Q2 2022 Atlantic Union Bankshares Corp Earnings Call
Speaker 2: Is.
Speaker 3: Good day and thank you for standing by. Welcome to the Atlantic Union Bank Shares 2nd quarter 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during this session you only depress star one on your telephone. Please be invited to the day's conference has been recorded.
Speaker 3: I would now like to hand the conference over to your speaker today, Bill Semenio, Senior Vice President Investor Relations. Please go ahead.
Speaker 4: Thank you, Michelle, and good morning, everyone. I have Atlantic Union Bank shares, President and CEO John Asbury, and Executive Vice President and CFO Rob Gorman with me today. We also have other members of our Executive Committee with us in the room remotely for the question and answer period.
Speaker 4: Please note that today's earnings release and the accompanying slide presentation we are going through on this webcast. Our payloads are download on our investor website, investor.ethlannicsunionbank.com.
Speaker 4: During today's call, we will comment on our financial performance using both gap metrics and non- GAAP financial measures. Important information about these non- GAAP financial measures, including reconciliation to comparable GAAP measures , is included in the appendix to our slide presentation and our earnings release for the second quarter of 2022.
Speaker 4: We will make forward-looking statements on today's call, which are not statements of historical fact and are subject to risks and uncertainties.
Speaker 4: There can be no assurance that actual performance will not differ materially from any future expectations or results expressed or implied by these forward-looking statements.
Speaker 4: weundertake no obligation to publicly revise or update any forward-looking statements.
Speaker 4: Please refer to our earnings release for the second quarter of 2022, and our other SEC violins for further discussion of the company's risk factors and other important information regarding our board looking statements, including factors that require actual results differ from those expressed or implied or no statement.
Speaker 4: All comments made during today's call are subject to that safe harbor statement
Speaker 4: At the end of the call, we will take questions from the research analyst community. I'm Alström McAul over to John Hasbury.
Speaker 4: Thank you, Bill, and thanks to all for joining us today. Atlantic Union Bank shares maintained its strong start to 2022 with a solid second quarter. We recorded upper single digit loans, asset quality remained pristine, and we made a strategic investment in wealth manager, Kerry Street Partners by transferring our RIA business to them in exchange for a minority interest in Kerry Street Partners. I have consistently stated that our operating philosophy of soundness, profitability and growth, and that older priority.
Speaker 4: Service Welp, as we navigate the challenges of the ever-changing operating environment. Further, as I said at our recent investor day, Atlantic Union has been, is, and will continue to be, a story of transformation, guided by a consistent bit of evolving strategy, and remains committed to delivering on our strategic objectives. As compared to our comments during the last quarter, we have grown more cautious in our economic outlook, given the implications of surprisingly high inflation, rapidly rising short-term interest rates, and geoportical uncertainties.
Speaker 4: It's clear to us that a fog of uncertainty is rolling in. Business leaders and consumers are growing more hesitant, and we're in for slowing economic growth, if not an actual recession. Having said that, our markets remain strong, and we still don't see any near-term shift away from the positive trends of low unemployment and a benign credit environment.
Speaker 4: We believe that the Federal Reserve will continue to raise short-term rates doing whatever it takes to battle stubborn inflationary pressures.
Speaker 4: Since we remain fairly asset sensitive, multiple short-term rate hikes over the course of 2022 are a positive for our operating results and our net interest margins should continue to expand. And our net interest margins should continue to expand.
Speaker 4: Inflation remains a drag on the economy. Supply chain disruption has improved, but it's still a factor. And business clients remain challenged to fill open positions. Despite all of this, we do think American businesses improve in their resiliency, and that all of this will be quite manageable, particularly in our footprint. While the macroeconomic outlook is less favorable than it was during the last quarter, we feel better about Virginia's economic outlook than that of the nation overall. We think that is for good reason. We may unemployment for Virginia came in at 3%, approaching 3 pandemic levels.
