Q2 2022 Trustmark Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's second quarter earnings Conference call.
At this time all participants are in a listen only mode.
Following the presentation. This morning, there will be a question and answer session.
To ask a question you May press Star then one on a touchtone phone.
The majority of your question. Please press Star then two.
As a reminder, this call is being recorded.
It is now my pleasure to introduce Mr. Joey rein.
Correct or of Investor relations at Trustmark, Mr. Ryan the floor is yours Sir.
Good morning.
I'd like to remind everyone that a copy of our second quarter earnings release as well as the slide presentation that will be discussed on our call. This morning.
On the Investor Relations section of our website at Trustmark Dot com during the course of our call management may make forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Like to caution you that these forward looking statements may differ materially from actual results due to a number of risks and uncertainties, which are outlined in our earnings release and our other filings with the Securities and Exchange Commission.
Tom I'd like to introduce Duane Dewey President and CEO of Trustmark.
Thank you Joe and good morning, everyone and thank you for joining US with me. This morning are Tom Owens, Our Chief Financial Officer, Barry Harvey, Our Chief credit and operations Officer, and Tom Chambers, Our Chief Accounting Officer.
Trustmark had a strong second quarter restaurant reflected by significant loan growth strong credit quality and expansion in the net interest margin.
For the second quarter Trustmark reported net income of $34 3 million or 56 cents per diluted share.
Let's look at our financial highlights in a little more detail by turning to slide three.
At June 30th long held loans held for investments totaled $10 9 billion, an increase of $547 7 million from the prior quarter and 792 million from the previous year.
Deposits totaled $14 8 million, a decrease of $343 1 million linked quarter and a $138 1 million increase from this time last year.
Revenue in the second quarter totaled $165 9 million, a $12 5 million or eight 1% increase from the previous quarter.
Net interest income totaled $115 6 million in the second quarter, an increase of $13 2 million or 12, 9% linked quarter.
Non interest income totaled $53 3 million and represented 32, 1% of total revenue in the second quarter.
Noninterest expense in the second quarter totaled $123 8 million, a one 8% increase from the prior quarter.
Credit quality remained solid this quarter as nonperforming assets declined three 7% from the prior quarter and recurrent copper each exceeded charge offs by $1 7 million.
We continue to maintain strong capital levels with a tier one ratio of 11.0% to 1% and a total risk based capital ratio of 13.26%.
The board declared a quarterly cash dividend of 23 cents per share payable September 15 to shareholders of record September 1st.
During the second quarter, Trustmark repurchased seven 5 million or approximately 263000 shares of common stock.
As of June 30, Trustmark had $83 4 million remaining under its authority in its existing repurchase program.
Which expires 12 31 22 at this time I'd like to ask Barry to provide color on loan growth and credit quality.
I'd be glad to Duane Thank you.
Turning to slide four our loans held for investment excluding PPP loans totaled $10 billion as of June 30th an increase as Dwayne mentioned, Bob $148 million linked quarter or five 3%.
$792 million or seven 8% from the prior year, we're extremely excited about the Q2 loan growth.
Kurt in almost every category with the exception of public finance.
We are now anticipating high single digit loan growth for 2022.
Our loan portfolio continues to be well diversified baseball boat product type as well as geography.
Looking at Slide five trust.
Trustmark CRE portfolio is 62% existing 37% of construction land development.
Which is 92% vertical.
Our construction land development portfolio is 78% construction the bank's owner occupied portfolio has a nice mix between real estate types as well as industries.
Turning to slide six the bank's commercial portfolio was well diversified as you can see across numerous industry segments with no single category exceeding 13%.
Moving now to slide seven our allowance for credit losses.
Our loans held for investment was $2 7 million.
The provision was primarily due to reserves related to loan growth and the nature and volume of the portfolio offset by improvements in the macroeconomic forecast.
At June 30 of 2020 to the allowance for credit losses.
Loans held for investment totaled $103 $1 million.
Looking at slide eight we continue to post solid credit quality metrics.
The allowance for credit losses represents 94 point.
Nine 4% of loans held for investment.
