Q2 2022 WSFS Financial Corp Earnings Call
session, you will need to press star 11 on your telephone.
I'd not like to turn the call over to your host for today, Mr. Dominic Knusso, Chief Financial Officer. You may begin.
Thank you, Andrew, and thanks to all of you for taking the time to participate on our call today.
With me on this call, our Roger Levinson, Chairman, President and CEO , Art Bachi Chiefs Wealth Officer, and Steve Clark, Chief Commercial Banking Officer. And Steve Clark, Chief Commercial Banking Officer.
Rick Wright, Chief Retail Banking Officer, is unable to join us on the call today.
Before I begin with remarks in the quarter, I would like to read our Safe Harbor Statement.
Our discussion today will include information about our management's view of our future expectations, and the plans and prospects that constitute forward-looking statements. The plans and prospects that constitute forward-looking statements.
Actual results may differ materially from historical results or those indicated by these forward-looking statements due to risks and uncertainties, including but not limited to, the risk factors included in our annual report on Form 10K and our most recent quarterly reports on Form 10Q, as well as other documents we periodically file with the Securities and Exchange Commission.
All comments made during today's call are subject to the safe harbor statement.
Our earnings release and earnings release supplement, which we will refer to on today's call, can be found in the Investor Relations section of our company website.
We are pleased to announce strong results for our 1st quarter after the bank branding and branch conversion in late March.
The quarter demonstrated both the strength of our relationship-based business model and the diversity of our products and services. And the diversity of our products and services.
The quarter also illustrated the continued opportunities that lie ahead given our strategic position as the largest locally headquartered bank and wealth management franchise in our region.
along with the growth potential of our nationwide businesses.
Reported ROA of 1.17% and EPS of 94 cents include a couple of non-reoccurring items in the quarter.
We sold approximately $55 million of CNI and CRE loans at par related to a legacy BMT small business real estate lending unit called KCMI.
In addition, we sold the BMT Insurance Advisors business to Patriot Growth Insurance, as noted on our press release on July 7.
After completing our strategic plan and aligning it with the BMT combination,
These two businesses were the two product lines not considered areas of focus going forward. This is a new product. This is a new product. This is a new product. This is a new product. This is a new product. This is a new product. This is a new product. This is a new product. This is a new product. This is a new product.
These sales will not have a material impact to our ongoing financial results.
One-time corporate development and restructuring costs in the quarter were $10.3 million pre-tax.
or 15 cents per share.
Somewhat offsetting this was a $6 million unrealized pre-tax gain on our equity investment in credit AI or $0.7 per share.
Summarize on slides three of our supplements.
When excluding these items, our core results included net income of $65.4 million.
or an RWA of 1.27%.
with an EPS of $1.02.
an ROTCE of nearly 20%.
These results were driven by consistent and strong performance across all areas of the company, including positive growth in both loans and our diversified fee base.
along with achieving the full cost synergy run rate anticipated from the BMT combination.
We are executing consistently with our expectations for the year and for our strategic plan.
As noted on slide eight, loan growth was 8% annualized when excluding the KCMI sale and then the acquired residential mortgage portfolios. The KCMI sale was 8% annualized
This was supported by 5% annualized commercial loan growth when excluding KCMI.
and supported by 18% annualized growth from new lane leasing.
Net new commercial fundings were a record $685 million in the quarter, including line utilization increasing to 39.2% the highest in two years.
The commercial pipeline continues to grow with 90 day weighted average now over $350 million. The commercial pipeline continues to grow
Consumer loans grew a robust 41% annualized, driven by continued success of both our upstart and springy to partnership lending products. And springy to partnership lending products.
Consumer loans are now 13% of total gross loans.
Customer deposits decreased 7% annualized, nearly half of which driven by decline short-term transaction-related trust deposits. In short-term transaction-related trust deposits.
We now have just over 1.5 billion in these transaction trust deposits or approximately 9% of our deposit base, which has grown $652 million over the past year or 73%. 23%
In addition, we moved approximately $59 million of customer deposits into sweep accounts.
The loan to deposit ratio stands at 66%, demonstrating the continued strong capacity to fund future net loan growth.