Speaker 4: contributing in some fashion to about 20% of our home state's GDP. This tends to serve as an economic shock absorber.
Speaker 4: Over the past two weeks, I've traveled extensively across our franchise, meeting with clients, business leaders, and our teams. I can report that anecdotally, business leaders state their companies are doing well, but they are guarded in their outlook. Their major challenges are the same as what we've been hearing for some time, and that's the inability to fill open jobs, some degree of supply chain disruption, and managing wage and price inflation. Which reports some degree of pricing power to offset increased expenses in part or in whole.
Speaker 4: It's a mixed bag, how they think about making investment at this time, if they weigh the need for investment against economic uncertainty. My takeaway is that the overall, I see economic activity decelerating, but not stopping. While it's hard to retune to a transcript for those reading these comments or later data, I would describe our thoughts on the economic outlook as cautious and light of the mixed signals we're seeing. In the end, the tight labor market coupled with strong demand and consumption still ample liquidity, and in nature of our markets and clients, we're even thinking we're facing more than economic rough patch than an economic.
Speaker 4: The pipeline entering the third quarter is now the highest we've seen since before the pandemic and well-balanced between CNIN and commercial real estate. Despite the uncertain environment, we continue to expect high single-digit loan growth for the year, given the strength of our current pipeline, our competitive positioning, market dynamics, and fundamentals of the markets we serve.
Speaker 4: We recognize that all of this could change, but as we start Q3, lung growth momentum is strong. And at this time, we believe we have line of sight of high single-digit lung growth for the year.
Speaker 4: We were encouraged to see C&I line utilization tick up at the end of the quarter to 33%, which while still well below our pre-pandemic levels continued on this improving trend, topping the first quarter's 30%. It's good to see this build at our commit levels growth. We have upside-here is working capital needs increase among our clients.
Speaker 4: We also have a number of positive growth factors to report for the quarter. For example, this was our second best loan production quarter ever, the 2019-2022 timeframe, eclipsed only by Q421. About 40% of production came from new to bank clients, and 60% from growth at our existing clients. This is a proof point that we are steadily chipping away at market share, and there is a long way to go there.
Speaker 4: CRE payout slowed and we're well off the peaks we saw in the second through fourth quarters of last year. Rising term rates have put a noticeable dent in refinance activity into the long-term institutional markets and developers report this may also reduce the fraud. We have seen that institutional investors making knockout offers they cannot refuse on CRE properties. We think CRE is still in good shape and quite healthy and the cooling of payout activity is good for our outstanding and makes continuing the bank financing and attractive option on state-of-the-rise prop.
Speaker 4: asset-based lending or ABL program to close another key C&I product gap. We first mentioned interest in scaling our small ABL effort during a 2018 investor date, along with establishing an equipment finance division, which we have now successfully done. A scaled ABL effort would further differentiate us in the market from our local competitors. It would allow us to better compete against larger ones and open up new growth avenues.
Speaker 4: We'll still banking executive David Rang and I, both have backgrounds in asset based lending, so we're especially focused on getting this right, and we're quite excited about it.
Speaker 4: Even with a more muted economic outlook, we continue to believe we have a long runway ahead of us to grow both organically and through takeaway. From our larger competitors that dominate market share in our home state of Virginia, supplemented by our operations in Maryland and North Carolina, and our specialized lending capabilities in government contract finance, equipment finance, and enhancements to capabilities like SBA 7A and hopefully 7 ABL.
Speaker 4: Our asset quality continues to impress. And once again, the credit headline for the quarter was the absence of credit problems. Charge-offs and net of recoveries for the quarter came in at approximately $939,000 or three basis points annualized, a modest increase from the effectively zero base that we've seen over the past few quarters. Quarter after quarter, these are levels I've never seen in my now 35-year career. At some point, credit losses will normalize, but given all the liquidity that remains in the system, low unemployment and still solid fundamentals...