And 475% of nonperforming loans, excluding those that are individually analogs.
In the second quarter recoveries exceeded charge offs by $1 7 million.
Non accruals declined by three 6%.
The second quarter and nonperforming assets declined by three 7% from the prior quarter.
Thank you Barry now turning to the liability side of the balance sheet I'd like to ask Tom Owens to discuss our deposit base and net interest margin.
Thanks, Dwayne and good morning, everyone.
Looking at deposits on slide nine.
It's totaled $14 8 billion at June 30, a $343 million decrease linked quarter, and a $138 million increase year over year.
The linked quarter decrease was driven primarily by a decline of $200 million in public fund balances with the remainder split.
Proportionally between personal and non personal balances.
The year over year growth has been driven primarily by personal account activity with accounts, which accounts for about $421 million in public fund balances are off about $252 million.
So the granularity of our deposit growth remained strong.
Our cost of interest bearing deposits was unchanged from the prior quarter and 11 basis points.
And we continue to maintain a favorable deposit mix with 31% of balances in noninterest bearing accounts.
And 64% of deposits in checking accounts.
Turning to revenue on slide 10, net interest income FTE increased $13 $2 million linked quarter.
Mm $115 6 million, which resulted in a net interest margin of 290 <unk>.
That represented a linked quarter increase of 32 basis points.
Higher loan yields contributed about seven $3 billion of lift linked quarter, while higher average loan balances contributed about $2 2 million of increase.
Our securities portfolio contributed about $2 $2 million of Lyft linked quarter with about $1 3 million due to higher yields and about 900000 due to higher average balances.
Interest on excess fed reserves contributed about $1.2 million of lyft linked quarter.
Net interest margin excluding P. P P loans and fed reserves was 3.06% an increase of 18 basis points linked quarter.
Turning to slide 11, the balance sheet remains well positioned for higher interest rates with substantial asset sensitivity driven by loan portfolio mix with 47% variable rate coupon securities portfolio duration of four three years and cash and do balance of about $700 million.
During the quarter, we deployed nearly 800 million of excess liquidity.
Loans held for investment growth and a $548 million and securities portfolio growth of about $235 million as we sought to take advantage of substantial increase in market interest rates during the quarter.
The deployment did not alter the mix of floating versus fixed rate nor did it materially extend the duration of the securities portfolio.
So the year one increase in net interest income to immediate interest rate shocks remained substantially asset sensitive at about 6% for a 100 basis point shock about 11% for a 200 basis point shock at about 17% or 300 basis point shock with the benefit in <unk>.
<unk>, two and beyond increasing as the balance sheet continues to reprice.
Turning to slide 12, noninterest income for the second quarter totaled $53 $3 million and $862000 linked quarter decrease and a $3 2 million dollar decrease year over year.
The linked quarter and year over year changes are principally due to lower mortgage banking revenue, which was partially offset by increase in other line items.
Service charges on deposit accounts increased $775000 linked quarter and $2 $6 million year over year.
Insurance revenue totaled $13 7 million in the second quarter.
Linked quarter decrease of 387000, and a $1.5 million increase year over year well.
Wealth management revenue totaled $9 1 million in the second quarter unchanged from the prior quarter and a 200000 dollar increase year over year.
For the quarter noninterest income represented 32% of total revenue continuing to demonstrate our well diversified revenue stream.
Now looking at slide 13 mortgage banking revenue totaled $8 1 million in the second quarter of one $7 million decrease linked quarter, and a $9 $2 million decrease year over year.
Mortgage loan production totaled $691 million in the second quarter, an increase of 25% linked quarter and 8% year over year.
Retail production remained strong in the second quarter, representing 82% of volume or about $560 million.
Loan sold in the secondary market represented 51% of production while loans held on balance sheet represented 49% with the majority of loans going into the portfolio consisting of 15 year and hybrid arm.
Well, we've continued to sell rather than retain our conforming 30 year loan originations.
Gain on sale margin declined by about 12% linked quarter from 223 basis points in the first quarter to 197 basis points in the second quarter.
And now I'll ask Tom Chambers to cover noninterest expense and capital management.