During the quarter, we reclassified $1.1 billion, or 19%, of our AFS investment portfolio to HTM, reducing the potential negative impact on TCE from higher middle-of-the-curve rate increases.
I'll speak to capital more in a moment.
As seen on slide 10,
NIM in the second quarter was 3.40%, a 39 basis point increase over 1Q, as loan yields increased 27 basis points from the rising rate environment and churn in the portfolio.
While customer deposit costs were relatively flat, increasing only one basis point.
In addition, the negative impact from excess liquidity decreased eight basis points to 36 and the negative impact from excess liquidity decreased eight basis points to 36
Our fee revenue ratio was relatively flat from 1Q at 30.0%.
As fees grew, $5.5 million or 9% not annualized, driven by growth in cash connect and capital market fees of approximately 2 million each as well as $1.3 million increase in core banking.
which was offset by weaker mortgage banking fees from lower, ready, refive volume.
Both current and leading credit metrics remain positive and stable, with net charge drops in the quarter of $2.6 million.
Net loan growth and balance sheet mix resulted in an ACL increase of $5.6 million illustrated on slide 12.
The ACL coverage ratio is now 1.13%.
or 1.42% when included estimated remaining credit marks on the acquired portfolios.
When normalizing for the $1.1 billion investment portfolio reclassification
The ACL would have been 1.23% or four bips higher than prior quarter on a comparable basis.
Non-interest expense continues to be well managed while at the same time achieving the full run rate impact of the BMT costs synergies early.
The core efficiency ratio improved over 5 percentage points to 56.2%.
Consisting with the first quarter, we returned $56.7 million of capital to shareholders including $8.4 million of common stock dividend.
and $48.3 million in share repurchases, or approximately 1.19 million shares.
Approximately 85% of court earnings was distributed in the quarter.
Also, the board approved a 15% increase in the quarterly dividend to 15 cents per share.
and approved an additional 10% share repurchase authorization.
14% of outstanding shares or 8.6 million shares are authorized for repurchase as of the quarter end.
Our bank regulatory capital ratios are substantially in excess of well capitalized, with CET-1 and Tier 1 capital of 13.6%.
and total risk-based capital of 14.57%.
TCE decreased to 6.63% driven by the continued interest rate impact on AOCI.
We continue to evaluate and consider both our AFS and HTM Investment Portfolium Mix.
along with balance sheet hedging strategies to best position us for the anticipated interest rate volatility in the next few years.
Lastly, as we typically do at mid-year, we have updated our outlook assumptions on slide 5.
As I mentioned at the beginning, we are executing consistent with our plan.
While we anticipate the second half of the year, loan growth, rate to be in the mid to high single digits.
Given the growth in one queue, our full year growth expectation is now mid-single digits, or the low end of our original range.
Also, given the lower residential re-five volume in the markets, combined with the financial markets impact on AUM, and the sale of the BMT Insurance Business,
Annual fee revenue growth is anticipated in the low single digits.
These expectations, combined with the higher interest rate environment and positive performance to date.
Our full year ROA is now anticipated near 1.35%, excluding the initial CECL provision for BMT.
with a 4Q ROA around 1.65%.
Updated NIM, PP&R% and ROA are illustrated on slide 6 for both full year and 4Q.
In summary, the growth and overall performance in the quarter demonstrates our strategic position in our markets, and we look forward to continue opportunities for substantial, organic growth ahead.
We will now open the line to answer any questions you may have.
Thank you. As a reminder, to ask a question you will need to press star 1 1 on your telephone.
Please stand by while we compile the Q&A roster.
And our first question comes from the line of Frank Schiraldi with Piper Sandler.
Good afternoon, guys.
Bye.
First on the NIM Guide.
Obviously, you know, better name guide driven by the additional rate hikes, but I wondered if you can give any additional color on if there's any other inputs and how they might have changed versus previous guides, whether it's cash or deposit betas or change in loan betas, anything other than just the additional rate hikes that are now baked in the 13.
Sure Frank, this is Dominic.
The increase in the name is primarily driven by the higher interest rate environment.