Speaker 4: greater all still achievable.
Speaker 4: Turning to expenses, we saw seasonal improvement, quarter of a quarter and salaries and benefits, as we said would be the case. Having said that, the war for talent continues to rage, and we are seeing larger competitors take significant actions regarding their minimum wages. This does impact us, particularly in our branch-based roles. The expense actions we have taken can by and with our asset sensitivity, provide room to respond from the competitive by-math dynamics while still meeting our financial targets. We're currently evaluating our minimum wage in order to ensure we remain competitive.
Speaker 4: We do expect some incremental addition to the expense run rate as a result, but also will reaffirm our guidance for achieving our efficiency ratio target.
Speaker 4: For purposes of clarity, the combined effect of our expense management actions, upper single-digit loan growth expectations, asset sensitivity and a rising rate environment, heavily transaction account-related deposit, base and strong asset quality track record all give us confidence in our ability to generate positive operating leverage and differentiated financial performance while meeting our top-tier financial targets in the second half of 2022. With all the uncertainties and challenges acknowledged, we remain on an attractive top-line and bottom-line organic growth.
Speaker 4: transformation roadmap. Our goal is to build a frictionless experience for our customers by integrating human interactions with digital capabilities.
Speaker 4: Regarding strategic investments, we have commented before on our fintech partnerships and fintech fund investments.
Speaker 4: Strategic investment is not limited to Fintech, though. It's evidenced by a quarter-end investment in well-respected, Richmond-based RIA Cary Street Partners. We accomplished this through the exchange of our RIA business for a minority stake in Cary Street Partners.
Speaker 4: Kerry Street has made substantial investments in the back-off escape abilities such as compliance and technology. They have a broad product set and are simply better positioned than we are to scale the business. Rather than continue to invest in our approximately 1.5 billion AUMRAA, we chose to join forces with a now $6 billion plus AUMRAA that we know, that we trust, and that we've enjoyed a great relationship with for a very long time. We see this as a quadruple when.
Speaker 4: It's good for our RAA clients. It's good for our RAA teams. Good for Carey Street and good for us. We believe that Carey Street will grow the business and valuation faster than we could. We'll avoid what would have been needed investment and expense and we expect to be able to create some new relationships for our banking solutions to include trust services, private banking and mortgage. Rob will have more details on the financial impacts of that transaction and his section, including our $9.1 million pretext game on sale.
Speaker 4: As we turn the page on the first half of 2022, our goal remains to achieve and maintain top-tier financial performance regardless of the operating environment.
Speaker 4: I remain confident in what the future holds for us and the potential we have to deliver long-term sustainable performance for our customers, communities, teammates and shareholders. While our operating environment continues to change, what is not changing is the Atlantic Union Bankshare's remains a uniquely valuable franchise. It's dense and compact in great markets with a story unlike in the other in a region. They are scalable and growing our capabilities and we have the right markets and the right team to deliver high performance even in the most trying of times.
Speaker 4: I'll now turn the call over to Rob to cover the financial results for the quarter.
Speaker 5: Thanks, John . Good morning, everyone. Thank you for joining us today.
Speaker 5: Now let's turn to the company's financial results for the second quarter.
Speaker 5: Please note that for the most part, my commentary will focus on Atlantic Union's second quarter results on a non-GAMP adjusted operating basis, which excludes the $9.1 million pre-tax gain or $8 million after tax from the sale of RRIA business to carry street partners in the quarter. And also pre-tax restructuring costs the $5.5 million or $4.4 million after tax in the first quarter. Related to the closure of 16 branches. Related to the closure of 16 branches.
Speaker 5: and the company's Operations Center in March. In the second quarter, reported net income available to the common shareholders was $59.3 million. And earnings per share per common share was $79.00 up approximately $18.5 million or $25.00 per common share from the first quarter.
