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Independent Bank Group Inc (NASDAQ:IBTX)
Q2 2021 Earnings Call
Jul 27, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Independent Bank Group Q2 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn this conference over to your host, Mr. Paul Langdale. Thank you sir. You may begin.

Paul Langdale -- Senior Vice President and Director of Corporate Development

Good morning, everyone. I am Paul Langdale, Senior Vice President and Director of Corporate Development for Independent Bank Group and I would like to welcome you to the Independent Bank Group's second quarter 2021 earnings call. We appreciate you joining us. The related earnings press release and a slide presentation can be accessed on our website at ibtx.com.

I would like to remind you that remarks made today may include forward-looking statements. Those statements are subject to risks and uncertainties that could cause actual and expected results to differ. We intend such statements to be covered by safe harbor provisions for forward-looking statements. Please see Page 5 of the text in the release or Page 2 of the slide presentation for our safe harbor statement. All comments made during today's call are subject to that statement. Please note that if we give guidance about future results that guidance is a statement of management's beliefs at the time the statement is made and we assume no obligation to publicly update guidance.

In this call, we will discuss a number of financial measures considered to be non-GAAP under the SEC's rules. Reconciliations of these financial measures to the most directly comparable GAAP financial measure are included in our release. I am joined this morning by David Brooks, our Chairman, CEO and President; Dan Brooks, our Vice Chairman; and Michelle Hickox, Executive Vice President and CFO. At the end of the remarks, David will open the call for questions.

With that, I will turn it over to David.

David R. Brooks -- Chairman, President and Chief Executive Officer

Thanks, Paul. Good morning, everyone, and thank you for joining us on today's call. Our company's second quarter results represent a strong return to organic growth with our teams delivering 12.4% annualized growth in our core loan book for the quarter as the Texas and Colorado economies continue to rebound. This loan growth is both broad-based geographically across our markets, as well as in terms of product type. Most importantly, this growth represents the disciplined execution of our teams in building relationships, winning business and taking care of our customers.

For the second quarter, we reported EPS of a $1.35, group tangible book value per share and maintained robust liquidity. Additionally, credit metrics remain resilient with non-performing assets representing just 29 basis points of total assets at June 30. Given the strength of our company's position, our Board has elected to again raise the dividend to $0.34 per share in line with our long-standing philosophy of providing returns to our shareholders.

And with that overview, I will now turn the call over to Michelle for more detail on the operating results for the quarter.

Michelle S. Hickox -- Executive Vice President and Chief Financial Officer

Thank you, David. Good morning, everyone. Selected financial data for the quarter is on Slide 6. Our second quarter adjusted net income was $58.2 million or a $1.35 per diluted share compared with $49.1 million or $0.90 per diluted share for the second quarter last year and $60.1 million or $1.39 per diluted share for the linked quarter. Net interest income was $129.3 million in the second quarter, up from $128.4 million in the second quarter last year and down slightly from $129.7 million in the linked quarter. The slight reduction in net interest income over the linked quarter was primarily due to lower accretion income, which was $5.2 million in the second quarter compared to $6.2 million in Q1. This decrease was partially offset by interest income on loan growth in the securities portfolio.

PPP fees of $5.1 million were recognized in Q2 versus $4.8 million in Q1 with approximately $10.5 million of fees remaining to be recognized. We estimate around half of these will be recognized in 2021 with the remainder in early 2022. The adjusted NIM excluding all loan accretion was 3.02% for the second quarter compared with 3.29% from the second quarter last year and 3.13% in the linked quarter. The margin decreased by 11 basis points from the linked quarter, due primarily to continued increases in levels of liquidity which impacted the margin by 15 basis points. The average loan yield increased 3 basis points from Q1 excluding the impact of accretion.

Total noninterest income was $15.9 million for the second quarter compared to $18.6 million in the linked quarter. The reduction in noninterest income over the linked quarter is due to lower origination volumes in the retail mortgage operation coupled with compression in gain on sale margins. Noninterest expense totaled $78 million for the second quarter, an increase of $2.9 million over the linked quarter, which was primarily driven by increases of $1.2 million of occupancy and $1.4 million other noninterest expense.