We do expect betas to pick up in the second half of the year, but those betas would be somewhat less than a full cycle as betas would continue to increase into 2023. But the higher interest rate benefit is really coming from variable rate loans, turn in the portfolio, and turn in the investment portfolio as well. And turn in the investment portfolio as well.
In terms of the deposit betas, can you just remind us, basically your expectation through the cycle that betas will be similar to last time around, and when do you have those sort of ramping up to that point?
Sure, our long term historical data was closer to 50%. However, in the last rising rate environment, it peaked around 25%, which would be expect we would expect to be the near term. Um, performance over the next year and a half for this year, given the timing of the rate increases, particularly with 7 remaining in the 2nd, half of the year. We would expect the deposit beta to ramp up around 10 to 15% by year end with.
Maybe if you just have, you know, within that 13% of the loan book, the value is within consumer at this point.
Sure, I'll provide a couple of data points. First, our partnership portfolios are about 45% of our total consumer lending.
In the quarter, less than half was, or about half was from upstart, which is unsecured. The remainder comes from the home equity line, mortgage business, or the traditional banking products. And as regarding the 13%, we have said strategically, we are comfortable with consumer loans growing to 20% of our total loan base. Obviously, we will evaluate the product mix, the credit environment, and overall growth.
when we evaluate our investment on a quarter-to-quarter basis.
And within that comfort at 20%, has there been any detail on the unsecured portion where your comfort level is, is that? there?
We have internal limits on the unsecured limit. We are continuing to evaluate the performance, particularly of the upstart product, as we just launched it in the third quarter of last year. So we're getting through our early vintage performance from a credit perspective. They are performing well. We still have capacity to grow that business, meaningfully, in the coming quarter and years to stay within our concentration limit.
Yeah, Frank, this is Rajesh ad to that. So the unsecured limit in our concentration policy is 20% of tier one capital plus ACL. And we're, as I said, we're well below that at this point. So we have some more headroom to grow. It's still a relatively modest portfolio, early days, and credit vintage. So we'll continue to monitor it and adjust our originations as from.
Just summarizing those numbers a little bit, if I could, in terms of Dominic, you said the partnership portfolio is about 45% of total consumer, and then obviously the unsecured portion is a portion of that. Did you say whether, you know, is that about half of that 45%? Did you guys give that detail? I'm sorry if I missed that. Yes, it's less than half. It's around 200 million.
Okay, great. And then if I could just sneak in, you know, one more on the updated fee outlook. I just wondered if you could remind us in terms of, I think you might have touched on it, but the wealth management business, just the billing around that in terms of how much of the market volatility which seems to date is already priced in, that would you say, to the two-q run rate.
And then if I could just sneak in, you know, one more on the updated fee outlook. I just wondered if you could remind us in terms of, I think you might have touched on it, but the wealth management business, you know, just the building around that in terms of how much of the market volatility we've seen to date is already priced in, would you say, to the 2Q run rate? Thanks.
Frank, this is Art Bocce. I'd say we still have.
some declines to see in the third quarter. A good portion of our AUM business is build in a rear. So you would see the third quarter would be based off second quarter AUM balances, which were down about 12% quarter over quarter. But I would also remind you that, we have a pretty diversified wealth business. So while there's the AUM business, this is around a 35, 40% of our fees. We have a rest of the business is pretty much tied to account, based fees.
transaction based fees so that helps to kind of offset some of that decline.
Thanks, sir. Still be a thorough ciel city. color guys.
Thank you.
Thank you.
And as a reminder, to ask a question, please press star 11 on your telephone. Thank you. Thank you.
Our next question comes from the line of Mike Perrito with KBW.
Hey, good afternoon, guys. Thanks for taking my questions.
Thanks, Mike. I apologize if I missed this. I don't think you guys mentioned this explicitly when answering Frank's questions around the consumer lending piece. But the long growth guide for the year and the sounds like a little bit of a pick up maybe in the back half of the year, what's the mix of that? Are you guys assuming that the consumer production kind of stays where it's been in the last quarter or two, which has been fairly robust? Are you assuming there's some that the consumer production? Are you assuming there's some that the consumer production? Are you assuming there's some
some drop off of that just given some of the macro uncertainty that we're all dealing with right now. That we're all dealing with right now.
