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Executives

Scott A. Almy - Chief Risk Officer, Executive Vice President and General Counsel

Kevin J. Hanigan - Chief Executive Officer, President, Director, Member of Lending Committee, Chief Executive Officer of Viewpoint Bank, President of Viewpoint Bank and Director of Viewpoint Bank

Pathie E. McKee - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer, Chief Financial Officer of Viewpoint Bank, Principal Accounting Officer of Viewpoint Bank, Executive Vice President of Viewpoint Bank and Treasurer of Viewpoint Bank

Analysts

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Michael Rose - Raymond James & Associates, Inc., Research Division

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Tyler Stafford - Stephens Inc., Research Division

Gary P. Tenner - D.A. Davidson & Co., Research Division

ViewPoint Financial Group (VPFG) Q2 2013 Earnings Call July 24, 2013 9:00 AM ET

Operator

Good morning, and welcome to the ViewPoint Financial Group, Inc. Second Quarter 2013 Conference Call and Webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Scott Almy, Executive Vice President, General Counsel and Chief Risk Officer. Please go ahead.

Scott A. Almy

Thanks, and good morning, everyone. At this time, if you're logged in to our webcast, please refer to the slide presentation available online including our Safe Harbor statement on Slide 2. If you're joining only by phone, please note that the Safe Harbor statement and presentation are available on our website at viewpointfinancialgroup.com. I'm joined today by ViewPoint's President and CEO, Kevin Hanigan; and Chief Financial Officer, Pathie McKee. After the presentation, we'll be happy to address questions that you have as time permits.

And with that, I'll turn it over to Kevin.

Kevin J. Hanigan

Thanks, Scott, and good morning, everyone. Thank you for joining us on this morning's call and for your interest in ViewPoint Bank. I will cover the highlights of the quarter. Then Pathie will cover the bulk of the rest of the slide deck. I will make some closing comments, and then time permitting, we will entertain your questions. My initial comments will be centered on Pages 3 or 4 of our slide deck.

Looking at page 3. In the second quarter, we continued to execute on our strategy to transition towards a more commercially oriented bank, and we did so at an accelerated pace. This transition is moving us away from low-yielding securities and higher percentages of consumer-oriented loans towards growing our CRE and C&I loan books, including the recent addition of energy lending to our slate of products.

Loan growth for the quarter was strong. Overall loans held for investment increased $89.5 million or 5.1% from last quarter. Importantly, our commercial real estate and C&I loans grew nearly $118 million or 9.8% on a linked-quarter basis. The average balance in our warehouse purchase program was up $17.3 million or 2.3% from the prior quarter and up 14% over the second quarter of last year.

Net income for the quarter totaled $8.2 million, an increase of 26% over last year. Our reported EPS was $0.21, and core EPS for the quarter was $0.22. Our net interest margin was 3.72%, up fully 10 basis points over the same period last year and up 8 basis points over last quarter.

Our tangible common equity ended the quarter at 14.1% of tangible assets, still extremely strong. And our asset quality, as measured by NPAs to total loans and OREO, improved from 1.33% from 1.67% in the prior quarter.

Turning to Slide 4. We would like to update you on our transformation to a commercial bank. We've done this by outlining 4 strategic actions and some of the results we've obtained from those actions. First strategic action: hire teams of experienced commercial lenders. In terms of results, the Highlands acquisition, which was completed April 2, 2012, accelerated our transition towards a commercial banking model. And in the last year, we have made 12 additional commercial banking hires.

Point number two: shift earning asset mix away from securities and consumer loans. The result: commercial loan portfolio now makes up 72% of our loan portfolio, up from 29% in 2007. Commercial income accounts for 49% of our earning asset revenue, up from 16% in 2007.

Third point: build out C&I lending with the goal to transition our balance sheet to a more balanced loan book. C&I lending volumes increased to 17% of total loan -- of our total loan portfolio, up from just 1% in 2007.

And the final bullet point: continue our emphasis on low-cost core deposits. Our quarterly cost of deposits declined from 1.42% in December of 2010 to 45 basis points at June 2013. In addition, non-interest-bearing commercial deposits increased to $248 million, up from just $37 million in 2007.

