Q2 2023 Horizon Bancorp Inc Earnings Call
Good morning, everyone.
And welcome to the Horizon.
<unk>, Inc conference call to discuss financial results for the second quarter of plenty twenty-three.
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Before turning the call over to the management. Please remember that today's call make one paint statements that are forward looking in nature.
Statements are subject to risks uncertainties and other factors that could cause actual results to differ materially from those discuss.
Including those sectors noted in this slide presentation.
Additionally, information about factors that could cause the actual results to differ materially is contained in the horizons current 10-K in later filings.
In addition management may refer to certain non-GAAP financial measures that are intended to help investors understand horizons business.
Reconciliation for these measures are contained in the presentation.
Company assumes no obligation to update any forward looking statements made during the call.
For anyone who does not already have a copy of the press release and supplemental presentation, you should buy horizon yesterday, they can be accessed at the company's web site.
Ryzen Bank Dot com.
Representing horizon today, or Chief Executive Officer, and President Thomas Sprain.
EVP and Chief Financial Officer, Mark CCAR.
E V P N chiefs commercial banking officer, Linda Kerber.
E P P and senior operations officer, Cathy the radar.
At this time I would like to turn the call over to Mister Thomas frame. Please go ahead Sir.
Thank you and good morning, and thank you for participating Horizon Bancorp's second quarter earnings Conference call.
Comments today will follow the Investor presentation in our press release that was published yesterday on July 26.
To begin with we wanted to thank and recognize Archimedes, our clients and our advisers, who have joined us throughout the you're celebrating our 150th anniversary.
The history of our organization is based deep and community involvement.
<unk> first philosophy, and a highly engaged and tell the team advisors.
We have continually displayed the discipline them balanced operating model that has successfully navigated economic cycles and consistently pretty strong total shareholder returns to our investors over time.
As the leader to ship team will Sharon our presentation. Our second quarter results were positive on many fronts. Our net income improved through solid quarterly revenue, which included a thoughtful approach to new production loan spreads daily management of our funding cause.
These key revenue drivers were coupled with improved noninterest income in the corner. The team continues to manage expenses very well and our credit quality.
<unk> remains a positive stable for the franchise.
As the industry faced with elevated deposit competition and client demand shifts the higher interest bearing project <unk>.
Verizon is navigating this environment well with a measured approach to deposit pricing and it's continuing to execute on its strategy to accelerate growth and higher yielding assets.
Are durable deposit relationships with tenured and market clients, which is managed for a diversified funding platform to retail commercial Entreasure management performed well this quarter by maintaining and slightly increasing their overall deposit balances.
Additionally, today'll you learn about her for view of our continued lending growth. The positive results of our pricing strategies are active balance sheet management and the ample liquidity. There we believe physicians horizon well for continued success through 2023 and beyond.
Now to give you a quick summary of our strong core markets across Indiana, Michigan remind you their horizons expansion and growth has occurred primarily in Michigan, and Indiana is college and universities towns and within state and County governments seats. These markets continued to provide community based that is traditionally more economically stable, which helps limit the real estate.
<unk> of a typically large metropolitan area. Additionally.
Additionally, we continue to see inbound migration from high cost states and considerable infrastructure investment our core markets, where we have distribution that has resulted in strong balance sheets of our commercial and our consumer customers and a line as well with horizons Conservative credit culture to.
To help communicate and provide insight into a queue to performance on these fronts I'm gonna turn the call over to Linda Kerber, Our executive Vice President and Chief commercial banking officer provide detail in our loan and credit performance for the quarter Lynn.
Thank you very much Thomas that's good morning.
Commercial loans for the second quarter heading that increase of $820000 or one one.
Basis point on an annualized basis.
Funding for 128 million for the second quarter versus 109 million for the first quarter.
These results were impacted by extra ordinary pay off in the second quarter and associated participation Lona County.
Without these adjustments commercial loans would have increased $60 million for the quarter.
With our full year growth forecasts.
The overall commercial pipeline remain salad with $180 million as of June 30th compared to $130 million at the end of the links quarter.
Our customers continue to evaluate new investment opportunities and we've seen the increased activity.
The sector as well as public private partnership development.
Our new loan originations continue to be very diverse across our markets and consistent with our overall portfolio sectors with roughly one half and non owner occupied CRE 21 per cent in owner occupied CRE and 28% and C N I.
Consistent with prior periods or commercial credit quality remains very strong.
Very low past use as of June 30th.