Speaker 5: Non-Gaft adjusted operating earnings available to common shareholders in the second quarter, were $51.3 million, and adjusted operating earnings per common share, was 69 cents, which is up approximately $6.2 million, for nine cents per common share from the first quarter.
Speaker 5: The non-gap adjusted operating return on tangible common equity was 16.5% in the second quarter, which is up from 12.7% in the first quarter.
Speaker 5: The non-gap adjusted operating return on assets was 1.1% in the second quarter. That was versus 98 basis points reported in the prior quarter. The non-gap adjusted operating return was 1.2% in the second quarter.
Speaker 5: And the non-GAAP adjusted operating efficiency ratio was 55.9% in the second quarter, an improvement from the 58.9% in the first quarter.
Speaker 5: Terminative credit loss reserves as the end of the second quarter, the total allowance for credit losses was $113.2 million, which was comprised of the allowance for loan and lease losses of $104 million, and the reserve for unfunded commitments was $9 million. $9 million.
Speaker 5: In the second quarter, the total allowance for credit losses increased approximately $2.6 million, primarily due to net loan growth during the quarter and increased uncertainty in the macroeconomic outlook due to high inflation, tightening monetary policy and geopolitical risks.
Speaker 5: The total allowance for credit losses as a percentage of total loans was 83 basis points at the end of June .
Speaker 5: Up one basis point from the prior quarter.
Speaker 5: And as a reminder, our day one seasonal reserve was 75 basis points of total loans.
Speaker 5: The provision for credit losses of $3.6 million in the second quarter increased slightly from the prior quarters $2.8 million provision, and the negative provision for credit losses of $27.4 million recorded in the second quarter of 2021 as the allowance for credit losses has normalized towards pre-pandemic Cecil Day 1 reserve levels.
Speaker 5: Next, our jobs remain muted at three basis points in the second quarter.
Speaker 5: Now, turning the pre-tax, pre-provisioned components of the income statement for the second quarter, tax equivalent and that interest income was $142.3 million. It was approximately $8.1 million from the first quarter. And that was driven by higher interest income due to average loan growth from the prior quarter, increases in loan yields due to higher market interest rates, and an additional day in the second quarter.
Speaker 5: which was partially offset by increases in deposit and borrowing costs.
Speaker 5: The second quarter's tax equivalent net interest margin was 3.24%, which is a net increase of 20 basis points from the prior quarter due to an increase of 24 basis points in the yield on earning assets, partially offset by a 4 basis point increase in the cost of bonds.
Speaker 5: The increase in the second quarter's earning asset yield was driven by the 12 basis point impact of higher loan portfolio yields. An increase of six basis points through the higher security yields.
Speaker 5: M8 basis point benefit from a more favorable earning asset mix as excess liquidity continued to be deployed into higher yielding loans during the quarter.
Speaker 5: The loan portfolio yield increased to 3.67%. In a second quarter, up from 3.49% in the first quarter, due primarily to higher rates on variable rate loans, and increase in net increase in purchase accounting adjustments. And that was partially also that by decline in PTP accretion income the debt program went down.
Speaker 5: Coralone yields excluding PPP and purchase accounting loan increase in income increased by 20 basis points which had a 14 basis point positive impact on second quarter margin.
Speaker 5: The increase in core loan yields is primarily due to the impact of rising short-term interest rates given the company's asset-sensitive balance sheet.
Speaker 5: The floor basis point increase in the second quarterILLholes cross theDIDS
Speaker 5: was due primarily to the seven basis point increase in the cost of interest fairy deposits driven by increases in interest, checking in money market deposit rates, as well as from changes in the funding that's between quarters.
Speaker 5: Non-interest income increased $8.1 million to $38.3 million, primarily due to the $9.1 million pre-tax gain from the sale of the RIA business during the second quarter.