Overall, we are pleased with our progress and are dedicated to the continued execution of this strategy.

With that, let me turn the call over to Pathie.

Pathie E. McKee

Thank you, Kevin. Now we'll be on Slide 5. We'll just go into a little bit more of the detail of the commercial bank transformation. You can see on Slide 5, the company has been successful at diversifying the loan portfolio, improving in its mix of commercial loans.

I'll draw your attention to the graph on the top left, 2007. And why 2007? It was the first year after the conversion from a credit union balance sheet to a thrift. And you can see the progress that was made in developing the consumer real estate portfolio and less consumer, but the mix of the commercial real estate and C&I only accounted for 29%. Moving forward to 2011, the year that we announced our charter change to a national bank, you can see how it's progressing and further to a commercial-type balance sheet, with 54% of the loan mix being in commercial real estate and C&I and only 4% in consumer and 42% in the consumer real estate balance sheet.

Now fast forward to where we are today. As of June 2013 and after our acquisition of a commercial-oriented bank, Highlands, you can see that the company has now 72% of the mix of the loans in commercial-type assets, 17% in C&I and 55% in commercial real estate. There's only 3% in consumer and 25% remaining of our commercial -- oh, I'm sorry, our consumer real estate loans.

Turning to Slide 6. The transition of the loan book has also improved the mix of earning asset revenue. This slide shows the trend in earning asset revenue mix from 2007 to 2013. We show as in -- from 2007 to 2013 an increase of our earning asset revenue mix to 49% of commercial, including commercial real estate and C&I. If you look back to 2007, the mix of the earning asset revenue was primarily consumer loans at 49%. And then back in 2007, 35% of that mix is in securities. During the discussion of our strategy as to getting now the securities and into loans, this is a particular good interest lending graph to show that we've gone from 35% earning asset mix revenue and securities to now just 9% and also, the transition of the commercial interest income.

Turning to Slide 7. Another benefit of the commercial bank transformation is the significant growth in commercial deposits and treasury management fee income. Looking to the slides at top, the growth in commercial deposits' non-interest-bearing deposits has grown from $37 million in 2007 all the way up to $248 million as of the year-to-date 2013, with the most significant growth growing from 2011, about $150 million, up to 2013. The treasury management fee, the billed analysis account started out in 2007 for a full year's income of $13,000 and has progressed to $271,000 in 2012. And just year-to-date, the first 6 months of 2013, we've already recognized $196,000 in billed analysis fees.

Turning to Slide 8 is the earning asset mix. The success of strategy to move out of our lower-yielding cash securities and into loan is visible on these 2 charts. In 2012, we had 31% mix of securities and overnight funds. Moving to 2013, that now represents 22% mix of the earning assets. Loans held for investments are now up to 55% compared to 48% the same time last year, and loans held for sale equates 23% of the earning asset mix.

Turning to Slide 9, the trends in the 2 areas that we are focusing the most to build out the commercial loan book. We had another strong quarter fueled by commercial lending: C&I and CRE. C&I, on the left-hand side, grew a total of $10.6 million quarter-over-quarter. That's including the $5 million decline in what we call our Warehouse lines of credit, which is a portion of the Warehouse -- of the C&I lending book. Excluding the Warehouse line of credit, which is -- goes up and down depending on the real estate activity, the actual C&I portfolio grew $16.5 million in the quarter.

Commercial real estate had an outstanding quarter growing $107 million, from $897.5 million to now over $1 billion in the book. Just during the year, the company has grown $165 million in that portfolio. Together, C&I and CRE increased a combined 9.8% or on an annualized basis, 39%.

Turning to Slide 10, depicts our trending on our Warehouse Purchase Program. Warehouse Purchase Program is included in our loans held for sale, and we have been successful at growing it year-over-year. The average balances increased $93 million or 14% from the second quarter of 2012 to the second quarter of 2013. We've increased the number of clients, 39 to 50, during that same timeframe. For the second quarter, the mix of the loans on the line has increased to 62% purchase and 38% refinance. And the yield on the portfolios remains at 3.87% for the quarter.