One basis point from that charge us in the second quarter of 2023.
Turning to five seven.
Which highlights our overall composition on the commercial portfolio. It has remained very stable.
There has been some continued focus on an office and retail sectors and with that in mind, we have highlighted our office and retail portfolios with some additional details on five eight.
You will note that overall, we had 162 million in the office CRE, representing 6% overall portfolio.
Office loan portfolio as well diversified across to our market.
Comprised of properties in Midwestern cities that have not experienced the same vacancy rates found in some major metropolitan market.
A retail CRE portfolios also totaled roughly 160 million representing six per cent of the portfolio and is also well dispersed across to our market.
Average loan size for both portfolios was $1.1 million and 777000, respectively.
With both experiencing strong credit quality metrics in both segments with no past news or nonperforming loans.
June 30th.
At five nine we're providing some additional insight on our maturing CRE loans and interest rate repricing risk.
For 2023, the remainder of the year, we have $77 million or 4% of our C. R E portfolio maturing in the second half of the year.
This portfolio currently has an average rate of 6.66%.
Only 36 million currently has a right under 6% represent representing only two per cent of our overall CRE portfolio.
For 2024, there was $178 million.
Dollars in loans maturing, representing 10 per cent of our overall CRE portfolio.
This portfolio has an average rate of 6.2 and roughly half of the rate less than 6%.
Again, representing only five per cent of our overall CRE portfolio.
With these metrics in mind, we feel we are well positioned for right related credit risk at this time.
At 10.
Turning to consumer direct loan balances, you'll see that the increased $2 million to origination the efforts of our branch platform. We continue to actively increase production healed improving your overall portfolio performance.
Indirect auto decreased 25 million for the quarter, which is consistent with our strategic plan of redeploying to higher yielding product.
And with the short duration. This provides flexibility for us in both the balance sheet and revenue calls.
Our credit quality remains consistent consumer portfolios with higher quality borrowers with proven credit.
Capacity to navigate the higher rate environment.
This is reflective of the direct consumer loan portfolio displaying that recoveries for the quarter and 10 basis points ear to date charge offs for indirect loans.
Slide 11 highlights our mortgage loan performance for the quarter, our portfolio increased $12 million, which is consistent with expectations for 2023.
[noise] selective of high quality jumbo loan borrowers.
Spar for 2023 70 per cent of our year to date production is available.
As seen with previous quarters, new production yields compare very favorably to those on payoffs and paydowns.
Arching continues to adapt in the current environment and has expanded its core mortgage products and investors to provide additional flexibility and financing options are highly competitive purchase market and new construction financing.
With a zero charge offs for the quarter, our portfolio continues to reflect high quality borrowers significant payment capacity and also equity in their homes.
Turning to asset quality metrics. They continue to be very strong as outlined on slide 12, net charge offs for the second quarter or 274000, representing one basis point of average loans.
Our nonperforming loans increased by 2.3 million, primarily due to nonaccrual mortgage loans. However, these loans are well collateralized and no losses expected at this time.
Overall or non-performing loan ratio of 52 basis points.
Consistent with the prior quarter's performance and past use can she needs to be very low at 26 basis points of our total loans for the quarter.
The allowance for credit loss increased slightly to 49.9 million, representing 1.17% of total gross loans, which we believe is appropriate given the level of charge offs and nonperforming loans, the condition of our high quality portfolio and market and economic conditions.
Credit quality across all of our lending classes as preferring well and reflects our history of consistent and well balanced approach to lending.
As noted on slide 13, or historical credit performance compares very favorably to other U S. Commercial banks, we have had a history of outperforming the market through prior economic cycles, and we believe we will outperform the market again as we progressed through 2023.
Now I'd like to turn things back to Thomas and he will provide an overview of our deposit portfolio and trends.
And appreciate the great insight and also the extra detail on the commercial portfolio well done.
It's been a slide 14 on deposits, we have a very season and granular portfolio. Archie client segments consist of an average of 10 years and balances are reflective of our strategy of helping our local businesses or consumers and our communities and around our Michigan mortgage.
Additionally, as we examine our portfolio and continue to have over 50 per cent of our balances and transactional checking account again. These are predominantly tenured operating accounts of our local clients, they're not online generated deposit sort through high introductory rage, but relationships with clients, you know and trust Verizon Bank well.
To our percentage of <unk> sure to the FDIC or third parties increased to 79 per cent.