Sure, the growth rates do include continued growth in the consumer loan book, particularly driven by those partnership products, but we anticipate the growth in the second half of the year to be less than the second quarter, but still robust. The second quarter, but still robust.
Got it. And you know at this point.
particularly in the unsecured personal lending, book of business, understanding that I believe if I recall, you guys have some fairly specific credit standards and it's all fairly geographical, relevant types of credit that you guys are.
are taking on, but are you guys?
changing your thought process around unsecured lending at all with inflation and rates moving higher? And has that kind of changed the equation for you guys at all or not yet?
So, we continue to evaluate the performance, which is very strong and still favorable to expectations. As we just discussed the unsecured product is still a very small portion of the overall total portfolio, less than 2%. And given the yield that we are seeing on the product and the ACL coverage that we have setting aside for this product, we are comfortable with continue looking it in.
You know, obviously quite a bit of a five-back outstanding here, but how do you guys balance?
between AOCI and the Bremar transaction, obviously book value has taken a step lower here over the last 12 months or so. And how do you guys balance continued kind of book value degradation with BIVACs versus kind of the excess capital bill that presumably you guys are going to start to see over the next few quarters with the name moving as high as it is. Over the next few quarters with the name moving as high as it is.
Yeah, it's a good question and an important one. A couple of key points. We expect to continue to generate significant capital from our returns, as we've seen in the last few quarters and expect that capital to return. We can expect that capital to return.
Our regulatory capital capital ratios, as I mentioned, are significantly ahead of well capitalized. So, from a regulatory capital, we have significant capacity while the is impacting the ratio. And that is something that we consider in our decisioning for capital. We continue to look for opportunities to hedge as we have in the 1st quarter by migrating the.
investment portfolio along with other hedging strategies. And as always, we utilize our long standing practice of evaluating capital deployment. With that said, in addition to the two notable items of increasing the dividend, 15% to 15% per share, and the share authorization, we have re-evaluated our capital return philosophy. Historically, if you may have heard of speak over and the share, we have re-evaluated our capital. We have re-evaluated our capital.
the last few years we would return a minimum of 25% of our capital split equally between a purposely low dividend and share repurchases regardless of price.
Given our returns and on growth expectations, we have increased that to 35% with up to 35% of capital returned annually for earnings, returned annually. But now it's one third, purposely low dividend, two thirds share repurchases regardless of price. So it gives us a little bit more capacity within our practice to do routine share repurchases.
And then incremental to that would be dependent on capital need, growth prospects, economic view, and then ultimately the share price as that's a major contributor to our decision to buy back shares and ensuring we get a strong IRR on those purchases.
Great, thanks. That was really helpful. Appreciate that. And then just last for me, on the loan portfolio, at this point is the runoff residential mortgage loans that the-
really the only thing of significant size left that's running down that would impact your net growth as we move forward here. I believe there might be a few other small things but most everything else should kind of conclude it here. Is that correct or am I forgetting about anything else?
No, that is correct. All other portfolios that we may have either historically called runoff have run their course, particularly from the beneficial transaction. And then with this KCMI portfolio sale, the only portfolio that we're not continuing to book is the held for investment, resident, consumer, residential portfolio.
Okay, which is just the 600 plus million.
plus million. Correct. That's it.
Great. Thank you guys for taking my questions. I appreciate it.
Thanks Mike.
Thank you.
And with no further questions in the queue, I would like to turn the conference back over to Mr. Canuso.
Thank you, and thank you everyone for joining the call today. Roger and I will be attending conferences and investor meetings throughout the quarter, and we look forward to meeting with many of you then.
Have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect. Thank you for participating and you may now disconnect.
The conference will begin shortly. To raise your hand during Q&A, you can dial star 11.
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Ladies and gentlemen, thank you for standing by, and welcome to the WSFS Financial Corporation Second Quarter Earnings Conference Call.
At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will need to press star 11 on your telephone.