Turning to Slide 11. This is another slide to show the position of our earning assets, the investment portfolio. Remember, it's the 22% of the mix. The company has always used its investment portfolio as an asset liability tool and has maintained a low-risk investment portfolio mix, as you can see on the slide here. 89% are government agency-backed securities, with only 11% in municipal that are highly rated Texas-only, bank-qualified municipals. There are no private label securities in the portfolio. Likewise, it has a very short duration and yields about 1.83% during the quarter. It's diversified with mix of fixed and adjustable rate securities are displayed here. And as you can see, it mostly has combined the 15 years mortgage-backed securities floating with only a little duration and at CRE investments, which is in the 20- to 30-year bucket and then again, the latter of highly rated, Texas bank-qualified municipals.

Turning to Slide 12 is another benefit of the commercial transformation improving our mix of deposits. From December 2010 -- and the reason we picked 2010 to show this is this is the area where we had non-interest-bearing deposits at only 10%. That was the low point for the company. But you can see that we have grown that from 10% now to 18%, improving the mix of deposit, and likewise, producing the cost of the quarterly deposit cost from 1.42% to 0.45%.

Turning to Slide 13, shows the financial review in our performance metrics have improved year-over-year on every metric listed. Tangible common equity to asset has improved from 12.96% in 2012 to now 14.10%; the net interest margin is up 10 basis points from 3.62% to 3.72%; cost of funding is down from 0.93% to 0.79%; return on assets has increased from 0.76% now to 0.95%; return on equity had improved from 5.15% to 6.14%; and then the credit quality, the nonperforming assets to loans in OREO has improved from 1.61% now to 1.33%.

Turning to Slide 14, shows the credit quality trend and how it compares favorably to the industry. The quarter was marked with the revolution of several nonperforming credits. We charged off 2 commercial real estate loans for a total of $716,000 during the quarter, increasing our charge-off rate to 0.18% for the year. However, that did release $225,000 reserves. And also, we had 2 troubled debt restructurings pay off in full, totaling $5.9 million, recapturing $480,000 of interest that was on nonaccrual and also released $91,000 in reserves. This has reduced our nonperforming assets to loans and OREO now down to 1.33%. Our nonperforming assets to equity is now down to 4.57% and still compares very favorably to peers.

And then turning to Slide 15. You can see that ViewPoint remains among the strongest capitalized institutions in the industry, with 18% Tier 1 capital at the second quarter and 14.1% tangible common equity. We are still looking to deploy the capital through many resources, such as organic growth, dividends, share repurchases and a disciplined M&A strategy. It should be noted that the company purchased 83,800 shares during the quarter as part of its authorized plan to purchase up to 5% shares.

And with that, I'll turn over the final comments to Kevin.

Kevin J. Hanigan

Thanks, Pathie. Our closing comments are summarized on Page 16. First, we are executing our plan to be a premier Texas community bank. We continue to exhibit strong core commercial loan growth. Credit quality continues to outpace our peers. Our pristine credit quality coupled with our robust capitalization positions us well for play offense. Thank you, and we will now entertain your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from Brad Milsaps of Sandler O'Neill.

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Kevin, you guys obviously had a great quarter of commercial loan growth. Just maybe a little bit more color on how the pipeline looks at this point for the third quarter and kind of what you're seeing as things shape up over the back half of the year.