As noted last quarter in Indiana public funds of the state counties and cities town schools and the like are all insured through the Indiana public deposit insurance plan to the extent that they exceed federal coverage limits.
I stayed in my opening comments were very pleased with our deposit balance is maintaining stability.
Lately increasing from Q1.
Mark is going to share in subsequent slides cost to maintain deposits balances was very well managed in the corner.
15 provides detailing deposit flows for the second quarter.
Main very upbeat and positive about the strength of our deposit portfolio.
Relationships consisting of consumer commercial shifted slightly as he saw client spin down some excess funds and we saw continue movement of higher yielding deposit products.
During the quarter at the combine consumer and commercial deposit portfolio was just down just over two per cent.
Two two we continued our daily pricing discipline in the team was successfully able to make it profitable inroads, adding to our public funds portfolio with rates in terms of the line very well with our local strategies.
Folio grew approximately 120 million balancing out the consumer and commercial portfolio.
We closed the quarter with fixed rate borrowings up slightly.
And these have a positive carry to fed funds and other funding sources.
Usually the cash flows from our operations in securities portfolio provided additional liquidity, resulting in a positive fed funds sole possession over $100 million at the end of the quarter.
We believe this will give us additional flexibility in Q3 for <unk> and increase our ability to be nimble with deposit pricing and managing our overall funding costs.
We're all we're pleased with our queue to deposit results.
Aliens here of our core client base active management of refunding costs, the excess cash position will provide additional flexibility March management as we move forward.
Always these results are a reflection of our high to engage team of advisors connecting our local communities and helping our clients find value in banking with horizon.
Let me hand, the presentation over to Mark C. Cor R. E V. P N Chief Financial Officer, who will work for a current liquidity position highlights of our income statement and the chief financial metrics up to you to Mark.
Thank you Thomas.
That's Thomas shared previously our second quarter results are positive on many fronts.
Our net income improved through strong quarterly revenue benefiting from a strategic approach to new loan production spreads and management of our deposit funding costs.
Key revenue drivers were coupled with improved core fee income.
A continued disciplined operating model in respect to expenses and credit.
We accomplish these results by continuing to operate with significant liquidity available as outlined on slide 16.
Heading into the second quarter Horizon was well served by our strong liquidity position, which includes the majority of our investment portfolio Unpledged.
At the end of the second quarter or liquidity position had improved including over 100 million of excess cash liquidity, which will allow flexibility in managing our funding needs are available secured borrowing lines had over 1.5 billion of immediately accessible liquidity with additional liquidity through unsecured lines brokerage C DS.
An additional Unpledged securities.
Altogether these totaled more than 2.8 billion of available liquidity or 50 per cent of total deposits as of June 30th.
In addition, we continue to be proactive in our balance sheet management, using lower cost term borrowings to drive shareholder value at the end of the quarter 1.2 billion of our borrowings word an average fixed rate of 3.47% with an expected duration of under a year [noise].
17, turning to noninterest income.
Proven over the link quarter was led by increases in interchange fees and gain on sale with mortgages, while most other line items remained consistent.
The company is continuing to diversify core fee income categories that align with its relationship banking model.
Going forward, we expect our investments and Treasury management and private wealth capabilities to contribute additional revenues.
A slight 18, our efforts to manage our operating expenses continue to be a strength for horizon not.
Non-interest expenses were 1.86% of average assets for the quarter compared to 1.79% last quarter.
Our long standing commitment to be an agile in this part of our business model and <unk> consistently reviewing opportunities to reduce expenses and streamline processes continue to be a priority and you can expect it to remain our focus throughout 2023.
That review the second quarter's non-interest expenses the increased from the linked period was primarily due to annual merit increases commissions and cyclical benefit costs, along with expenses from elevated loan production and increased FDIC insurance cost.
Outside of these items in the second quarter corn on interest.
<unk> categories have been stable over the last four quarters.
We anticipate to return to more normalised run rates in subsequent quarters.
Our alone and deposit pricing management is gaining traction displayed on slide 19.
The yield on total loans increased 34 basis points in the second quarter compared to the cost of deposits, increasing 31 basis points, resulting in a profit.
That have spread differential and continuing to add to our net interest income.
The results highlight are discipline alone pricing for new loan production.
Greater focus on originated in higher yielding loan products.
<unk> loans repricing and lower yielding alone.
<unk> has been paid down.
Continue to focus on loan spread management <unk>.