Tom turning to slide 14, you'll see a detail of our noninterest expenses broken out between adjusted other in total.
Adjusted non interest expense was $122 $4 million in the second quarter, a linked quarter increase of $1 $8 million or $1.
5% sour.
Salary and employee salary and employee benefits expense in the second quarter totaled $71 7 million, a $2 1 million increase from the prior quarter, mainly due to increased commissions and annual merit increases.
Services and fees remained relatively flat linked quarter and increased $2 $8 million year over year, mainly from higher professional fees.
As noted on slide 15, Trustmark remains well positioned from a capital perspective during the second quarter Trustmark repurchased some $5 million or approximately 263000 shares of Trustmark stop our share repurchase program. They take place through open market or private transactions, depending on market condition.
<unk> is at management's discretion.
Our capital ratios remained solid with a common tier one ratio of 11 point.
Zero, 1% total risk based capital ratio of 13, 26% at June 30th.
As Dwayne mentioned earlier, the board declared a quarterly cash dividend <unk> 23 per share payable September 15th to shareholders of record September 1st.
Right.
Thank you Tom turning to slide 16, let's preview our outlook from a balance sheet perspective, we're expecting loans held for investment to grow high single digits for the year.
Our security balances are still targeted at 20% to 25% of earning assets subject to changes in market conditions personal and non personal deposit balances are expected to remain stable for the year with a decline in public fund balances full year.
We're expecting the net interest income excluding P. P P loan interest and fees to grow in high teens for the year based on current market implied forward interest rates.
Based on the current economic outlook, the total provision for credit losses, including unfunded commitments is expected to be modest.
Net charge offs required additional reserving are expected to be nominal based upon our current outlook.
From a non interest income perspective, we expect service charges and bankcard fees to continue a rebounding from depressed levels.
Mortgage banking revenue is expected to continue trending lower driven by reduced volume and a lower gain on sale margin.
<unk> revenue is expected to increase high single digits full year with wealth management expected to increase mid single digits.
Adjusted noninterest expense as previously defined is expected to increase mid single digits for the year.
This reflects general inflationary pressures as well as pressure on wages additions of new production associates and the impact of commissions on our fee businesses.
Additionally, we continue to invest in technology across our company to meet the needs of our customers as.
As these pressures persist we remain intensely focused on expenses.
As announced last quarter, we continue to optimize our branch network. Since 2016, we had a net reduction of 31 offices across our system, including three to date in 2022 with an additional 18 scheduled to close dish eight excuse me eight to close this year.
In April we announced fit to grow which is a comprehensive program of focus innovation and growth designed to enhance growth and efficiency, while providing best in class customer service.
Along with the branch consolidation noted above.
Implemented new state of the art technology across the organization.
As well as updated our digital capabilities and a T M and ITM networks in the third and fourth quarters of 2022, we will be completing phase one of a core system conversion and will also be transitioning loan processing system.
Along with our efficiency initiatives. We are also adding growth strategies, such as streamlining our community bank system, great better growth in the core banking businesses.
We've also opened in Atlanta production office, focusing on commercial real estate residential real estate corporate banking and specialty banking.
We have added seasoned professionals to our team to execute our strategy throughout the southeast.
Atlanta will also house, our new equipment finance team focused on middle to large ticket equipment finance opportunities, which we believe is complementary to our customer base, Michigan. It will commence operation in coming weeks.
Finally, we also continue a disciplined approach to capital deployment with a preference for organic loan growth potential M&A and opportunistic share repurchases. We will continue to maintain a strong capital base to implement corporate priorities and initiatives.
I Trust this discussion of our second quarter financial results and outlook commentary has been helpful and insightful at this time, we'd like to open the floor for questions.
Hey, Thank you sure.
We will now begin the question and answer session.
To ask a question you May press Star then one on their touch some fun.
If they're using a speakerphone please pick up for handset before pressing the keys.
If any type of question has been adjusted or like to withdraw. Your question. Please press Star then two again. It is star then one to ask a question at this time, we'll just pause momentarily to somewhere roster.
Yeah.
Yeah.
And our first question will come from Graham <expletive>.