Kevin J. Hanigan

Sure. I'd say the pipeline still looked pretty good. Looks like they've looked the last couple of quarters, which has been solid. I would say the present pipeline is bolstered by the hire we made in the energy business. So we have quite a few deals in the queue that we're looking at in the oil and gas space, which I think will start pulling through as early as this quarter in terms of a new deal flow that hits our balance sheet. As we look at volume, Brad, from the second quarter, as you saw, CRE was up net $107 million, which was really a strong quarter for CRE. That basically was $132 million worth of new volume generated and about $25 million worth of payoffs. New volume generated in that line of business was generated at a weighted average coupon of about 5.20%, which is actually up from what it was last quarter. As you recall, we did about $98 million on new volume at a 4.90% WAC. In the last quarter, that was kind of tempered down by one large kind of A-rated product we had at either 4.50% or 4.75%. And then last quarter, we had payoffs of about $46 million at almost a 6% coupon on average. So the payoffs this time at $25 million were a coupon of 5.47%. So we've seen lesser payoffs than we've seen historically in that CRE book, and we would hope that would continue. I think the rise of the tenure rate may be slowing down the prepays we're seeing in commercial real estate. Again, we would hope that continues. CMBS market has bid up pricing as have some of the light companies that we traditionally compete against in that market. C&I was probably our best origination quarter ever. There was about $60 million in new originations. Now that only pulled through net-net, as Pathie said, $16.5 million worth of net C&I volume because we had some payoffs and paydowns. I mean, that just happens. We had a client sell their business. They were performing really well. Somebody offered them a very nice exit multiple based on their EBITDA, and I think they paid us off about $9 million when they sold the company. And I'm sad to say, we don't lose many deals, but we lost a deal this quarter. It's a first deal, I think, going back several years. I can remember -- and it goes back to the Highlands days -- ever losing a deal to a competitor. And this one, I would tell you, would -- is a reflection of craziness that occurs in the marketplace. So this client, we probably had just shy of $15 million out to -- priced it quarter-on-quarter with pretty reasonable conservative advance rates and in structure. And a couple of the big banks picked up on this client and started what I would call bidding war for it. Somebody offered them 3.5% pricing versus our 4.25%, way less in the way of collateral monitoring in higher advance rates, only to be outdone by somebody else that offered them sub-3%, with higher advance rates yet and lesser collateral monitoring. Now the client called us and said, "But we'd love to stay with you, but this is the market you want to stay in." And frankly, on any one of those 3 issues, pricing going from 4.25% to 3.50% much less sub-3%, we would've walked -- collateral monitoring alone, we would've walked in higher advance rates we want to walk. So it hit the trifecta of reasons not to stay in the deal. And as much as we hate to lose good selling clients that we have worked hard to bring into the bank, sometimes you just got to say, "Congratulations on a really nice financing, and good luck to you."

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Oh, that's great color, and just one follow-up. Your loan growth has been extremely strong, but that's certainly -- maybe triggered some larger provisions. Just curious kind of what you think about that going forward. I'm sort of navigating, taking your reserve below 1% of loans. But given your sort of loss history, particularly on commercial real estate being so low in the -- all the equity getting your deals, might you see -- might we see that come down a bit from here? Just want to net -- be a little more on a net basis for us through the bottomline.

Kevin J. Hanigan

Yes. And as we look at the reserve, we obviously feel comfortable with the reserve level at the end of the quarter. But like all banks -- and we've seen a lot of folks release reserves here in the last, what, in -- during earning season and go back to last quarter as well. And like most banks, from time to time, Brad, we go back and study our methodologies based upon where we are in the economic cycle, the migration and risk on the balance sheet. And then we back-test loss given default in various lines of business and various loan product types. And the more granular you get, the better results you get in doing so. You referenced our extremely low loss given default in commercial real estate, and it has been for a long period of time. And like most banks, we will periodically go in and review our A triple O [ph] calculations, engage third parties to help us look at it and back-test certain things. The last thing I would say is when you enter a new line of business, like oil and gas and/or C&, I where you don’t have a long history of your own loss experience, you will traditionally go out and find a data point within the industry to use for those kinds of lines of business. And those are all things we look at regularly and we will continue to look at.

Operator

Our next question comes from Michael Rose of Raymond James.

Michael Rose - Raymond James & Associates, Inc., Research Division

Kevin, just wanted to get an update on the mortgage -- I'm sorry if I missed this -- to get an update on the mortgage warehouse pipeline, how you thought the rebound this quarter in balances was relative to your expectation and thoughts on market share in the business.

Kevin J. Hanigan

Yes, I think the rebound was about what we expected when we talked at the -- on our first quarter call. We thought we might get into the high 7.70%, 7.80% kind of average balances, and I think we averaged in the 7.80% steady...

Pathie E. McKee

65, 7.55%.

Kevin J. Hanigan

7.55%, but if we add in the C&I portion of Warehouse...

Pathie E. McKee

Yes.