Occupancy expense was up due to completion of several branch refresh during the quarter as well as an unusual amount of small equipment purchases for upgrades and return to work. I do not expect that to recur at that level. Other noninterest expense includes an increase in operations losses of $261,000, loan-related expenses of $365,000 and $422,000 in travel and entertainment expense as relationship managers return to meeting with customers on more normalized levels. There is approximately $1.3 million of consulting and contract labor expense related to PPP forgiveness in the quarterly run rate that will continue through 2021.

Slide 19 shows our deposit mix and cost. Total deposits were $15.1 billion as of quarter end with total noninterest bearing deposits up by $168 million from linked quarter and $650 million in the second quarter of 2020. We brought back $350 million of reciprocal deposits that were off-balance sheet at March 31, 2021. Those were offset by decreases in specialty treasury deposits including broker-dealer and correspondents that were earning higher rates than desired.

Capital ratios are presented on Slide 21. In the second quarter, the company's consolidated capital ratios continued to grow with the common equity Tier 1 capital ratio increasing by 20 basis points to 11.14% and the total capital ratio increasing by 10 basis points to 14.23% for the quarter. We call the $40 million tranche of subordinated debt last week on July 20th that had a rate of 5.75%. This had minimal impact on pro forma capital ratios.

That concludes my comments. I will now turn it over to Dan to discuss the loan portfolio.

Daniel W. Brooks -- Vice Chairman & Chief Risk Officer

Thanks, Michelle. Overall loans held for investment excluding mortgage warehouse purchase loans were $11.6 billion at quarter end compared to $11.7 billion in the linked quarter. Excluding the impact of PPP loans, core loans held for investment increased by $333 million over the linked quarter. As David mentioned, this loan growth was driven by broad-based relationship lending to our customers across Texas and Colorado and was underwritten with the same discipline on rates and structure that has guided our bank for over three decades.

PPP loans on balance sheet totaled $490.5 million at quarter end, down from $912.2 million in the linked quarter. Average mortgage warehouse purchase loans decreased to $850.5 million for the quarter, reflecting the reduction in demand versus prior quarters in line with the broader mortgage market. Overall, our credit quality metrics continued to remain strong with total nonperforming assets of $53.1 million or 0.29% of total assets at June 30, 2021.

Net charge-offs were 13 basis points annualized for the second quarter and were primarily driven by the charge-off of two commercial credits that had been previously reserved for. At June 30, 2021 the CECL allowance for credit losses on loans is $154.8 million or 1.40% of loans held for investment excluding PPP and mortgage warehouse loans. These are all the comments I have related to the loan portfolio this morning.

So, with that, I'll turn it back over to David.

David R. Brooks -- Chairman, President and Chief Executive Officer

Thanks, Dan. As we enter the second half of 2021, loan demand remains strong and we anticipate that we'll be able to achieve high single-digit loan growth for the remainder of the year. In addition to this continued organic growth, we are well-positioned to capitalize on strategic, financially attractive and well-structured M&A transactions as the opportunities themselves. Our company operates in four of the strongest markets in the country and looking ahead we remain committed to the disciplined execution of our strategy to grow opportunistically, especially as the Texas and Colorado economies continue to be supported by strong secular tailwinds, attracting capital and talent.

Thank you for taking the time to join us today. We'll now open the line to questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Brad Milsaps with Piper Sandler. You may proceed with your question.

Brad Milsaps -- Piper Sandler -- Analyst

Hey, good morning.

David R. Brooks -- Chairman, President and Chief Executive Officer

Good morning, Brad.

Brad Milsaps -- Piper Sandler -- Analyst

Michelle, maybe I wanted to start on the expense side of the equation. I was writing quickly there. But it sounds like you expect the -- some of the increased occupancy expenses to come to pullback, while some of those PPP consulting fees will remain at least through the end of the year. Would you expect expenses to kind of fall back into that sort of $76 million, $77 million range or any warehouse space there?

Michelle Hickox -- Executive Vice President & Chief Financial Officer

I think that's fair, Brad, yeah. In occupancy, I think there is a little over $1 million of cost that we recognized in Q2 that shouldn't repeat at that level. The run rate is a bit higher than what I guided to last quarter, because our expenses related to the PPP repayments for people that were paying on contract labor to help with that as well as some of the software solutions that we're using are more than we expected to be for a longer period of time. And so, I think that's probably good. It's probably $76.5 million to $77 million in expense run rate for now.