I'd not like to turn the call over to your host for today, Mr. Dominic Knusso, Chief Financial Officer. You may begin.
Thank you, Andrew, and thanks to all of you for taking the time to participate on our call today.
With me on this call, our Roger Levinson, Chairman, President and CEO , our Batchee Chief Wealth Officer, and Steve Clark, Chief Commercial Banking Officer. And Steve Clark, Chief Commercial Banking Officer.
Rick Wright, Chief Retail Bank Officer, is unable to join us on the call today.
Before I begin with remarks in the quarter, I would like to read our Safe Harbor statement.
Our discussion today will include information about our management's view of our future expectations, and the plans and prospects that constitute forward-looking statements. The plan will include information about our future expectations, and the plan will include information about our future expectations.
Actual results may differ materially from historical results or those indicated by these forward looking statements due to risks and uncertainties, including but not limited to, the risk factors included in our annual report on form 10K and our most recent quarterly reports on form 10Q, as well as other documents we periodically file with the Securities and Exchange Commission.
All comments made during today's call are subject to the safe harbor statement.
Our earnings release and earnings release supplement, which we will refer to on today's call, can be found in the investor relations section of our company website.
We are pleased to announce strong results for our first quarter after the BMT bank branding and branch conversion in late March.
The quarter demonstrated both the strength of our relationship-based business model and the diversity of our products and services. And the diversity of our products and services.
The quarter also illustrated the continued opportunities that lie ahead given our strategic position as the largest locally headquartered bank and wealth management franchise in our region.
along with the growth potential of our nationwide businesses.
Reported ROA of 1.17% and EPS of 94 cents include a couple of non-reoccurring items in the quarter.
We sold approximately $55 million of CNI and CRE loans at par related to a legacy BMT small business real estate lending unit —
In addition, we sold the BMT Insurance Advisors business to Patriot Growth Insurance, as noted on our press release on July 7th. The
After completing our strategic plan, we are now in line with the BMT combination. And aligning it with the BMT combination.
These two businesses were the two product lines not considered areas of focus going forward. The
These sales will not have a material impact to our ongoing financial results. Thank you.
One-time corporate development and restructuring costs in the quarter were $10.3 million pre-tax.
or 15 cents per share.
Somewhat offsetting this was a $6 million unrealized pre-tax gain on our equity investment in CREDI or $0.7 per share.
Summarize on slide three of our supplement.
When excluding these items, our core results included net income of $65.4 million.
or an RWA of 1.27%.
With an EPS of $1.02,
and an ROTCE of nearly 20%.
These results were driven by consistent and strong performance across all areas of the company, including positive growth in both loans and our diversified fee base.
along with achieving the full cost-energy run rate anticipated from the BMT combination.
We are executing consistently with our expectations for the year and for our strategic plan. We are having a great day. We are doing all of this. We are doing all of this. Yeah.
As noted on slide eight, loan growth was 8% annualized when excluding the KCMI sale and the acquired residential mortgage portfolios. and the acquired residential mortgage portfolios.
This was supported by 5% annualized commercial loan growth when excluding KCMI.
and supported by 18% annualized growth from new lane leasing.
Net new commercial fundings were a record $685 million in the quarter, including line utilization increasing to 39.2% the highest in two years.
The commercial pipeline continues to grow with 90 day weighted average now over $350 million.
Consumer loans grew a robust 41% annualized, driven by continued success of both our upstart and springy to partnership lending products. And springy to partnership lending products.
Consumer loans are now 13% of total gross loans.
Customer deposits decreased 7% annualized, nearly half of which driven by decline and short-term transaction-related trust deposits. In short-term transaction-related trust deposits.
We now have just over 1.5 billion in these transaction trust deposits or approximately 9% of our deposit base, which has grown $652 million over the past year, we're 73%.
In addition, we moved approximately $59 million of customer deposits into sweep accounts.
The loan to deposit ratio stands at 66%, demonstrating the continued strong capacity to fund future net loan growth.
During the quarter, we reclassified $1.1 billion or 19% of our AFS investment portfolio to HTM reducing the potential negative impact on TCE from higher middle of the curve rate increases.