Per Sandler. Please go ahead.
Hey, good morning.
Good morning.
Yeah.
Just just start with loan growth.
Wanted to get some color on why you think you in particular high touch it such a good quarter and then also why do you think.
Things might slow down.
Bye bye full year guidance in the back half of the year.
Payoffs are you guys tightening underwriting standards or just something else I'm missing.
Hey, Graham this is Barry I'll I'll I'll walk you working through that process in our minds anyway, and we don't have a crystal ball, obviously is what's going to happen in the second half of the year from the economy standpoint, as well as what we may see in terms of a speed up and early payoffs on the CRE book, but but the way.
We view it as the mortgage growth that we saw in Q2, we don't is not going to be sustainable, but the second half of the year. So we would expect that to have to slow down.
From what we experienced in Q and Q2 from a CRE perspective, we had we had great growth this quarter about $205 million from that perspective production engine is on track and doing well.
Possibly because Q2 was a strong quarter for CRE. So as Q3. So we expect that trend to continue in Q4, sometimes you do experience a higher level of unexpected pay offs, just because of tax planning and other things that goes on but here again.
We don't we don't necessarily anticipate that but we don't know that it wont occur commercial owner occupied financing.
We're very pleased with the growth this quarter of $118 million, we expect that trend to continue throughout the year consumer loans grew $38 million.
Namely pleased to see that that's been a struggle for all banks and we've seen shrinkage in the past now we're actually holding our own and growing a little bit we expect to see that trend continues well.
But our view of the second half of the year is predominantly generated based upon the fact that we know the mortgage book is going to slow in terms of production that we hold on balance sheet and then we are uncertain about what may occur in Q4 regarding some tax planning and things that occur as it relates to potential early payoffs on CRE.
From a production standpoint from an earnings perspective, we fully expect that things continue to grow in a meaningful way, it's going to be the slowdown on the mortgage side and then potential early payoffs that we may begin to experience again in Q4 that leads us to believe it might be a little slower in the second half of the year, we'd be very pleased if that does not occur.
Okay. Thanks for that.
And then also I guess just on mortgage while we're talking about it do you expect that that I guess that proportion of what's held on balance sheet and then what sold into the secondary is to kind of shift back towards the I guess, the 70% sold in the secondary 30% held on balance sheet.
And then also how might that how might that affect the revenues based on a large fee revenues that line item of.
$8 8 million before that the hedge and effectiveness.
And this is Barry I'll start on the first part and then Tom can speak to the second part as it relates to what we expect to hold on balance sheet in the second half of the year Wellbore portfolio Ing is going to be it is hybrid arms and 15 year paper predominantly and we do expect that we've had a pull forward of is it really.
Rates to hybrid arms in terms of a lot of people moving quickly to try to get loans closed prior to rates continue to rise and choosing the hybrid arm process as opposed to the fixed rate option, just because there's some potential belief of either they're going to be in the property for a short period of time or there's a belief.
<unk> that there'll be a cycle here and rates will go back down eventually and they they don't won't be longer term fixed rate exposure for that reason. So we do expect to see that we do expect a slowdown in the amount of hybrid arm production that we hold on balance sheet in the second half of year and then on the second part of your question I'll, Let Tom address.
The fee income impact.
Thank you Barry and good morning Graham.
So as.
Barry said I do think it's reasonable to assume that the percentage. So does rebound for the reasons that Barry articulated.
As we said in our prepared comments it it was really <unk>.
Mix in the hybrid arms.
Cause the increase in retention in the second quarter and so if.
If you look at some normal a normalized percentage sold if you look at extrapolating forward the compression that we've seen and the gain on sale margin. So 197 basis points in the second quarter down from 223 in the first quarter a few extra.
Rapid blade that forward to say 170 basis points or so.
In the third quarter and you do the math on.
That you wind up with quarter over quarter gain.
Gain on sale, which you know if you look at slide 13, the gain on sale of loans net of about $6 million I would anticipate that over the next couple of quarters that will probably be about the level that we will see.
And this is Duane I'll just no real quick.
The mortgage business is moving back to a more normalized environment whereby.
