly in the mortgage industry with the volumes they've had, there's been some growth.
That's an area of focus for us. And so that certainly some of the growth has come from that. And then it's just come from other existing clients as we refocused our efforts on treasury calling on some of our existing clients.
Okay. And within the mortgage financed operation, if you could just remind us, are you indifferent regarding the mix of refinance or purchase or is there a real difference in profitability to you?
Yes, there's no difference in the profitability. I'll tell you that most of our clients are they're purchased like we don't with their purchase, but obviously they take advantage of the refinance market. But our clients are people who are in the business all the time, whether there's refinance boom or not, but certainly they take advantage of that. But yes, there's not any difference in the pricing.
Okay, great. Thanks for the questions.
Thanks.
Our next question comes from Bill Dezellem of Tieton Capital. Please go ahead.
Thank you. I would like to also follow-up on the mortgage loans, specifically the brokerage loan fees, up by 50% versus the 2nd quarter. That seems much larger than what we would have expected given that the second quarter also had a pretty high level of mortgage activity, maybe excluding the 1st month of that Q2. Would you talk to why you were so successful with that 50% increase sequentially?
Yes. So Bill, those are those fees lag, those fees are paid at the end. So it will usually yes, they were strong they were both strong quarters from volumes, but those fees, the majority of those fees are paid at the end. They're paid at the end when the loan is paid off the line. So you can see those lag
some. Some of
the fees that were in the some of the fees that are in the 3rd quarter, they would have been on volumes advances that we made in Q2.
Understood. Thank you for the clarification.
Sure.
Our next question comes from Peter Winter with Wedbush Securities. Please go ahead.
Good afternoon. Hi, Peter.
I just want to click on one line within expenses. The marketing has come way down and it declined again in the Q3. Can you just talk about what's happening in the marketing line?
Yes. If you remember a few quarters ago, we were talking about there were some deposit related there were some deposit related fees in there that were kind of variable with some of our index deposits. So as rates have come down, those have come down as well.
Would you think that this level is a good run rate then going forward?
Yes, I do. I think this is a good run rate. There's some additional I mean there's some traditional marketing and some business development things like that, but yes, I think this is probably a good run rate.
This concludes our question and answer session. I will turn the conference back over to President and CEO, Larry Helm for closing remarks.
Great. Thank you very much. Appreciate everybody calling in today. And look, if you have follow-up questions, Julie or JP or I and others will be available over the next several days. So feel free to get in touch with us.
Thanks again.
Thank you for your participation in TCBI's Q3 2020 earnings conference call. Please direct requests for follow-up questions to Julie Anderson at julie. Andersontexascapitalbank.com. You may now disconnect.