I'll speak to capital more in a moment.
A scene on flight 10.
NIM in the second quarter was 3.40%, a 39 basis point increase over 1Q, as loan yields increased 27 basis points from the rising rate environment and churn in the portfolio, while customer deposit costs were relatively flat, increasing only 1 basis point.
In addition, the negative impact from excess liquidity decreased 8 basis points to 36 bps.
Our fee revenue ratio was relatively flat from 1Q at 30.0%.
As fees grew, $5.5 million or 9% not annualized, driven by growth in cash connect and capital market fees of approximately 2 million each as well as $1.3 million increase in core banking.
which was offset by weaker mortgage banking fees from lower resi refi volume. Both current and leading credit metrics remain positive and stable with net charge-offs in the quarter of $2.6 million.
Net loan growth and balance sheet mix resulted in an ACL increase of $5.6 million illustrated on slide 12.
The ACL coverage ratio is now 1.13%.
or 1.42% when included estimated remaining credit marks on the inquired portfolios. When normalizing for the $1.1 billion investment portfolio reclassification,
The ACL would have been 1.23% or 4 bps higher than prior quarter on a comparable basis.
Non-interest expense continues to be well-managed while at the same time achieving the full run rate impact of the BMT costs synergies early.
The core efficiency ratio improved over 5 percentage points to 56.2%.
Consisting with the first quarter, we returned $56.7 million of capital to shareholders, including $8.4 million of common stock dividend.
and $48.3 million in share repurchases or approximately 1.19 million shares. $48.3 million in share repurchases or approximately 1.20 million shares. shares.
Approximately 85% of core earnings was distributed in the quarter.
Also, the board approved a 15% increase in the quarterly dividend to 15 cents per share.
and approved an additional 10% share repurchase authorization.
14% of outstanding shares or 8.6 million shares are authorized for repurchase as of the quarter end. 14% of outstanding shares or 8.6 million shares
Our bank regulatory capital ratios are substantially in excess of well capitalized with CET1 and tier 1 capital of 13.6%
and total risk-based capital of 14.57%.
TCE decreased to 6.63% driven by the continued interest rate impact on AOCI.
We continue to evaluate and consider both our AFS and HTM investment portfolio mix.
Along with balance sheet hedging strategies to best position us for the anticipated interest rate volatility in the next few years. The
Lastly, as we typically do at mid-year, we have updated our Outlook Assumptions on slide 5.
As I mentioned at the beginning, we are executing consistent with our plan.
While we anticipate the second half of the year loan growth rate to be in the mid to high single digits. The next half of the year loan growth rate to be in the mid to high single digits.
Given the growth in one queue, our full year growth expectation is now mid-single digits where the low end of our original range.
Also, given the lower residential refi volume in the markets, combined with the financial markets impact on AUM and the sale of the BMT insurance business, the market's impact
Annual fee revenue growth is anticipated in the low single digits.
These expectations combine with the higher interest rate environment and positive performance to date.
Our full year ROA is now anticipated near 1.35%, excluding the initial CECL provision for BMT.
with a 4Q ROA around 1.65%.
updated NIM, PPR% and RLA are illustrated on slide six for both full year and 4Q.
In summary, the growth and overall performance in the quarter demonstrates our strategic position in our markets, and we look forward to continued opportunities for substantial organic growth ahead.
We will now open the line to answer any questions you may have.
Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone.
Please stand by while we compile the Q&A roster.
And our first question comes from the line of Frank Charaldi with Piper Sandler.
That's my guard.
Good night Royal?
I just, first on the NIM guide, obviously, you know, the better NIM guide driven by the additional rate hikes. But I wondered if you can give any additional color on it. There's any other inputs in how they might have changed versus previous guides, whether it's cash or deposit data or change in loan data, is anything other than just the additional rate hikes that are now baked in the 13th? The additional rate hikes that are now baked in the 13th?
First on the NIMGIDE, obviously, the better NIMGIDE driven by the additional rate hikes. But I wondered if you can give any additional color on it. There's any other inputs in how they might have changed versus previous guides, whether it's cash or deposit data or change in loan data, is anything other than just the additional rate hikes that are now baked in the 13. Sure Frank, this is your Dominic.