For a couple of years, we haven't seen as much seasonality as well I think to get to see it again.
Moving into a more normal operating environment. So we do expect seasonality seasonal declines in the fourth quarter and possibly into the first quarter of next year as well.
Okay, Great I appreciate it.
And then I guess, if I could just get one more in here.
On service charges I know these are going to decline somewhat later this year due to your all's changes in NSF and overdraft structure.
But there is still a pretty handily this quarter.
Do you think where do you think we need to think about this number going to on a net basis. After you implement those those changes later this year and they account for any additional activity. I mean is this $10 2 million number.
Good run rate or where do you think we see just had directionally I guess.
D. The.
The changes that we announced earlier in the air will really take effect moving into 2023, we don't really expect much in the way of change as far as 2022. This goes and once we move into the 2023 environment, we'll look at kind of where our volumes are.
We're in that sort of thing but.
In terms of overall percentages ramp I don't see a very real significant decline may be in the range of.
5% to 10% at the most.
Okay. Thanks, Duane and then last one sorry, guys just on on card fees was there anything nonrecurring in there or is that.
Maybe you should see governor here different from that mid 8 million level run rate.
Nothing unusual in that category.
Yeah.
Alright, great. Thank you.
Next with Catherine Mealor, Okay B W.
Thanks, Good morning.
Catherine.
I just wanted to talk about the expenses and increased expenses, a little bit or the guy for this year, which makes sense just given the inflationary pressures, but just kind of curious.
He can talk about the savings that you might be in fit to grow in and.
Is there a chance as you kind of work through some of the strategies, we actually might see some savings or some.
Lower expense growth as we move into 2023.
Okay.
Well I'll I'll start.
Tom and Tom can add to the to any of my confidence.
Yeah, we haven't quantified from a fit to grow standpoint, and in particular need the technology expenses and some of the things we're doing.
Because we've got to get the system input implemented and it will really start to focus on the efficiencies gained via the new technology investments the core conversion the loan processing system conversion et cetera, those things and well, we'll kind of start to quantify that moved in to 2023.
In terms of the branch consolidation, we did quantify that in the first quarter, Tom that number is down to three and a half million range I think from the upper a branch consolidations to just two to three three and a half million dollars.
So that's in our numbers in our forecast as we move forward.
The offset to some of that is truly general inflationary pressures across.
That we're seeing in virtually all categories, which is travel and expenses were under I think.
Yeah wage pressures are impacting us the new associates added in our Atlanta office well.
The additive here at the remainder of 2022 and start to generate revenue really more in the latter part of the fourth quarter into 2023. So that's.
That's kind of the rationale we are we went to to increase our guidance.
Tom or Todd I guess, the only thing I'd add Catherine again with rigs with expense.
With respect to your branch network optimization.
I think it's reasonable to expect that that's going to continue you know the 11 branches.
We announced it will be consolidated this year.
Think its likely youre going to see in terms of order of magnitude continued consolidations at that pace over the next couple of years.
You know I think the guidance. We gave was net realized savings of about $2 million from those <unk>.
<unk>, that's a run rate annual realized expense save which I think hasn't bit of conservatism don't tend to do it but you think about it that that your run rate on that will kick in in 'twenty three you'll realize some of that in 'twenty to your run rate on that will kick in in 'twenty. Three and then if you can sort of extrapolate that forward so that.
At least $2 million of benefit in 'twenty, three probably turns into 4 million of benefit in 'twenty, four and $6 million of benefit in 'twenty five if you start to extrapolate out over a longer period of time.
Great and then to the margin.
Any updated thoughts on how you're thinking about deposit data there where the cycle just given that that would be more aggressive and and then just more near term was there any move in deposit costs. Maybe later in the quarter, maybe the month of June or are you seeing in July so far.
Yeah.
So Catherine this is Tom.
With respect to let's just talk about the let's just talk about the guidance in general.
For net interest income as you know that based on market implied forward interest rates at the time that we do the forecast and so what that reflects Kathryn is that.