Speaker 5: Back to me, out that gain adjusted operating non-interest income decline approximately $950,000 to $29.2 million in the second quarter from the prior. Turned by lower loan interest rate swap fee income of 1.3 million due to the decline in transactions and average swap fees, a reduction in unrealized gains on equity, neted investment to $1.1 million. And on equity, neted investment to $1.1 million.
Speaker 5: and lower mortgage banking income of $917,000 resulting from a declining gain on sale margins.
Speaker 5: These non-exhaust income category declines approximately offset by seasonal increases in interchange fees of $458,000 and in service charges on deposit accounts of approximately $440,000.
Speaker 5: Turning the anonymous expense, reported anonymous expense decreased $6.5 million to $98.8 million for the second quarter, from 105 million, 105.3 million prior quarter. This was primarily driven by a decrease in restructuring expenses as the prior quarter included expenses of $5.5 million related to the company's consolidation of 16 branches that was completed in March.
Speaker 5: In addition, salaries and benefits expense declined by $3 million during the second quarter.
Speaker 5: You primarily de-seasonally lower payroll relay taxes in 401k contribution expenses.
Speaker 5: Partially offsetting these expense reductions was an increase of $590,000 in professional services expenses associated with strategic projects, an increase in FDIC fees of $281,000 in the quarter.
Speaker 5: and seasonally higher marketing and average on expenses of $339,000, as well as increased teammate-related expenses of approximately $350,000, which is primarily during my teammate-related expenses associated with the reopening of our corporate offices in April .
Speaker 5: The effect of tax rate for the second quarter decreased to 16.7% from 17.5% in the first quarter, which is reflective of the impact of positive discrete items related to the sale of the RIA business. The DLR will become strong because of?, the firm, owner's and however they do. Ret 46. mens mortgage servicecel and some of the people's case potato starch, the DLR rennet heaved from original impulse production to shorten the sale and also?? longer than the date restricted worth of sales by doing the raw and changed biddies. related to the sale of the RIA business.
Speaker 5: In 2022, for the four year, we expect the effective tax rate to continue to be in a 17 to 18 percent range. It should continue to be in a 17 to 18 percent range.
Speaker 5: Now turning to the balance sheet, total assets were 19.7 billion on June 30th, which was a decrease of 121 million or approximately 2.4% annualized from March 31st levels.
Speaker 5: The net reduction was due to a decline in the investment securities portfolio of approximately $207 million, primarily due to the impact of market interest rates increases on the market value of the available for sales securities portfolio, partially offset by the net impact of the decline in cash and cash equivalents of $155 million, which was used to fund net loan growth of $196 million in the second quarter.
Speaker 5: At period end loans, helpful investment with $13.7 billion, inclusive of $22 million in PPP loans, netted the Ferd fees, which was an increase of $196 million or 5.8% annualized from the prior quarter.
Speaker 5: If you exclude the PPE loan impacts, loan balances in the second quarter increase 7.2% annualized, driven by increases in commercial loan balances of $153 million or 5.4% on a late quarter basis annualized, and consumer loan balance growth of $89 million or 17% annualized from the prior quarter.
Speaker 5: At the end of June total deposits stood at $16.1 billion, which was a decrease of $356 million, which were approximately 8.7% analyzed from the prior quarter.
Speaker 5: The decline in deposits with primary driven by a public funds client that used available to deposit funds to repay higher cost longer term debt obligations during the second quarter.
Speaker 5: Other than this large outflow, the positive levels were relatively flat in the quarter.
Speaker 5: At 2.30, low cost transaction accounts continue to comply 58% of total balances, which is in line with the first quarter levels.
Speaker 5: For the shareholders, stewards, chip, and capital management perspective, we remain committed to managing our capital resources, accordingly, as a deployment of capital for the enhancement of long-term shareholder value means one of our highest priorities. The shareholder value means one of our highest priorities.
Speaker 5: At the end of the second quarter, Atlantic Union Bank shares and Atlantic Union Bank's regulatory capital ratios were well above well-capitalized levels.