The increase in the name is primarily driven by the higher interest rate environment. We do expect betas to pick up in the 2nd, half of the year. But those betas would be somewhat less than a full cycle as betas would continue to increase into 2023.
But the higher interest rate benefit is really coming from variable rate loans, turning the portfolio and turning the investment portfolio as well.
Okay. In terms of the deposit betas, can you just remind us is basically your expectation through the cycle that betas will be similar to last time around and when do you have those sort of ramping up to that? Okay.
Sure, our long term historical data was closer to 50%. However, in the last rising rate environment, it peaked around 25%, which would be expect we would expect to be the near term. Performance over the next year and a half for this year, given the timing of the rate increases, particularly with 7 remaining in the 2nd, half of the year, we would expect the deposit beta to ramp up around 10 to 15% by year end with some continued.
long-bought the devices within consumer at this point.
Sure, I'll provide a couple of data points. First, our partnership portfolios are about 45% of our total consumer lending.
In the quarter, less than half was, or about half was from upstart, which is unsecured. The remainder comes from the home equity line mortgage business or the traditional banking products. And as regarding the 13%, we have said strategically we are comfortable with consumer loans growing to 20% of our total loan base. Obviously we will evaluate the product mix and the income of the consumer. And as we have said, the income is unsecured. And as we have said, the income is unsecured. And as we have said, the income is unsecured.
the credit environment and overall growth when we evaluate our investment on a quarter to quarter basis. We are at a low- enroll only as the basic.
And within that comfort at 20%, has there been any detail on the unsecured portion where your comfort level is there? Where your comfort level is there?
We have internal limits on the unsecured limit. We are continuing to evaluate the performance, particularly of the upstart product as we just launched it in the 3rd quarter of last year. So we're getting through our early vintage performance from a credit perspective. They are performing well. We still have capacity to grow that business meaningfully in the coming quarter and years to stay within our concentration limit.
Yeah, Frank, this is Rajesh ad to that. So the unsecured limit in our concentration policy is 20% of tier one capital plus ACL. And we're, as I'm going to say, we're well below that at this point. So we have some more headroom to grow. It's still a relatively modest portfolio, early days, and credit vintage. So we'll continue to monitor it and adjust our originations as situations dictates.
Right, okay, but just to summarize in those numbers a little bit, if I could in terms of Dominic, you said the partnership portfolio is about 45% of total consumer. And then obviously the unsecured portion is a portion of that. Did you say whether, you know, is that about half of that 45%? Did you guys give that detail? I'm sorry, I missed that. Yes, it's less than half. It's around $2.00 million.
Okay, great. And then if I could just sneak in one more on the updated fee outlook. I just wondered if you could remind us in terms of, I think you might have touched on it, but the wealth management business, just the billing around that in terms of how much of the market volatility we've seen to date is already priced in, would you say, to the 2Q run rate?
Great. And then if I could just sneak in, you know, one more on the updated fee outlook. I just wondered if you could remind us in terms of, I think you might have touched on it, but the wealth management business, you know, just the billing around that in terms of how much of the market volatility we've seen to date is already priced in, would you say to the 2Q run rate? Thanks.
Frank, this is Art Bacci. I'd say we still have some declines to see in the third quarter. A good portion of our AUM business is billed in a rear. So you would see the third quarter would be based off second quarter AUM balances, which were down about 12% quarter over quarter. But I would also remind you that, we have a pretty diversified wealth business. So while there's the AUM business around, we're going to see the third quarter. So we're going to see the third quarter. So we're going to see the third quarter.
35, 40% of our fees. We have a rest of the business is pretty much tied to account base fees and transaction base fees. So that helps to kind of offset some of that decline.
Thanks, sir. All the colour guys. color guys.
Thank you.
Thank you. And as a reminder, to ask a question, please press star 11 on your telephone. I'm going to ask a question. I'm going to ask a question. I'm going to ask a question.
Our next question comes from the line of Mike Perrito with KBW.