The fed hiking two of three 5% fed funds target rate by year end this year and maintaining that at least through the first two quarters of 'twenty three before beginning to ease a bit in the second half of 'twenty three with respect to the beta question.
So our interest bearing deposit cost was unchanged linked quarter at 11 basis points.
What we have modeled.
As a.
Cumulative beta to that peak.
Fed funds rate of three 5%.
In the mid 40 call it 45% now.
It's got a bit of a lag to it so.
<unk> Barry.
Interest bearing deposit costs for the fourth quarter, we have modeled at about 60 basis points.
That would represent a cumulative beta of about.
20% through year end this year and then we have as the fed since there with the target rate of three 5% in the first and second quarters of next year.
We have deposits continuing to reprice up so that by the time you get to that peak, we are in the neighborhood of 40% or so on our deposit beta which means you know if you look at say the second quarter of next year as deposits continue to reprice, you're probably in the neighborhood of 140 basis points or so for our second quarter two.
Three interest bearing deposit costs on.
The loan side, we're modeling about a 50% beta in terms of loan yield so for the fourth quarter of this year that probably puts you in the neighborhood of $4 90, or so on loan yield.
And then you know that reprice is up just a little bit more in through say the second quarter of next year to about 5% or so.
Awesome very very helpful. Thanks.
Yep.
Thank you Catherine.
The next question will come from Joe you're in Chinas of Raymond James.
Good morning.
Good morning, Jeff.
So how should we think about some near or long term targets for your Atlanta L. P O or your new lines of business there.
And then additionally in relation to these new news I.
I was hoping you could discuss your decision to build versus buy.
Okay, you kind of broke off there at the end of that question could you.
Say that again please.
Yeah. So I was hoping to get better understanding of your decision to build versus buy and then said near long term targets for Atlanta, and new line of business.
Well I'll start Barry Ken can jump in and add some commentary.
<unk>.
Our.
Atlanta forecast is included in our guidance today or for a loan growth. So.
We haven't really factored into it and we haven't.
Extended out to 2023.
Given the businesses that are represented in that office being commercial real estate residential corporate.
And so on that the standard business is that we've operated in.
Those are incorporated and will be incorporated in our loan growth forecast as we move forward.
So.
We're very optimistic we have a very strong team we've added great personnel.
And that market, we're very excited about what they bring to the table in terms of new customers.
Et cetera.
In terms of the equipment finance business again.
Again, we've not really started to to forecast specific growth in that business unit.
We do have the team hired and and are very excited that's a complimentary business, we think to our customer base, it's very complementary to.
Two significant growth that's occurring and so.
So that team will be up and running over the next few weeks and.
Well I'll say that as we move into 2023 begin to forecast specific growth in that line and then the last the last part of the question build versus grow.
Organically built.
Bill.
Build organically versus acquire we'd.
We became <unk>.
Last year became very active in evaluating and look at looking at opportunities out in the marketplace and of what like a available companies for sale et cetera.
It became very educated and just.
Just felt like we could not get comfortable or did not find the right fit for our organization in the equipment finance space and quite honestly, we became aware of.
Folks that can help us build it organically and therefore felt like that was a better option for us it's.
A little bit slower in terms of growth, but at the end of the day, we can better control and get accustomed to the business.
Barry anything to add there.
In regards to the Atlanta L. P O.
People being hired Joe or working in lives of businesses that we do every day.
Marshall commercial lending CRE lending and homebuilder, all blending and so therefore it is just an extension of what we're already doing in other markets. We would expect these associates that were bringing on board. So we're very pleased with the type of the quality and the talent that we're being able to attract I think that's it.
A function of one trustmark reputation as well as some changes in the industry, allowing some some associates to free up that that we're very excited about getting onboard and Monica day is heading up that group for us for institutional buyer can go on for Greg.
Of recruiting good talent these days.
So she is who can also operate throughout the southeast so while there they will have relationship relationships in the Atlanta market just like we do today, we're very active in that market that will also be pursuing opportunities throughout the southeast.
Great. Thank you.
And.
I have another question. So your asset sensitivity declined pretty meaningfully on a sequential basis. How happy are you with your current level, there and where should we expect that to trend in the back half of the year.