Kevin J. Hanigan

Kind of fundings, it was -- it's more like 7.80%. So Warehouse in total was about where we thought it would be, somewhat of a dramatic shift away from refi and towards purchase. So the -- as Pathie talked about, we ended up at about 62% purchase and 38% refi. And I think the refi is going to continue to come down. We've long talked about -- there's been a great run for mortgage, but sooner or later, the refi would slow down in its year, largely a reflection of what's happened to the tenure. And I think that will continue to plague the industry. I think listening to the folks who probably do more mortgages than anybody in the country, Wells and JPMorgan, they're expecting across the board, a 30% to 40% decline in mortgage business in general. Not surprisingly, that will be skewed towards those who are running more of a refi model than a purchase model. So I wish I could tell you where it's going from here. We have a few leverages we can continue to pull. We've continued to add clients. We've gone from 47 to 50, and just a year ago, Pathie would probably have 37 or 38. So we're consistently adding clients. We've got about $65 million in commitments that we have participated out to others. And in general, those commitments are funding at about 50% or 55%. I'd say at month end, they were probably at 55%. And we always have the opportunity to buy those back, add new clients. But I think we can all expect the refi segment of the business to go down, and it's finally here, if you will. Fortunately for us, I think it -- we will continue to add really solid kind of core loan growth in CRI and CRE and oil and gas. And if we can produce loans at -- if you just look at CRE and C&I, we're about $117 million, $118 million for the quarter even if there's a $150 million or $200 million drop in Warehouse as the result of refi going away, and that would be refi going -- just math. If refi drops by 70% in total and the purchase volumes went up by 20%, which I think is roughly what the MBA is forecasting, we will replace that volume in just C&I and CRE alone within a couple of quarters, and that assumes we do nothing to bring in additional volume. That doesn't bring back the participation. That doesn't bring in new clients. So we'll be active in all of those regards. But what I would say is we're growing the core business in the areas that we told everybody we want to focus on. We want to be a commercial bank. We want to look more like a Texas commercial bank. And every day, we look a little bit more like one, and I think we're accelerating our growth rates in C&I, CRE, and you're going to see a pickup in oil and gas. We -- just like in commercial real estate, when we hired Patrick Rams [ph] here in 2003. He's a real pro, and he's built a heck of a business. We hired a real pro when we went out, got in the oil and -- in the Warehouse business. Terry Davis, and he's run a heck of a business for us. We've done the same now in C&I with Michael and Silver [ph] and Baylor Bates [ph] running business, of course, and then last, we announced we've hired Chris Paredes [ph], our oil and gas guy, 20-year veteran who worked with many of us before, knows our systems, process, procedures, has a really good following in the marketplace. And I expect Chris will run a great business just like all the other guys we've hired.

Michael Rose - Raymond James & Associates, Inc., Research Division

Kevin, that's great color. And just to kind of piggyback on that, now that you've made a bunch of hires, is it getting to easier to hire or lure away lenders from some of your competitors, perhaps the larger ones? And what does the pipeline for new hires look like over the next quarter or so?

Kevin J. Hanigan

Yes. So we're always in the market, and I would say is success begets success. We've hired 12 in the last 12 months. People have taken notice, not only of the hires but that they're over here and they're doing business and refine the ways to grow the portfolio. And we're serious about what we're doing. So it does get easier. It doesn't mean it's not competitive. There's others that are very focused on hiring folks as well, and not everybody we talked to who might approach us. And the difference is now we have people approaching us, I would say. And not everybody's a fit. And it's not the person that's not a fit. We looked at a small group of people during the quarter that we ended up passing on, not because they weren't great guys and they probably would have fit in the culture, but as we have drilled deeper into the portfolio and kind of industries they were banking and some of the pricing in their portfolio, it probably was less a fit for us. And sometimes if we just say, "Look, it doesn't fit for us," they don't all work out. But we're really pleased with the guys we've got, and we got a pretty good pipeline, more folks willing to join.

Operator

The next question is from Brett Rabatin of Sterne Agee.

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

I joined a few minutes late, so you may have talked about it a little bit. But, Kevin, I was wondering if you could talk maybe about the energy platform and just how big you think you can get that with your current infrastructure and kind of how you view that platform. Is it more of deals that you're going to do on your own and more of the deals that you're going to be just involved in? Or you're hoping to be a part of a syndicate but have a relationship with the customer?