Production shift into higher yielding loan products and cash flow reinvestment at higher rates.
The increasing spread is also the resolved in maintaining a disciplined approach deposit pricing.
Highly competitive market, while ensuring client retention remains strong.
The increase in the cost of total deposits in the second quarter was 31 basis points, notably down from the increases in the last two quarters of 43 and 33 basis points.
Current landscape of competitive deposit pricing, we continue to be diligent in our efforts to extend.
The positive traction experienced in the second quarter in managing our deposit cough.
Moving to the investment portfolio on slide 20, the investment portfolio was 2.9 billion at the end of the quarter Erections 63 million and balances from March 31st.
They had a book yield of 2.22% and effective duration of 6.41 years at the end of the quarter.
Within the quarter, we are opportunistically sold $25 million in securities at a slight gain.
Expected cash flows from investments for the remainder of 2023, Alright Tomatoes to be approximately 60 million, but we will continue to be proactive and <unk>.
Proactively reviewing additional options for security sales over the next several quarters.
It's like 21.
Horizon continues to maintain solid regulatory capital ratios well above the requirements to be considered well capitalized and we believe we have sufficient capital to continue to fund are expected growth in the foreseeable future.
We anticipate that growth and capital outpaced growth and total assets during the year, providing for additional capital strength.
Slide 22.
For the third consecutive quarter are tangible common equity ratio has increased and was up four basis points to 6.91%.
This is the result of higher retained earnings off setting a slight increase in the unrealized losses on the <unk> investments.
Because we have the ability to hold all investments to maturity and pledged for security borrowings. These unrealized losses are expected to decline over time as investments pay down and mature.
It's shown on slide twenty-three, we continue to maintain a strong cash position at the holding company with adequate cash to cover eight quarters of fixed costs, including the shareholder dividend.
This cast is cash position helps provide additional stability in uncertain times and provide flexibility in the future for managing and or restructuring the bank's balance sheet and the ability to make opportunistic investments such as stock buybacks.
Horizons current focus for the use of capital is organic growth.
Current opportunities and market conditions make M&A less likely however, we we remained open and receptive to the decision to discussions and for profitable new revenue opportunities in both an acquisition and lift out.
We expect to continue our target dividend payout ratio of 30 to 40 per cent continuing our 30 plus years of uninterrupted quarterly cash dividend based.
Based on our current stock price our dividend provides a higher yield relative to the sector.
Looking ahead on slide 24, we are providing you with an update on our current expectations for the full year twenty-three and our progress towards meeting them through the first six months of the year.
Growth continues to be solid and both commercial and consumer sectors, which should be valuable contributors to core earnings in subsequent quarters for the year, we expect 6% to 8% total loan growth.
Net interest margin and net interest income trends should continue to benefit from our balance sheet and pricing management.
And we expect NIM of 2.55% to 2.65%.
Net interest income of 175 to 185 million for 2023.
Non-interest income should continue at current levels with anticipation of additional fee income from our investments and Treasury management and well.
Total 20 twenty-three noninterest income is expected to range from 42 to 45 million.
Non-interest expenses continue to be proactively managed across the organization specifically in segments of our business impacted by right raising rates, such as mortgage and consumer lending and we expect them to remain below the 1.9% of average assets for the year.
Are operating metrics of R O a a and R O a E in the second quarter. It looked to remain consistent for the full your expectation with our T. C ratio anticipated to move upward as rates stabilized and tangible equity increases.
For 2023, we expect <unk> of 90, 93 to 97 basis points R. O E. E of 10.5 to 10.9 per cent and a T. C. A T C E ratio of more than seven per cent.
No I'll turn it back to Thomas for some final comments. Thank.
Thank you Mark I appreciate it very much so why invest in horizon in our investment thesis is simple we are located I'm very attracted Midwest growth markets.
Desirable economic environment significant infrastructure investment and they are flourishing ecosystems for businesses and for communities.
Horizon solid year to date loan growth and positive outlook is coupled with a low credit risk profile that has proven the performed favorably compared to other U S commercial banks overtime.
We have demonstrated a track record of consistent underwriting and active portfolio management to ensure the success of our clients and also our shareholders.
Verizon has a stable and loyal deposit base, which is expected to continue to deliver benefits over time, we're seeing the benefits of our active deposit pricing activities and the bank has significant excess liquidity, providing flexibility and nimbleness to our funding strategies.
And we haven't discipline operating model displayed by consistently performing at an expense to average assets of less than 1.9%. This.