Brad Milsaps -- Piper Sandler -- Analyst

Great, that's helpful. And then, maybe just moving to the balance sheet. David, obviously some really good loan growth in the quarter. You guys are still sitting on a lot of cash. Just Michelle, just kind of curious what is your plan there to sort of kind of wait for the loan growth to continue to accelerate and redeploy there or might you grow the bond portfolio additionally with some of that excess cash and liquidity you have?

Michelle Hickox -- Executive Vice President & Chief Financial Officer

Yeah. Given that the minimal amount of return we get with many sitting in the -- at the Fed even with rates on securities coming back a bit this past month, we're continuing to deploy our excess cash into the securities portfolio. Right now, our plan is it would be close to $2 billion by the end of the year, but obviously we monitor that and that will depend on loan growth as well.

Brad Milsaps -- Piper Sandler -- Analyst

Great. Thank you, guys. I'll hop back in queue.

David R. Brooks -- Chairman, President and Chief Executive Officer

Hey, thanks, Brad.

Operator

Our next question comes from the line of Michael Young with Truist security. You may proceed with your question.

Michael Young -- Truist Securities -- Analyst

Hey, good morning. Thank you for taking the question. Wanted to maybe just start on the loan growth front, obviously very good net production this quarter, but curious about kind of just outlook in terms of payoffs and pay downs. We've seen a lot of pressure from other banks in that area. Are you guys seeing any of that? And is that kind of the -- maybe the reason for the high single-digit growth versus if that's lower could it be -- could it actually be stronger growth in that on a core basis?

David R. Brooks -- Chairman, President and Chief Executive Officer

Good morning, Michael. We feel really good about the loan growth for the quarter. We think the high upper single-digit estimate for the second half of the year accounts for the summer time and the normal low and closings in the summer, so you could see a little bit of a pullback here in the third quarter and then probably accelerate again in the fourth quarter that's how we would see it in the pipeline right now. But the loan growth, the net loan growth we had for the quarter was really a function of increased production more than a reduction in pay-offs or pay downs, while they normalized a little bit, we're not down materially from what they were in the first quarter where we saw was over $800 million of net production for the quarter, which was couple hundred million more than we've been seeing, we've been running kind of in that $600 million or $650 million a quarter and having similar size pay downs.

This quarter, second quarter, the pay-offs and pay downs were a little under $600 million and our net production was well over $800 million. So, we got -- that is how we ended up with the net 12.5%. It also was very well spread. Our 45% of the new production was in our core CRE, just our customers in our markets spread across all the different product buckets. And then about 20% of it was in construction lending, as you know, the single-family market in Texas and Colorado was just at historic high levels. So we're seeing a lot of a single-family construction. We're also seeing multifamily construction, some neighborhood retail construction just all the markets at and product types that we've always done well in. Then over 20% of the new production was our new C&I funded debt and we had a lot more commitments than that, but that's the funded portion.

And then the rest of it would have just been -- we've got a portfolio of product for jumbo single family, some retail, we're seeing some pickup in retail consumer demand as well. So, really a very strong base. And then in terms of -- geographically it was about two-thirds Texas, one-third Colorado, which is right in line with our balance sheet. So, evenly spread in Texas across our three major markets and so our team did a really good job. They have been hostile and everybody has been working hard for 18 months and it's been frustrating that we haven't had been able to show the net loan growth.

But I think this quarter is a reminder Michael that what we've been saying for eight years as a public company that, we're both an organic growth company and a strong acquirer when the right opportunities come around. So we are not in a situation where we feel that we have to go do M&A to keep the accretion train moving or whatever. We can grow organically. We are going to grow organically. I think we've been consistent in saying that this quarter was, I think, a welcome reminder that we can still grow our company organically. We're in the best markets in the country.

Michael Young -- Truist Securities -- Analyst

Okay, great. Thanks, David, for all that color. Really appreciate it. I guess my second question was maybe just on loan pricing and how that kind of compares to the back book or how -- what kind of pressure, I guess, maybe do we expect over the back half of this year? And then when will we kind of see stability in those loan yields?

David R. Brooks -- Chairman, President and Chief Executive Officer

Yeah. We are encouraged by that as well, Michael, that I believe although Michelle gave the exact number, but I believe our -- the net loan production for the quarter came on at a -- with 2 to 3 bps higher than...