Speaker 5: The company's tangible common equity and tangible assets capital ratio declined from the prior quarter primarily due to unrealized losses on the AFS securities portfolio recorded in other comprehensive income due to market interest rate increases in the second quarter.
Speaker 5: Also during the second quarter, the company paid a common stock dividend of 28 cents per share, consistent with the prior quarter. They also paid a quarterly dividend of 171.88 cents on each outstanding share of a serious paid per-bird stock.
Speaker 5: In addition, the company repurchased the practically 649,000 shares for $23 million during the second quarter, and it has approximately $52 million remaining and its current $100 million share repurchased authorization. Made for if the firm eine conveiler station. Student sleeps for 173. Problem of if this company has elaborate decision using thermal transport an option called per death or so on it's current $100 million or itoriah. For but skip to 30007. The company refuses smoking forfeit. authorization.
Speaker 5: Looking forward, as noted at our investor day in May, we increased our top tier financial metric targets to the following. Return on tangible common equity within a range of 16 to 18%. Return on assets in the range of 1.3 to 1.5%. And it efficiency ratio of 51% or lower.
Speaker 5: We continue to expect that the company will see these top care metrics in the second half of 2022 and over the medium term of 2023 and 2023 and 2024 based on the following financial assumptions.
Speaker 5: upper single digit long wrote on an annual basis.
Speaker 5: Net interest margin expansion, excluding PPP fees in 2022, over the balance of 2022 and over the median term as a result of the company's asset sensitive position and the assumption that the Federal Reserve Bank will increase the Fed funds rate to 3.5% by the end of 2022 before reducing it to 3% at the end of 2023.
Speaker 5: As a result of loan growth and rising interest rates, FTE net interest income is expected to see double digit growth in 2022.
Speaker 5: excluding PPP impacts and high single-digit growth beyond 2022.
Speaker 5: We also expect that the company will generate meaningfully meaningful positive operating leverage in 2022 and beyond due to the high single digit revenue growth outpacing expense growth of load and mid single digits, which should drive double digit earnings per share growth.
Speaker 5: On the credit front, while we still don't see any systemic credit, quality issues lurking at the moment, we expect that the divine, after-quality environment with heat today will normalize over the next few years, ultimately resulting in an uptick in an X-charge-off ratio between 10 and 20 basis points.
Speaker 5: We're also calling that the allowance for credit losses to loan balances is projected to remain at current levels in the 80 to 85 basis point range.
Speaker 5: So in summary, Atlantic Union delivered solid financial results in the second quarter of 2022 and continues to be well positioned to generate sustainable, profitable growth and to build long-term value for our shareholders.
Speaker 5: And with that, I'll turn it back over to Bill Cimino to open it up for questions.
Speaker 4: Thank you, Rob. And Michelle, we're ready for our first caller, please.
Speaker 3: And our first question is going to come from the line of Katherine Mar with KBW. Your line is open. Please go ahead. Hi Katherine. Hey, good morning. Hey, good morning. Hey, good morning.
Speaker 6: I want to start with the sale of Dixon-Habert. Rob, could you just help us walk through what the impact to the balance, or excuse me, to the income statement will be with fees and then expenses? I got, I think in your guidance, the lower fees, I'm assuming, is coming from that sale. But I would have expected a little bit of a decline in the expenses as well, which doesn't look like we're seeing. So just any kind of help with the moving parts there would be great.
Speaker 5: Yeah, yeah, there's a number of moving parts Catherine in the guidance.
Speaker 5: published today in Non-Interest Income and Non-Interest Expense. Let me just talk about the RIA impact for a second.
Speaker 5: In terms of non-interest income, they are generating about two point, they were generating about two point three million dollars in non-interest income.
Speaker 5: on a quarterly basis which will be going away on a gross basis. On the expense side, they had 1.8 million on a quarterly basis which will also go away in the expense line item. So the net positive for net pre-tax revenue, the REAs were generated, was about half a million dollars.