This was coupled with our annual net charge offs of only one basis point and a historically low nonperforming loans.
And lastly, we believe we are compelling value stock that is supported by our commitment to our dividend with a 6.7 times P ratio and a 6.2% dividend yield.
Horizon has a track record of 30 plus years of uninterrupted quarterly cash dividends.
Thank you in advance for junior presentation. This morning. This is going to conclude our prepared remarks, so I'm gonna ask him our least to police opened up the line for questions. Thank you mayor leash.
[noise]. Thank you we will now begin the question and answer session.
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<unk>.
At this time.
To assemble a roster.
Our first question comes from Terry.
From Stevens.
Go ahead.
Thanks, Good morning, everyone.
Maybe.
Maybe maybe mark could you just talk about the puts and takes for hitting the high end of the low end of the margin for the year and and does the margin assumed the swamp benefit in Q2, which was what five or six basis points.
[laughter] yeah. So for the projection we gave we are including that I'm coming off of the 2.69% margin in June . So that's included in that 40 your expectation.
I think the the <unk>. The upsides are continue to see the loans repricing at.
<unk>.
<unk> I'm good rates being able to increase the loan meals I think as everybody in the unknown is what they continued pressure and competition on the deposit finding it seems to be the leveling off here in the short term, but that's probably be the the issue <unk>.
Into the last half of the year, what that competition is gonna look like.
Thanks, Mark in in in Thomas prior to your arrival at Horizon. The company would reduce branches real estate and really focused on on managing expenses. My question for you is what are your thoughts on the expense run right today and do you see any longer term opportunities to improve overall efficiency.
Thanks to you and good morning. Appreciate the question when we look at our expenses coming out of <unk> Mark highlighted we have some one time anomalies and they're a little bit about Oh excellent production ketchup from Q1 that got paid and Q2 from our biggest focus right now it's really all personnel expense.
That's something that we saw a little bit of a merit increase our branch distribution right anticipating that we're going to continue to keep it consistent branch distribution, we hired in last year very seasons executive.
I had experienced that large institutions, who is working on a staffing model that's gonna change our complement to more universal bankers and we anticipate as we're getting into Q3 to four that traction will hold us which see some reduced cost. There also as a as a company. We just have a very disciplined operating model being able to tighten.
Tighten our belts and get back within our expense lines, because we looked at Q2 moving in Q3 branches pain going back to that run rate that you solved somewhere in the mid 35 million versus being over 36 million very confident will will be there and that has been moving to Q3 and Q4.
Alright, Thanks, and then maybe a quick one for Lin the increase in Nonaccruals or nonperforming loans can you just.
Go through what you when you sit on the call was that where those mortgages that where they just adjustable rate mortgages that reset higher end, where no delinquent I just I didn't I didn't follow you back during the prepared yeah. So we had a couple of them mortgage loans that moved to nonaccrual.
These are just some customers that really needed some some assistance and so we don't we don't see those go into foreclosure, they're well within our underwriting guidelines. So we're we're not concerned with that.
Okay. Thanks for taking my questions.
Thanks Terry.
And our next question comes from Damon Delmonte.
From K B W.
So I had a.
Good morning, everyone Hope everybody is doing well today just was wondering if you could provide a little bit more color on the outlook for a loan growth you know the first half of the year was was less than three per cent.
The full your outlook is closer to the six to eight per cent. So could you talk about some of the drivers that will will kind of get you to your your projected range.
Thank you and I appreciate the question I'll give it a little bit of color in El Paso or the limb as we looked at Q2, we've had a little bit of muted Lone Grove. Specifically this link talks about tell me what was the last week of the month. We saw a very large paydowns is lim is that earlier about broke broke probably precommercial would've been more around the $60 million.
Change them them relatively flat pipelines still look to look strong in that in that area on the consumer side. This is moving into our our grilled season around home equity loans and home equity draws also seen some nice tracks and around pipeline management. There. So we're feeling that the we're gonna see how the consumer portfolio also accelerate.
From the.
Mortgage we're outside we did see a little bit of a bump this quarter, we anticipate that well, let's see some elevated balance is relatively about the same or this quarter and then mortgage we are seen pipelines grow there.
Portfolio product for well heeled borrowers.
On the on the Jumbo side and also some of the port sort portfolio sides on commercial on a consumer but let me Passover to learn should give more insight on the commercial side sure.