Michelle Hickox -- Executive Vice President & Chief Financial Officer

Well, average loan yields this quarter were up 3 basis points over our previous quarter as we've got PPP loans paid off and our product -- our new production and our loans held for investment, obviously, those rates are a lot higher than 1%.

David R. Brooks -- Chairman, President and Chief Executive Officer

Right.

Michelle Hickox -- Executive Vice President & Chief Financial Officer

I think our -- the last time I looked, Michael, the loan yields were coming in maybe still 10 to 15 basis points lower than what our overall average yields are ex-fees right now. So, I thought that was good to see the increase in the average yield this quarter. If we can maintain that stability, I think that's good outlook for our NIM.

Michael Young -- Truist Securities -- Analyst

Okay, great. That's helpful. Thank you.

Operator

Our next question comes from the line of Brady Gailey with KBW. You may proceed with your question.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

Yeah. It's Brady Gailey. Good morning, guys.

David R. Brooks -- Chairman, President and Chief Executive Officer

Good morning, Brady.

Michelle Hickox -- Executive Vice President & Chief Financial Officer

Good morning, Brady.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

So I wanted to start with the dividend. It's great to see another increase seems like you'll been increasing it a lot recently, but the payout ratio is still pretty modest, it's only about 25% to 30%. How do you think about kind of continued dividend increases from here? And is there a landing zone you want to be at as far as the dividend payout ratio?

Daniel W. Brooks -- Vice Chairman & Chief Risk Officer

Our current philosophy Brady has been to pay out about 25% of our trailing earnings. To your point though, our Board is really having a lot of discussion around is 25% the right number given that we're generating capital. Even with our growth rate, we're still generating capital more quickly than we can deploy it. So we've been watching and expecting that there would be some strategic opportunities on the M&A front. So we haven't been in a huge hurry to be buying back our stock that we've talked about at the prices it was trading at.

And so yes dividend is one way we can continue to trend toward paying back more. I think our Board is looking at that payout ratio now whether 25% is the right number. Given the M&A, given the possibility of stock buybacks we've been comfortable with the 25% level, but we also have an eye toward continuing to increase the dividend as time goes by. So I think that's our bias, if you will. Our lean is toward continuing to increase the dividend and then with the volatility we've seen in bank stock prices pulling back here there may be opportunities for us to be opportunistic on the stock buyback as well.

We certainly would have been in the market last week with the volatility we saw had we not been blacked out for the earnings. So we're going to continue to look to be opportunistic there and our M&A discussions continue to be positive. I'm surprised, I think is anyone is that we haven't seen more announcements here and by late July we're well into the third quarter now and I think there's a lot of discussion, lot of dialog going, but every Board is taking a look at their situation and trying to ascertain what the best pathway for it is and I think you'll see opportunities and activity here in the second half of the year, but we're in the second half of the year now so we'll see.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

Yeah. And David, on the M&A topic, I mean just from talking to other banks it seems like it could be an issue with seller's expectations just being pretty elevated. I mean, do you think that's one of the biggest reasons why we haven't seen more M&A in Texas?

David R. Brooks -- Chairman, President and Chief Executive Officer

I do think that Brady I think pricing -- I think the volatility of the stock prices has been a little bit of a damper on activity as well. The private companies are going, gosh. What if we announced a deal at a certain price and then the market trades. All bank stocks down 10% the next week. And then also I didn't get a premium for my company and so there's those kinds of discussions going on. And I think people are -- I am encouraged that people are being thoughtful around finding a partner that makes sense for you and negotiating a deal that's a win-win. And so those are the discussions we're in. And as I mentioned a moment ago, we're going to be patient. We've been disciplined in our M&A approach for 25, 30 years now and I don't think now is the time to jump out and lead the league and hitting.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

And then last question from me David. It was interesting to see the press release you will put out, I think last week or maybe the week before about hiring John Turpen from -- I know he was recently at TCBI, but maybe just a comment on that hiring kind of what he brings to IBTX.