Speaker 5: So replacing the 1.8 decline expense on a Cori-1 rate basis.
Speaker 5: declined non-itrist income of 2.3 million, but add back a half a million in non-itrist income because we'll be recording a half a million dollar. Because we'll be recording a half a million dollar.
Speaker 5: Presumably based on earnings of CARES-3 partners will be getting our share of their earnings, which we currently over the next few quarters think it will be a push about half a million dollars. So net net bottom line pre-tax, we don't see any issue, but the line items will be adjusted more materially. So again, take out 1.8 million of expenses.
Speaker 5: And that take out a net 1.8 of an unadinteresting line. And that's really the adjustment you need to make, at least on a court. And that's really the best. And that's really the best.
Speaker 5: In terms of— Okay. Yes.
Speaker 7: Keep going. Be ready. Go ahead.
Speaker 8: Thank you.
Speaker 6: And then keep going, this is that's perfect.
Speaker 7: Okay.
Speaker 5: So, yeah, so beyond that, you saw we, you know, we did publish a non-district income in the 105 to 110 range for this year. And again, that's the impact.
Speaker 5: You saw we did publish an interesting come in 105 to 110 range for this year. And again that's the effect of...
Speaker 5: of the RIAs. So we've been running about $30 million of quarter, call it $129 million annually. RIAs in the second half of the year that I mentioned. RIAs in the second half of the year that I mentioned.
Speaker 5: with the gross 2.3, add back the earnings, the equity investment earnings that we're gonna have back out 3.6 for the second half of the year on the non-interest income run rate for the full year. In addition, we're seeing headwinds on the assets under management and wealth management. So we're projecting that we will see a softening of fiduciary wealth management fees in the boat.
Speaker 5: One and a half million for the balance of this year, second half. Remember, we're also just...
Speaker 5: implemented our new law of draft policies put those in place and that's about three million dollars negative on the second half of the year. It's about one and a half million a quarter but if you look at it on a four years 2022 basis about a half a year it'll be three million.
Speaker 5: In addition, you see mortgage.
Speaker 5: Income coming down due to lower gain on sale margins, but also.
Projections for lower originations and so we're adjusting downward approximately a one and a half million or about seven called seven hundred a quarter. But for the next two quarters, so that gets you into the one, oh, five, one, ten range, probably on the higher end of that race. So, like I said, there's a lot of moving parts there, Catherine, but those are the those are the main assumptions.
And then on the expense side, yeah, go ahead. No, no, you're going to keep going on expenses, and I've got one for Paul.
Go ahead, I'll have a question on honesty. It comes to you. Well, on the seat, I might follow up with, but that is super helpful for the 22 guidance, but then for 23, it looked like you're guiding to mid-angle digit growth. So where is this for that growth coming from if we look into next year?
Go ahead, I'll go ahead. You have a question on honesty income. Well, on the seat, I might follow up with, but that is super helpful for the 22 guidance, but then for 23, it looked like you're guiding to mid-single digit growth. So where is this for that growth coming from as we look into next year? Yeah, so.
Yeah, so if you look at the, yeah, mid-single digits are so growth, non-stress income, that's basically coming across all the various elements of the various non-stress income categories, service charges, excluding overdress, you know, we're gonna have a headwind there on the full-year basis.
But we're also growing interchange transactions, growing checking accounts, there will be additional service charge on deposits, treasure management fees growing nicely. So we're growing that off a lower base, but all elements of the not-expected income categories are expected to grow. I would add if I may have said that there are capital markets fees coming out of wholesale banking, which are a number of different categories.
foreign exchange, which is up and running. We expect to be originating SBA 7A, selling some on a full basis. We are seeing syndication income now from our origination and agitating, smaller club deal syndications, competency that we've now organized.
and Treasury management. He's, I believe, you indicated in Dave Lang. I'm not sure what I'm missing there, but we do have a number of discrete initiatives, particularly in the wholesale capital market side. Yeah, I don't think you're missing anything, John . Mike, we have a long history of working with clients and generating interest rate, relative fee income, as things could be doing much better than last year as well. That would seem just right.