What size I reported in my prepared comments are pipeline outlook for as of July 1st is roughly $118 million. This is actually up a little bit.
30 day forecast 30 days ago.
And when I look back over the last year. It's it's in line with what our quarterly forecast as bad as moderated a little bit.
Certainly with the interest rates and all of our customers are evaluating their projects.
And putting a finer point to those but our overall production has been steady as I mentioned are fundings for the second quarter, we're actually 128 million over the <unk> versus the prior quarter, which was I believe around 118.
So that's been up we were impacted in the second quarter note by a couple of a large payoffs nothing unusual there other than our customers were executing on their business model.
I had one that moved a large mortgage.
And that was their plan and we had one customer that successfully sold they're they're building is his plan. So our overall growth for the second quarter was actually very good up $60 million adjusted basis. So overall I think we're feeling feeling better.
About it.
Another appointment if you notice in the portfolio were strategically declining the indirect auto portfolio, which I believe is just.
<unk> 30 million last quarter, we have the capacity and the capability <unk> within the house also the backfield that transactional portfolio with other assets throughout the court.
Got it okay. I appreciate all that caller. Thank you and then just the circle back on the margin for your guide kind of implies continued compression here in the second half I guess two questions. One Mark what was the spot right for the month of June on the margin.
And two as you look at the the cadence in the back at you think it's equally distributed between the two quarters or do you think there's more compression here in the third quarter and then it lightens up into for it.
[noise], Yeah damn and thanks for your question coming out of June we were we were getting down more than two and a half range now those months switch because you've got different fees incomes and so forth.
But but we did see did see in the the mid to lower range of tuna, two and a half.
I think we have a a.
A handle on the deposit pricing, they're still gonna be some pressure and I think that's where we see that everybody has given that guidance that there's gonna be some pressure going into the third quarter and as the as we start to get a little more clarity on rates and the.
Potential pausing increases.
Right I think we feel like we're going to be able to be able to determine where those deposit pricing is going to end up you'll be able to manage that and we said we have the excess liquidity that we don't have to chase every right right now and they ought to be a little more strategic in what we're going to be putting on.
On the books for funding so.
Great. Okay. That's all that I had thank you very much.
Thanks, Tim.
And our next question is coming from David along from Raymond James.
David Please go ahead.
Good morning, everyone and thanks for taking my question sticking with the deposit side, you're you're non interest bearing deposit concentration is now just just about 20%.
[noise]. Thanks for the question. This is Thomas <unk>, we anticipate as we get into Q3 Q for a slight shift down not as the magnitude that you saw on queue to we are seeing clients specifically on the consumer side are spending through some of their savings.
We do have a little bit of seasonality that happens with our public funds deposited I anticipate that we'll see a slight decline uhm again, probably about 50 per cent of what you saw here in the in the <unk> in the second quarter. We are seen as we talked about the more I'll call resolving this or a market pricing and the public funds, which will give us the ability to bring.
Back some of those to pop the balances in a more favorable light and then also cause we talked about before is for commercial teams have very well heeled balance is worth seeing some good deposit grow up there at the beginning of this quarter.
And then lastly, we're seeing a bit of a ship from our strategy.
<unk> <unk> <unk> the term deposits from our acquisition strategy moving in the money markets. So we're anticipating possibly be slightly down in Q3 and that is aggressively song Q2, but again with the excess liquidity of the hundred million dollars would feel like we will be able to navigate it and keep our focus really on the margin.
Dollars for the institution it all started marching management on a basis point.
Got it thank you Thomas and then other.
Another question I had is released the securities portfolio and I appreciate the updated status in the quarter about cash flows coming up and and what have you, but it sounds like you sold some during the quarter or a little bit of a game you see more intense ah more intense <unk> or an opportunity to be more aggressive on the porch.
Would you take that on in and is there.
Yeah, David Thanks for your question.
We we we've been looking at that you know you see other companies do it where it have some opportunity to be able to to to sell off take a loss help margin. We we we have we've done several mountain models, who are evaluating it we've internally talked.
You know bored Alco and board just in the theory of it. So so that is a discussion topic within the issue I think is as you would see you know we're watching.
Right now I'm, there's and then it'd be opportunistic times and we use that word a lot, but we want to watch for those opportunistic times and if the market moves and giving it to us we want to be able to to move quickly. So that is something that that we are looking at and I'm looking at potential use of capital.
Got it okay. Thanks for that call them or just the last question I have relates to repurchase of of your sheriff's you know obviously.