Kevin J. Hanigan

Yes, really good question. Let me handle the first part of that and probably avoid the -- or really have the last part of your question and probably avoid the first about how big it will get it. it will be very successful just like every other business we've gotten into because I think we've hired the right guys. How I would answer, "Where we're going to go from here?" I would look for us to be about a 50-50 mix over time, Brett, between what we originate for our own account and/or sell them to other people. So we may do a $50 million or $60 million commitment that we lead, and we might keep $25 million or $30 million or something like that and sell them the rest. And the other half of our portfolio will be binding the other -- what I would call club or sneak deals that are originated by folks we know very well that underwrite just like us. So I think the blend of the business will be 50-50. I think we've got some really good traction early, and the pipeline looks really good to us both pricing-wise, deal flow-wise. And I think it will grow faster generally than our C&I book grows because in C&I, if we just look at the new commitments we put on and the new deals we did in the quarter in C&I, that was total of $60 million worth of new deals in the quarter. And the average commitment size was $3 million. The average funding size on that commitment was $2.6 million. So those are relatively granular numbers, and we want that portfolio to be relatively granular. Whereas in oil and gas, I think the average hold position is probably going to come out closer to $12 million to $15 million. So it's much more akin to what we're doing in commercial real estate in terms of size of deals. Then it is C&I. So that affords a faster growth rate because you're bringing on deals of greater size. And greater size, in our opinion, is better in oil and gas. We think loss given default is extremely low in this business, and it's extremely low especially if you're dealing with an operator who has a big spread of properties and lots of reserves and isn't concentrated in any one well or property. Those kind of operators tend to borrow small amounts of money because they don't have a lot. Whereas the guys we want to bank have hundreds and hundreds of wells spread out, and no one well accounts for more than 2% to 5%, if you will. 5% would be a big concentration for the kind of client we want to buy. So I think we're going to be really successful in the business. We're really pleased with the higher we've got in the pipeline as we see it today.

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Okay, that's great color. And then the other thing I just want to follow up on was, again, the mortgage warehouse and just thinking about the various gives and takes. I mean, you talked about the potential decline with refinance going down. But I was wondering, kind of look in the period balances, and they were obviously a lot higher than average. And just didn't know, with the end of period being higher and potentially bringing back on some of those funded out participants or maybe adding new clients, if you kind of felt like that could stymie the refi decline.

Kevin J. Hanigan

Yes. So I mean, again, just math. I think the Mortgage Bankers Association either think the refi business is going to climb, peak to trough, 70%. And the purchase business will pick up by 20%. And if that just happened and we were 50-50, which is what we are basically where in terms of our volume, you would say we might see a decline of $170 million to $200 million. I haven't done the math, but that'd probably be about right. And how do we forestall -- if that was the case, how do we forestall that declining volume with just this alone? And that's adding new clients. We've continued to add new clients that -- who'd gone from 37 or 38 a year ago to 50 today, and we've gone from 47 to 50 just in the last quarter. And we have a pipeline of some other new clients. And I mentioned earlier that we -- we've got $65 million participated out. We have the right at any time to buy those participations back. So we'll forestall it in a couple of ways, but it's not unreasonable to expect the end is near on the refi boom. It's here, and we've seen a shift in volume as a result of it. I tend to think we're going -- whatever decline there is, we're going to more than offset it in a reasonably quick period of time by C&I, oil and gas, CRE. And when I think about the spreads in those business, on average, as I said, we did -- the CRE volume we did in the quarter at a weighted average coupon of 5.20%. C&I was over 4%. It was -- I actually had a number here. Bear with me. It was 4.27% in C&I, so let's call it, on average -- worst case, let's say it drops -- we're 4.5% versus we're at 3.82% for the Warehouse, so....

Pathie E. McKee

Yes.

Kevin J. Hanigan

And I don't know how we all put values on the businesses, but I talked to many of you that put an 8x multiple on Warehouse and a 12x multiple on other core businesses. So we're migrating to what is higher-value business in terms of multiples, and we're doing it pretty fast.

Operator

Our next question comes from Matt Olney of Stephens.