So Catherine, we indicated an investor day. We've done I think a pretty good job of diversifying our set of value added fee-based opportunities, many of the new ones of course are in the wholesale banking space and we'll see how that goes. But we're pretty encouraged based on where we are right now. So we're pretty encouraged based on where we are right now.
Yeah, and I should say, Catherine.
That growth rate is really based on the new base when you've got to take out the full year effect of the RAAs and a bit more on the overdraft fees. So that quote in the end.
It's kind of a push if you look at point this year versus next year
next year's space is coming down further and then we're growing from there. You'll see pretty much flat growth on a point-to-point, year-to-year basis.
We've also avoided what would have otherwise been additional investment and expense coming into the RIA space, which we think was an elegant solution.
Yeah, right. We should see it up again. And now I'm, um, learn...
Our earnings contribution from Care Street partners as they continue to grow next year. They continue to acquire a fire. Our RIA is not only what we just did, but others. And we expect to see some decent growth coming out of that investment.
Great, that was all super helpful. And then moving over to the balance sheet in the margin, we saw a deposit, you remember this call from, as expected, deposit to clienta. Now you mentioned in the slides that that was really just from one public fund client. But can you just talk about your outlook for deposit growth and then how that translates also and she's just kind of the size of the balance. You know how you might manage your security. So quickly, we're kind of through the cash deployment, but really.
Trying to figure out where you think the size of the security book goes depending on how deposits it flows as well. Thanks.
Yeah, so, yeah, so it's mentioned quarter to quarter deposits were down.
due to that one.
fairly large outflow from the public funds depositor. So we pretty much, we're pretty much flat if you take that out of the equation. We're not looking for significant growth, maybe in the two to three base percent in the deposit growth. We still think there's some surplus deposits in both consumer and commercial depositors, which could see start to outflow. We've seen some of that in a bit of that in the consumer side, especially on the lower.
moderate income balance clients.
So probably talking about 2 to 3 percent, we'll see where that goes.
And with long growth, we expect, you know, as we said, upper single digits really made it this year. We'll fund it with hopefully some of that deposit growth. The other side of that is, as you know, we did build up our investment security portfolio through the pandemic. We typically would be running about 50% of the security portfolio total assets we know, about 20%.
We're actually using monthly cash flows that are coming out of that portfolio.
to fund loan growth, and that's about 40 million a month or so. So that's being used as well. And then we do have other, obviously, wholesale liquidity sources, funding sources that we will use to shore up any need for funding from loan growth. So that's how we kind of think about it. We expect that the securities portfolio will continue to run that down.
standpoint, it's not the same as losing a court rate for deposit. We had to deal with the always seasonal impact of April tax payments, seems to have overcome that. Interestingly, that consumer households have grown over the course of the quarter. Despite the fact that we've closed the quarter of the retail branch networks since the beginning of the pandemic, the land you can use requires.
So, you know, we'll see where it goes, but, you know, I think that on the whole deposits will likely hold up better than we would have thought.
Great that's all very helpful things.
I'd say we could actually track it a bit better than we thought. Since June , so we'll see if that whole that could be season was well. Yeah, it's surprising to me just given the bite that inflation is having. Yeah, it's surprising to me just given the bite that inflation is having.
Yeah.
Great, that's all I got, thanks so much for all the help.
Thanks, guys. Thank you. And thanks for everyone for joining us today. We wanted to take a minute to wish our research analysts to transition to new roles, the best of luck in their new positions. And we will look forward to speaking with you all next quarter. Thanks, and have a great summer. Bye-bye.
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Yeah.
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