You know I I think it as we've talked about it it's a it's a holistic view of of use of capital you know what what what's what's the best opportunity for the use of capital with what the market where the market is that I think currently we've kind of wanted to keep make sure. We're managing T C ratio to make sure that.
That continues to to build as we were seeing the unrealized losses come through but I think now we're starting to see see things stabilize and we've seen it over the last several quarters Chi C. Increasing I think as we get a clearer picture of rates and of a terminal rates [laughter] I think we can <unk>.
Look at some of those options again it so it's what's what's the best use of capital and what what even mixture of that looks like.
Great. Thank you for for the taking my question Okay.
Thanks, David.
And our next question.
Is coming from Brian Martin That'd be for me just to remind you that if you would like to pose the question Press Star one.
Brian from Jamie Montgomery. Please go ahead.
Thank you. Thank you good morning, everyone. Just a maybe one question on the you know.
<unk> on the phone for four down on the bed for a while I just have a on the margins just for a moment Mark I think just if we if we do see the margin potentially bottom here in the next quarter too and she kind of look into next year. If the forward curve kind of holes and we see these potential rate declines can you just remind us how the portfolio physician there in the margin.
Might perform and it's kind of a big picture look there.
Yeah, and thanks for question Bryan you know some of it depends on what you're gonna model of when you're going to potentially see your rates coming down and and those but in a in a.
Stable environment, we're seeing the margin being a.
About to get stable and and improving with that scenario and it <unk> that it also has to play and do what are you. What are you predicting and you know our models were saying that we're gonna stay higher longer <unk> through the first part of 24.
But but we do have we do see the ability to re continue to be able to reprice assets and then control the funding costs and see see.
Improving margin is when we get into next year.
Gotcha, Okay, and that's you know with the rate cut probably coming mid year later is kind of what you're suggesting there yeah alright, yeah. Okay, and then just from a standpoint of repricing how much in the way of loans price in the second half of the year.
And what kind of what type of radar I guess, it's kind of a portfolio right that we see out there just what what that level of opportunity is here here in the next six months on the loan repricing side.
Yeah on the.
Total asset repricing, which would include a little bit of of security that we talked about the the $60 million <unk> re price and having the liquid assets we have.
About 1.9 billion of assets that would re price in the next six months that would include you know adjustable some and then the maturity paydowns coming from the loan portfolio. So.
And and that's compared to 2.3 billion that we have over the next 12 months. So the majority of our repricing happens in the next six months.
I think we gave some color in terms of any throat back to you to talk a little bit of an unknown repricing, but we gave some color on some of those of what we're seeing the spreads coming in and the slides for new pricing from with Rolling off and then that's pretty pretty significant.
Thank you Mark and you can you can refer back to Lynn slides did she had around each one of the sectors and what the incremental lift as we believe there's a great opportunity for Verizon This space as Mark said before just over $1 billion there'll be repricing, we really showed some great discipline over the last two quarters about our ability to manage.
Manage our loan spreads and also keep our credit quality, that's been coupled with what we saw in the second quarter, but I'm really disappointed deposit management coming out of the second quarter, we're very optimistic about the positive spread differential between our loans are assets or loans repricing and then our deposit cost in a flat right environmental where the fed.
Pausing <unk>, we're seeing some strengthen and horizons balance sheet here as you said before it's really about greed outlook or outlook is going to be of course, the move yesterday, we're anticipating another move before the end of the year.
And so for us and as Mark talked about we're probably looking at a little bit longer in our forecast for 24 rates being held up a little bit a little bit longer.
So what's really driving our strategy right now on when to deploy capital to talking about the horror whether it's a share buyback wraps restructuring the balance sheet is really being driven by our I'll look I'm gonna rates are frustrate now, we're taking a little bit of a wait and see strategy. We believe that that's best for over all sure I'll return and as we do.
Capital, we have we have an outlook that we like to make sure that we get that return on that capital for for our shareholders back in a very reasonable time, our our objectives is to make it in less than 24 months or less than that extend out to with a rake guessing game of over three years and so for us a little bit of patience here in the third quarter, but mark separate actively looking at this time.
Billy basis discussions with the board Alrighty and models have been complete.
Okay and is that kind of your suggestion on the on the securities portfolio. Thomas at the you know to your to your time period as far as.
Payment.