Tyler Stafford - Stephens Inc., Research Division

This is actually Tyler on for Matt. I wanted to start with your energy portfolio, and given that it's still a relatively new addition to ViewPoint, how should we think about the yields on the energy loans coming on compared to your other loan types?

Kevin J. Hanigan

Yes. So it's going to yield a little bit less. It's going to be closer to what the Warehouse is, frankly. Most deals in the energy space and the size of the deal that we're interested in, again, which we believe have very low in the way of loss given default, are done on a pricing grid based on usage. And at the low end of the grid, you might have LIBOR 1.75%, and at the high end of the grid, it might be LIBOR 2.75%. And we're generally interested in guys who are using their credit facility. So let's say it's -- most of the pricing is going to be held 2.25% to 2.75%, and then you're -- we're collecting pretty nice fees on oil and gas deals. They're generally 3-year commitments, and we can typically get 0.5 point to 1 point on new commitments. So modeled -- I've modeled at it the lower end of that 0.5 point per deal, and you generally accrete that -- under FAS 91, you generally accrete that fee in over 3 years. So that's -- it accretes in the yield over 3 years. So much more akin to Warehouse than it is -- the very high pricing we're getting in the commercial real estate, which is above 5, and we're doing 4% to 4.35% in C&I.

Tyler Stafford - Stephens Inc., Research Division

Okay, all right. And then switching gears over to M&A, can you give an update or any color on the M&A chatter going on in North Texas, if there's anything that's changed there or anything noticeable over the last couple of quarters?

Kevin J. Hanigan

Lot more chatter than deals done. And we're still focused on exactly what we've talked about in the past. That hasn't changed. I don’t foresee it changing. The board and the management team are focused on the 11 or 12 things in our backyard or near our backyard that make the most sense to us. And anything we do and anybody we might be talking to, we don't want it -- want there to be any chatter about. We -- we're pretty serious about NDAs. But we're out trying to make something happen, but we're only going to make it happen if it makes sense for us.

Tyler Stafford - Stephens Inc., Research Division

Okay. And then lastly, if you are unsuccessful in getting an acquisition over the next couple of quarters, can you give an update on your thoughts or more color on, I guess, the backup plan for capital deployment? Any more color you can give there?

Kevin J. Hanigan

Yes. I would repeat, for starters, what we said at -- on the first quarter call. It's if we're unsuccessful in getting something announced by the end of the year, we would begin to return some capital. And then in exchange for that return of capital, we would want, given another year of trying to make something happen in terms of deploying it. How we return it, we haven't gotten deep into. I mean, we can think about the standard ways. We can think about higher dividend payout ratio, and there's pluses and minuses to that, depending upon when we do it. We could buy back shares. But as I look at tangible book value earned back at today's prices getting -- maybe that's less likely. But we'll look at where the prices at the time. Or we could -- we can do a special dividend and just say, "Hey, we're giving back X amount, and here it is, all in one bell swoop." We do intend to talk to shareholders about it, and we do intend to signal it before we do it. And I would say it's appropriate for the company and the board to be talking about that over the next couple of months as we approach year end. We understand it's not far away. And when we come to some rational conclusion about how we might do it, we're not going to surprise anybody. We're going to come out and make it well known that this is our plan for the repatriation of capital.

Operator

[Operator Instructions] And your next question comes from Gary Tenner of D.A. Davidson.

Gary P. Tenner - D.A. Davidson & Co., Research Division

I had a just question about kind of balance sheet management in general. Kevin, you've talked about the target on the securities portfolio at about 20% of earning assets. I think you were a little under that at quarter end. With rates up a little bit from where they were at this point, do we -- would you expect the securities portfolio maybe stabilize and maybe we start seeing some net balance sheet growth to a little greater degree going forward? Or do you still want to run that down further?

Kevin J. Hanigan

Yes, 15% to 20% would be fine with us. I think we actually ended the quarter at 22%.

Pathie E. McKee

22%.