John That's a great question. This is Tom Owens so.
It did increase meaningfully you know our decrease meaningfully I'm sorry.
You know I think our.
I said in my prepared comments.
You know the growth in the loan portfolio and the growth in the securities portfolio. Neither of those changed essentially the effective duration of either portfolio.
So when you think about it it's really the deployment of the excess liquidity. So in other words, you know I think we ended the.
First quarter with excess reserves at the fed of about 1.8 billion. We took those down about 1.2 billion between the.
Loan growth securities growth and some decline in deposits. So I think we ended the second quarter it closer to $600 million and so really when you do the numbers. What you find is that the decrease in the asset sensitivity is really attributable to that.
With respect to your question regarding how happy are we about that and how should we think about that going forward. You know we made a conscious decision to make.
We maintain what we call at a competitive level of asset sensitivity versus the peer group.
And as best we can tell we were top quartile relative to the peer group in anticipation of interest rates rising.
Which they have obviously substantially this year.
That's what presented the opportunity for us to put that liquidity to work.
You know, we were meaningfully above peer asset sensitivity coming into the year it'll be interesting to see how that shakes out for the second quarter as we compare ourselves to peers, but obviously I think you know we are in the broader industry.
We're going to be taking steps to try to manage our asset sensitivity closer to neutral to continue to reduce our asset sensitivity over time.
You know.
You'd like to think that you could time. It. So that you you catch the top in interest rates and you've basically got yourself back to neutral Theres a lot of work, obviously that it takes to get there but.
But we've been deliberate.
I think we took advantage of that very significant increase in rates in the second quarter that followed the significant increase in rates in the first quarter I think we will be deliberate here going forward. For example, I don't think given the deployment of liquidity in the second quarter I don't think that we will.
Continue increasing the securities portfolio meaningfully from here, we have worked on a lot of that excess liquidity and we will have to evaluate how loan growth versus deposit growth how that dynamic shakes out over the remainder of the year.
It's possible, even likely perhaps that you'll see us begin to engage in.
Hedging activities in the way of <unk>.
Derivatives interest rate swaps and door floors to begin to protect ourselves against the eventual easing onset of an easing cycle by the fed although that the timing on that remains obviously highly uncertain.
Okay.
Very thorough answer I appreciate it.
And then I just had one last question for me.
How should we think about the cadence of share repurchases for the balance of the year.
So.
This is Tom.
Sure.
You know.
As we came into the year the guidance that we gave was that we'd probably be in a range of $20 million to $30 million for the year, which as you know.
Reduction really is about half from the pace that we deployed capital in 2021 and in 2020 and that really reflected the reduced earnings power that we had you know we were meaningfully asset sensitive and as.
As the mortgage refi boom.
Sort of worked its way down and we were facing lower earnings power.
That's really.
What was the driver of reducing the pace of deployment via share repurchase.
You know I think it's fair to assume here for the third quarter and probably for the remainder of the year that we will stick to that range of 20 to 30 million and I think it's probably fair to assume that we'll probably end up towards the higher end of that range and I think we will be reevaluating our capital deployment opportunities as we go into 'twenty three.
We have a strong preference for deploying capital via loan growth and obviously.
Acquisition.
Opportunities are always a possibility as well but to the extent that we continue to have strong capital ratios that we do and our earnings power increases depending on what those opportunities are to deploy capital.
Loan growth through acquisition, we may well end up increasing the pace of deployment via repurchases. We go into 'twenty three.
Understood. Thank you very much.
Oh, sorry, no further questions at this time, we will conclude our question and answer session I would now like to turn the conference call back over to Mr. Duane Dewey for any closing remarks Sir.
Yes, thank you for joining us for our second quarter call.
We're very pleased and happy with the second quarter, we look forward to catching up.
Visiting with you again at the end of the third quarter have a great rest of the week.
And we thank you Sir and to the rest of the management team for your time also today again, we thank you all for attending today's presentation.
At this time you may disconnect. Your lines. Thank you take care and have been Blessed day everyone.
[music].
Okay.
Yes.
[music].
Okay.
[music].