David R. Brooks -- Chairman, President and Chief Executive Officer

Yeah. So, we aspire I think you have to set the Brady first that we aspire to continue to grow. We're a growth company. We're continuing to look not only at our organic growth, but strategic opportunities. So I've said that we can easily be a $30 billion company by the end of next year and then growing from there. So, as we aspire to continue to grow, we felt like we need to continue to add and expand our team, our leadership team. We got to know John during the Texas Capital merger discussions last year. Really thought highly of him. He is a seasoned executive with a terrific background in U.S. Bank and other large companies. And the truth of matter is we're a big community bank and we've grown up from a small community bank into a bigger community bank.

And as we become a regional bank, Brady, I think it's important that we continue to add and expand our leadership. We've got new leadership in areas like human resources and marketing, and opportunity to pick up a seasoned risks guy who can come in and help us build a deeper and better infrastructure around compliance and enterprise risk management and all those things and with a view toward how it's done in U.S. Bank and other bigger companies. I think was an important hire for us. And I think you'll continue to see us add to our team, expand our team as time goes forward as we build out leadership for the future.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay, great. Thanks for the color, guys.

David R. Brooks -- Chairman, President and Chief Executive Officer

Yeah. Thanks, Brady.

Operator

Our next question comes from the line of Matt Olney with Stephens. You may proceed with your question.

Matt Olney -- Stephens Inc. -- Analyst

Thanks, good morning. I was going to ask about the mortgage warehouse been pretty volatile so far. The first half of the year, would have love to hear about the -- your thoughts on balances for the back half of the year.

David R. Brooks -- Chairman, President and Chief Executive Officer

Sure. Good morning, Matt. We were hopeful that we could landed in that $900 million to a $1 billion range. The markets pulled back a little faster than we expected three to four months ago. And so it looks like we're going to settle in here in $800 million-ish range. That's where we've been trending here the last couple of months. And talking with Jim White who runs that business for us, that's roughly where we think we'll be now for the balance of the year. It's been very competitive in that space as you know as the business has come back a lot of banks have been aggressive in trying to hold on the market share and that's led to a little more competition on the pricing side. And so our guys are doing a great job of working with our customers. We have -- we use the opportunity of that expanded world of mortgage world of that was going on in the last year to upscale some relationships and get into some stronger credits and then we were in there slugging it out for fundings with everyone else. And so it looks like we're land around $800 million.

Matt Olney -- Stephens Inc. -- Analyst

Okay, great. Thank you, David. And then, Michelle, you had mentioned already that the securities balances could potentially get up to $2 billion at the end of the year as you deploy some of the liquidity. I'm curious about that liquidity. Is there a level you're trying to get this down to? I think the earn out levels are around $2.5 billion at June 30 or 16% of average earning assets. What are you targeting within the earn out levels?

Michelle Hickox -- Executive Vice President & Chief Financial Officer

Yeah. That's a lot higher than we would like for it to be Matt. And I think pre-pandemic, we were closer to $700 million. And really what we'd like to do is deploy it back into our loan portfolio, but obviously we can't do that overnight. And so we'll continue to put it in the investment portfolio as we need to. Also being mindful of the fact that if rates go up we do have to pay attention to unrealized losses and so we're trying to be careful there and make sure we're investing wisely.

Matt Olney -- Stephens Inc. -- Analyst

Okay. So, Michelle just clarify maybe $700 million might be a longer term target, but I assume that will take a while to get there beyond just the back half of the year is that...

Michelle Hickox -- Executive Vice President & Chief Financial Officer

I think we're going to continue to have some excess liquidity through the remainder of this year, Matt. It's probably a good outlook.

Matt Olney -- Stephens Inc. -- Analyst

Okay. That's all from me. Thanks, guys.

David R. Brooks -- Chairman, President and Chief Executive Officer

Thank you, Matt.

Operator

Our next question comes from the line of Brett Rabatin with Hovde Group. You may proceed with your question.

Brett Rabatin -- Hovde Group -- Analyst

Hey, good morning, David and Michelle.

David R. Brooks -- Chairman, President and Chief Executive Officer

Hey, good morning, Brett.

Brett Rabatin -- Hovde Group -- Analyst

Wanted to ask, I joined a few minutes late, so you may have covered this to some degree, but wanted to ask about fee income and then I noticed that there was other kind of drop off a little bit, so I didn't know if there was anything of note there. And then, just wanted to ask about the mortgage banking outlook. And how you felt about gain on sale margins from here in production levels, obviously, you just comment on the warehouse.