Kevin J. Hanigan

We have seen some improvement in some yields. So the money, that is, cash flows that are coming off the bonds we're reinvesting, it's slightly higher yields, obviously, than we did in the past but not attractive enough where I'd say, "Let's lever up and go along securities." That's not part of our makeup. I'd rather get it out the door in higher-yielding loans and into what I call our core business. And as you know, we've kept the securities portfolio relatively short in terms of duration, and likely less than half of it is AFFs. And as we just think about the runup in rates in the tenure in particular, there's pluses and minuses for all of us. In our case, I think yes, we can invest cash flows off of bonds, back into bonds at slightly higher yields than we have in the past. I would expect just as the refi boom hurts the Warehouse business going -- when the refi boom slows down. Remember, we have a single family, a whole loan book of mortgages ourselves that's yielding -- I mean, it's is in the 5s. It's yielding 5.16% today. And historically, you -- if we go back over the last couple of quarters, we've seen runoff in that portfolio from refis of about $30 million a quarter. I expect that to slow, and if we take the first couple of weeks as the quarter as any indication that it's slowing. So some of that stuff will be stickier on our books. I expect some of the refi activity, and we've had some refi activity out of our commercial real estate book. And again, that's largely a 5-year fixed-rate product that we offer out there. Some of those refis no longer make sense. So I expect some of that stuff to remain stickier. As those 2 things remain stickier and assuming we can continue to leverage our guys out on the street in terms of generating volume, to me, that would add up -- all of the things being equal, our loan growth rate picks up because of the lack of prepays in those 2 areas. Now the downside of that: rates higher, obviously, unrealized gains and portfolios were all of a shrink a little bit to the extent you got it -- AFF securities, you start to think about other comprehensive income. We're still positive there...

Pathie E. McKee

Yes.

Kevin J. Hanigan

Because of the short duration and the fact that less than half of our securities are in AFFs. But I think that's unbalanced how we think about the rising rates and how it impacts various asset classes on our balance sheet. It's not a terrible thing, the slowdown of prepay speeds in 2 categories where we have coupons in the 5s. Our weighted average coupon and of course, the real estate portfolio is 5.85%, and it's 5.16% in that single-family, whole loan book. Those things stick around. It's -- that's a bad thing.

Gary P. Tenner - D.A. Davidson & Co., Research Division

Well, I would imagine I want a commercial mortgage piece. There's some element of your own production that would represent refi from other banks as well. So there's also possibly slowdown...

Kevin J. Hanigan

Oddly enough, we don't lose a lot of the refi to other banks because of the nonrecourse nature of what we do. We are -- we're planning in the interest that most banks don’t play in. Again, it's a low LTV, 62% LTV. We trade equity for recourse, and a lot of banks don't do that. And we're playing on a niche market, so when we lose out, we usually lose out to the CMBS or light market.

Operator

Our next question is a follow-up from Brett Rabatin of Sterne Agee.

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Kevin, I just wanted to follow up on something you talked about last quarter, and if you already talked about it and I missed, then I apologize. But last quarter, you were kind of talking about a blend-and-extend strategy with loans you had over 6%. And I was wondering if maybe you could give an update on the balances of those loans and kind of how the progress was with those customers.

Kevin J. Hanigan

Yes. I think we still have about $187 million...

Pathie E. McKee

Yes.

Kevin J. Hanigan

That is not subject to prepay in our core commercial real estate portfolio. We have been successful in some blend-and-extends. But we -- what we have seen in the most recent weeks is the CMBS market, which is -- which I would say would be the next most logical thing our typical niche client would evaluate versus us. Pricing in the CMBS market has gone into the high 4s, and we're still able -- we're able to get basically 5% and above. Again, weighted average coupon for the new volume in the quarter was 5.20%. And we can -- we have historically been able to get a premium pricing relative to where the CMBS market is. But it's bid itself up 40, 50, 60 basis points, and it's allowing us to continue to do deals in the pipes.

Operator

I'm showing no further questions. This will conclude our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Kevin J. Hanigan

Great. Again, thank you, all, for joining us. One last thing I would like to say, as many of you are aware, this is Pathie's last conference call. She and I will be on the road next week on her last investor trip. But we want to thank Pathie for 30 years of dedication and service to the company. And the professional manager -- and the professional manner in which she has managed her exit onto different things in the -- in her future. So we just want to make sure Pathie knows we -- we're going to be calling her often over the next 6 months.

Pathie E. McKee

Yes. Thank you, Kevin. I'll miss you, all. Thanks so much.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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