We think you know as we as we look at the appointment any capital of that you know that we're gonna get a reasonable time frame securities portfolio for US you know the dynamic swirl around the yield them or the duration is and where I'm a curve that we would need to see some type of movement in order to get an execution of size, but again for us if we're gonna execute on something that deals with Securitas patrol.
<unk> side of our typical opportunistic moments that we take throughout the quarter again somewhere between 18 24 months.
Gotcha, Okay, and then last time, I think I'm not sure who mentioned that maybe just a little bit more focus or a little bit on wealth and treasury management <unk> anything significant that we should be looking at that you're changing their or just get a little bit more benefits that come with you guys highlighted or what kind of detailing.
So in the wealth management area, we didn't have any prepared remarks on that today, but I'm sure that previous earnings calls that we we did do some refocusing in our wealth management Department over the course of the last year part of that is you know exiting aesop business.
Which was a significant line of business in that in that group.
And we've had some change in leadership and retooling to really focus more on overall wealth management.
And financial planning and employee benefit programs, we've seen that trend improving over this course of this year as far as new pipeline and production.
Volume close business. So we think that will definitely help our site is <unk>.
Continue on throughout this year I'm going into next year.
On the Treasury management side of course, we've been managing to the interest rate environment. So that has impacted it makes us deposit, but our feet and Tom.
Savings to perform really well I'm getting our targets.
Gotcha, Okay I appreciate the color and thank you for taking the questions.
Thanks, Brian .
A question comes now from maiden race from bipolar Piper Sandler Nathan. Please go ahead.
Yes, hi, good morning. Good morning, Thank you for taking my questions.
Just one clarifying question I think Thomas mentioned that you know deposit nutrition Rustler's may continue maintaining the third quarter. So just curious you know how we should think about the level of borrowing going into the back half of the year and have kind of a stable level orange kind of contemplating the 250.
Five and 265.
Seven margin.
[noise] Nathan Thanks for the question. This is Thomas you know, we would anticipate our borrowings will be relatively flat again, we're we're does that sounds positive physician vaccine the quarter, it's gonna give us a lot of flexibility around our our deposit pricing and also our flows in and out again anticipate that we'll see.
<unk> close a level of going into Q3 stabilizing in queue for but that again with that that that excess physician at the end of the quarter.
We feel positive about the overall balance is not really need to increase our borrowings.
Also as I mentioned earlier were a little bit more of a stable market in the in the public funds area that enhanced pricing that sounds like probably agreeable with our local models and that's space. We can step back into that we have stepped out in Q1.
Okay, Great. That's helpful. And then just maybe one clarifying question on the margin guys as well it looks like the accretion income stepped up a little bit in too few versus <unk> I guess Morgan into awesome, just a level of intrusion over you should expect in three to unfortunate over this year.
Yeah, you you know you know maybe bouncing around a minute on what we see happened with the loans and recovery, but I think the best guidance as to take the first a couple of quarters and average them and that would probably be what we'd see similar in the second half of the year.
Okay got it <unk>, maybe one last question for when you know the reserve was staying.
<unk> record of one point.
One seven per cent of loans I guess as any Cecil.
<unk> do you expect it to kind of remain near this level as you guys. Just continue to provide for the loan growth guidance that was provided in the back.
Yeah. Thank you for the question.
You know the Cecil model for the allowance always is a combination of a variety of factors right and so we have an economic forecast, which is is one driver and then of course, we have our internal loan balances and credit quality.
We did have some exercise so I'll call them Covid pandemic reserves that we had been releasing over the course of the last year and so at this point you know where the key drivers are gonna be the home or on the economy and our our overall credit trends.
And so to give you a prediction I <unk> I don't know that I could do that today of course, but it's it's really going to be based on those driver or something.
For all the economy are long graff and credit metrics.
Right got it sounds good I appreciate the color. Thank you everyone. Thank you.
And this concludes our question and answer session.
I would like to turn the conference back over to management for a nickel.
Closing remarks.
Thinking marlys and again, thank you for participating in today's earnings call cause we stayed at earlier, we're very pleased with the progress through amid here and the momentum headed into the second half of 2023.
<unk> Horizons markets are some of the most attractive in the Midwest and we intend to continue to find possible metal them for a heck of a balance sheet management or discipline operating culture and create longterm shareholder value for a well diversified loan portfolio and are valuable core deposit franchise.
We appreciate your participation today's call and we look forward to speaking with you on our next call they call, which will be on October have a wonderful day.
The conference has now concluded.
You very much for attending today's presentation you may now disconnect.