Michelle Hickox -- Executive Vice President & Chief Financial Officer

Yeah. Mortgage has been impacted more from margin decreases. I think it's down about 30 basis points from Q1, Brett. And so their volumes are down just a bit, but they're really mostly being impacted by margin. The volumes are at least through the end of June, July have stayed pretty steady. And I really hope to give an outlook on mortgage, because it's volatile at times but I think probably Q3 I would expect they will be similar to where they were in Q2 and then generally fourth quarter is a bit seasonal and will go down a bit.

David R. Brooks -- Chairman, President and Chief Executive Officer

That's what drove fee income.

Michelle Hickox -- Executive Vice President & Chief Financial Officer

Yeah, right. That's primarily our fee income line is mortgage.

Brett Rabatin -- Hovde Group -- Analyst

Okay. And Michelle, there was a little dip in other, was there anything noteworthy in the other bucket?

Michelle Hickox -- Executive Vice President & Chief Financial Officer

I think the biggest thing in other has to do with some of our derivative mark to market spreads. So nothing really of note there. Those can be volatile as well depending on where interest rates are.

Brett Rabatin -- Hovde Group -- Analyst

Okay. And then David, my other question was just, you gave some commentary around M&A that was helpful about the volatility of the bank stock market and that's what impacting maybe some stuff happening. Is there anything else that's hindering more M&A happening in the stay, whether it's the sellers wanting to see if we can continue to strengthen or is there anything else that's really slowing down, which you would consider to be a more robust M&A environment?

David R. Brooks -- Chairman, President and Chief Executive Officer

Yeah. You touched -- you just touched the other point I think and that is that the markets have really improved right and we didn't see, I think, another things factors, and we didn't see the credit problems or the depth of a recession that normally would have shaken, would have tested people's underwriting, put it that way and we didn't see that this time. And I really believed when we were talking a year ago that we -- I think everyone thought we were going to see more of a credit differentiation between different banks in their credit underwriting and all that and we didn't see that. And so I think that's allowed everyone to kind of continue to perform at a higher level.

And then I think people are generally optimistic right now about the future and so it's kind of like, wow, we've been through this difficult period of the pandemic, and now we're getting into the best economy and strong growth, especially for banks in Texas and Colorado, for example. The outlook is pretty good for banks. And so there is no real impetus in some cases that I think a lot of us expected a year ago that we would see a deep -- deeper more pressure on banks' loan portfolios, more pressure really kind of testing everyone's underwriting in the last two or three years and we didn't see that.

So there really hasn't been a differentiation on the credit side, which is good for the -- good for our business, good for banks overall and good for the economy, but it has continued to provide pretty solid ground for people to stand on. So there is no pressure I guess Brett right now seems like for people to do anything. And so I think that's another thing is cash flowing down as people are going, gosh, it's sunny. The pathway ahead is sunny and let's kind of run our own company and see if we can do.

Brett Rabatin -- Hovde Group -- Analyst

Yeah. Okay, great. Thanks for all the color.

David R. Brooks -- Chairman, President and Chief Executive Officer

Sure.

Operator

[Operator Instructions] Our next question comes from the line of Michael Rose with Raymond James. You may proceed with your question.

Michael Rose -- Raymond James -- Analyst

Hey, good morning. Thanks for taking my questions. I just wanted to go back to loan growth, the core C&I, kind of ex-PPP and energy. It looks like that was a little over 40% of your growth this quarter, really strong. What drove that? Was it increased line utilization picking up? We've seen that nudge up a little bit higher as just market share gains. And then any differentiation on the C&I side between Denver and Texas. Thanks.

David R. Brooks -- Chairman, President and Chief Executive Officer

Good morning, Michael. I think it's really broad-based across C&I front. We have added new teams as we've talked about a new team members in Texas and in Denver. So really nothing that remark one of Dan. We are getting a lot of traction in that C&I space where we've been hiring, but really not a lot of color Michael that I can add other than we've just been gaining market share. The market is growing well. The new teams we've hired over and have brought new relationships with them and so we're seeing you at the margin that really is impacting our net loan growth.