Hey, good afternoon, guys. Thanks for taking my questions. Thanks, Mike. I apologize if I missed this. I don't think you guys mentioned this explicitly when answering Frank's questions around the consumer lending piece, but the loan growth guide for the year and the sounds like a little bit of a pickup maybe in the back half of the year, you know, what's the mix of that? Are you guys assuming that the consumer production kind of stays?
where it's been in the last quarter or two, which has been fairly robust, are you assuming there's some drop off of that just given some of the macro uncertainty that we're all kind of dealing with right now?
Sure, the growth rates do include continued growth in the consumer loan book, particularly driven by those partnership products, but we anticipate the growth in the second half of the year to be less than the second quarter, but still robust. The second quarter, but still robust.
Got it. And you know, at this point, um,
you know, particularly in the unsecured personal lending book of business, you know, understanding that I believe if I recall you guys have some fairly specific credit standards and it's all fairly geographical relevant types of credit that you guys are.
are taking on, but are you guys?
Changing your thought process around unsecured lending at all with inflation and rates moving higher. And has that kind of changed the equation for you guys at all or not yet? Or not yet? Or not yet? Or not yet? Or not yet?
So we continue to evaluate the performance, which is very strong and still favorable to expectations. As we just discussed, the unsecured product is still a very small portion of the overall total portfolio, less than 2%. And given the yield that we are seeing on the product and the ACL coverage that we have setting aside for this product, we are comfortable with continuing looking at it.
Obviously quite a bit of buyback outstanding here, but how do you guys balance?
You know, between AOCI and the Brimark transaction, you obviously book value has taken a step lower here over the last 12 months or so. And how do you guys balance, you know, continued kind of book value degradation with buybacks versus kind of the excess capital build that presumably you guys are going to start to see over the next few quarters with the NIM moving as high as it is?
Yes, good question and important one. A couple of key points. We expect to continue to generate significant capital from our returns as we've seen in the last few quarters and expect that capital to return. We expect that capital to return.
Our regulatory capital ratios, as I mentioned, are significantly ahead of well capitalized. So from a regulatory capital, we have significant capacity. While the AOCI is impacting the TCE ratio, and that is something that we consider in our decisioning for capital, we continue to look for opportunities to hedge as we have in the first quarter by migrating the investment portfolio along with other hedging strategies.
And as always we utilize our long-standing practice of evaluating capital deployment. With that said in addition to the two notable items of increasing the dividend 15% to 15 cents per share and the share authorization we have reevaluated our capital return philosophy. Historically, as you may have heard us speak over the last few years, we would return a minimum of 25% of our capital but
split equally between a purposely low dividend and share repurchases regardless of price. Given our returns and ungrowth expectations, we have increased that to 35% with up to 35% of capital returned annually or of earnings returned annually. But now it's one third purposely low dividend, two thirds share repurchases regardless of price. So it gives us a little bit more capacity within our practice.
the on the loan portfolio at this point is the runoff residential mortgage loans or is that really the only thing of significant size left that that's running down that would impact your net growth as we move forward here? I believe there might be a few other small things but there's most everything else should kind of conclude it here is that is that correct or am I forgetting about anything else?
No, that is correct. All other portfolios that we may have either historically called runoff have run their course, particularly from the beneficial transaction. And then with this KCMI portfolio sale, the only portfolio that we're not continuing to book is the held for investment, resident, consumer, residential portfolio.
Okay, which is just the 600 plus million. That's it. Okay.
Great. Thank you guys for taking my questions. I appreciate it.
Great. Thank you guys for taking my questions. I appreciate it. Thanks Mike.
I'm taking my questions, I appreciate it. Thanks Mike.
Thank you.
And with no further questions in the queue, I would like to turn the conference back over to Mr. Kenuso.
Thank you, and thank you everyone for joining the call today. Roger and I will be attending conferences and investor meetings throughout the quarter, and we look forward to meeting with many of you then.
Thank you, and thank you everyone for joining the call today. Roger and I will be attending conferences and investor meetings throughout the quarter, and we look forward to meeting with many of you then. Have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.