Michael Rose -- Raymond James -- Analyst

Great. And just to kind of follow up on that. So if I go back a couple of years pre the MOE announcement that you guys have talked about one of the strategic initiatives as you got bigger was to grow C&I relative to commercial real estate, which is kind of being the company's bread and butter for a long period of time and get that CRE concentration sub-300%. Can you just give us -- and I know you're making progress. Can you just give us an update on what the longer term expectations would be for the loan book and the complexion of it as we get into the next couple of years? Thanks.

David R. Brooks -- Chairman, President and Chief Executive Officer

Sure. And I think Dan what are our numbers right now on the...

Daniel W. Brooks -- Vice Chairman & Chief Risk Officer

The 310% and 90% on the problem. We're at or below the thresholds.

David R. Brooks -- Chairman, President and Chief Executive Officer

Yeah. So we've come way down and balancing our book the last couple of years, Michael. And so we're right on track with where we expect to be there. We've done that as we said, look, we've got to introduce a broader portfolio set other than just commercial -- CRE commercial real estate lending and we've done that. We continue to do a great job in CRE, continue to -- that's the bread and butter of regional community bank of course. But by introducing we've seen some traction in energy in the last couple of quarters. Again selective high quality, but an opportunity to add there to a small book. Same thing on commercial C&I. We've always had a good engine in Colorado, but we've been building one in Texas now. It's getting traction.

So those are the things that have allowed us to the balance up the book and I think you'll continue to see that become more balanced over time. And we'll book as we've talked about, Michael. I know you and I've talked in the past. We would love an opportunity to acquire a bank that has a bigger C&I book or special product or something that they've got expertise and that would be additive to us similar to our Guaranty acquisition where we picked up some expertise in retail, some expertise in middle market C&I, picked up a nice wealth management strategy. So acquisitions like that where we can pick up by a team, a company and a team that has maybe a little different skill set maybe than we had in the past and so that's what we're looking to do. I think we've been successful. We're right on track with where we hope to be three years ago when we began move in this direction and I think a couple of years you'll see us be even more balanced.

Michael Rose -- Raymond James -- Analyst

Very helpful. And then maybe just finally for me another negative provision this quarter reserve release, the environment continues to improve here. I know there are some concerns about the delta variant and things like that. But it does seem like the reserve level has room to come down. Could we potentially see some additional releases as we move forward? And just remind us where you were post day one CECL and if you think you can get back there may be potentially below just given the improving outlook. Thanks.

Daniel W. Brooks -- Vice Chairman & Chief Risk Officer

Michael, this is Dan. I'll take that one. Our intention, as we've said in the past, is always to continue to grow into what the CECL reserve is today. You're correct, the credit provision that we took during the quarter was clearly driven by the improvement in the Moody's forecast that we all work toward and I would say will continue to monitor what Moody's does as it relates to the delta variant. But what I think is the best way to say it is based on what we know today, no new provisions are expected in the latter half of the year and we'll have to continue to monitor what economic conditions do and determine what impact that would have. But we expect no additional new provisions and we'll monitor what Moody's does and the impact of that as it relates to future quarters.

Michael Rose -- Raymond James -- Analyst

Great. Thanks for taking my questions.

David R. Brooks -- Chairman, President and Chief Executive Officer

Thanks, Mike.

Operator

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. David Brooks for closing remarks.

David R. Brooks -- Chairman, President and Chief Executive Officer

Thank you. Appreciate everyone joining today. We, I think, as I mentioned earlier, have shown the value of our franchise that we've built over the last 33 years of being in great markets, being able to grow organically as well as being strategic when the opportunity presents itself. That's our pathway forward. I'm really proud of our team. We continue to add new team members and just really happy with where we are today and where we're headed. Appreciate your interest in our company and our story and we'll talk to you soon. Bye.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Paul Langdale -- Senior Vice President and Director of Corporate Development

David R. Brooks -- Chairman, President and Chief Executive Officer

Michelle S. Hickox -- Executive Vice President and Chief Financial Officer

Daniel W. Brooks -- Vice Chairman & Chief Risk Officer

Michelle Hickox -- Executive Vice President & Chief Financial Officer

Brad Milsaps -- Piper Sandler -- Analyst

Michael Young -- Truist Securities -- Analyst

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

Matt Olney -- Stephens Inc. -- Analyst

Brett Rabatin -- Hovde Group -- Analyst

Michael Rose -- Raymond James -- Analyst

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