Q2 2023 Cadence Bank Earnings Call
Joining us today to discuss cadence bank second quarter 2023 financial results.
I will provide a few highlights then <unk> will review our financials in more detail following our prepared remarks, our executive management team will be available for questions.
We reported quarterly net income available to common shareholders of $111 7 million or <unk> 61 per diluted share. The adjusted net income available to common shareholders was $116 9 million or <unk> 64 per diluted common share with the primary difference being non routine expenses associated with our <unk>.
Ongoing initiatives to improve efficiency, which I'll discuss more in just a second.
We had another strong quarter for loan growth standpoint, with net organic growth of $1 3 billion or 16, 3% annualized year to date growth is now $2 2 billion or 14, 7% annualized growth for the quarter was well distributed from a product and geographic perspective.
Mortgage production was robust supported by second quarter seasonality.
Additionally, we saw continued fundings from CRE commitments during the quarter, we will continue to fund commitments in the coming quarters, but overall, we expect the pace of loan growth to slow to an annualized mid single digit growth rate for the second half of the year.
Total deposits declined just over $700 million in the quarter and have declined approximately $250 million year to date or one 3% annualized our community Bank deposit base continues to hold up very well with most of the pressure coming from corporate accounts some of the corporate declines our typical second quarter seasonality. However.
This year some of it is also driven by commercial customers seeking yield.
Community Bank deposit outflows were $130 million in the quarter, while year to date growth for the community Bank now stands at 347 million like many others. We felt the industry wide pressure on funding cost at a faster pace this quarter and saw the impact on our margin accordingly.
<unk> will discuss this as well as our revised expectations and her margin comments in a moment.
As we look at a couple of our other highlights.
Our results reflect strong performance from our fee income businesses, including record quarterly insurance Commission revenue of nearly $46 million, we reported a meaningful increase in P&C commissions, driven by business growth and retention as well as upward pressure on policy pricing.
Finally, we continue to work aggressively towards improving our operating efficiency.
We reported a decline of approximately $8 million or two 6% in linked quarter total adjusted non interest expense.
We also refined our savings estimates related to the efficiency initiatives that we discussed in our first quarter call, including 35 branches that we expect to close within the next 30 days as well as various ongoing initiatives, including early retirements and other personnel savings. These initiatives are now projected to produce non interest expense.
Reduced noninterest expense by approximately $35 million to $40 million annually. The majority of these actions associated with these initiatives will be implemented during the third quarter and we expect to reflect the full benefit by the first quarter of 2024.
Valerie I will turn the call over to you.
Alright, Thank you Dan.
Looking at the results for the quarter, we see four broad themes.
Key business development successes stable credit quality acceleration in funding costs and progress toward improved operating efficiency.
Breaking down net interest revenue and margin on slide 11, we reported net interesting tenants may have written $34 million for the second quarter, a decline of approximately $21 million compared to the first quarter of 2023.
Of the decline 5 million is related to lower accretion income compared to the first quarter with the remainder being driven by accelerated funding costs.
Our net interest margin was three 3% for the second quarter down 26 basis points from the linked quarter or 21 basis points, excluding the decline in accretion.
Our total cost of deposits increased to 187% up 59 basis points from last quarter. As you may recall, we added $1 9 billion in broker deposits in March of this year and maintain those balances in the second quarter.
Factoring out broker deposits are core customer cost of deposits increased 45 basis points in the second quarter as we continued to see migration from noninterest bearing products to interest bearing.
The percentage of noninterest bearing to total deposits declined from 29, 2% at the end of the first quarter to 26, 4% at the end of the second quarter.
Our yield on net loans, excluding accretion was $6 one 8% for the second quarter at 31 basis points from the prior quarter.
And at June 30, our total deposit beta was 35% cycle to date, while our loan beta excluding accretion with 44% cycle to date.
Looking to the second half of the year. We currently anticipate our not our net interest income and our net interest margin to stabilize supported by continued loan growth and a slowing at both deposit outflows and the mix shift from noninterest bearing to interest bearing.
Additionally, we are forecasting a gradual increase and a cumulative deposit beta to around the 40% level by the end of the year with a cumulative loan beta excluding accretion increasing to the 50% level.
Noninterest revenue highlighted on slide 14, with $132 3 million, excluding the securities losses, noninterest revenue increased approximately $7 million or five 5% compared to the first quarter.
Insurance Commission revenue increased 6 million or 15% linked quarter and impressively insurance revenue has grown 14% compared to the second quarter of last year.
Mortgage banking revenue was relatively flat linked quarter with a decline in production and servicing revenue offset by improvement in the MSR asset valuation.
The decline in other noninterest revenue was largely the result of timing as elevated FDA and credit fees related to.
The activity in the first quarter that.
We had earlier this year.
Moving on to expenses, which are highlighted on slide 15, and 16 total adjusted noninterest expense declined $8 million from $305 million for the first quarter of 2003 to 297 million for the second quarter.
The largest linked quarter decline on an adjusted basis was $4 8 million in salaries and employee benefits largely attributable to seasonally higher payroll taxes and retirement plan expenses in the first quarter of each year.
Data processing and software expenses declined $3 9 million on a linked quarter basis, including the result of savings associated with vendor contracts and service agreements.
Finally, other miscellaneous expenses declined $3 6 million compared to the first quarter, including lower levels of fraud losses as well as several other smaller items the various miscellaneous expense categories.
As we look forward Dan mentioned that we have updated the cost savings estimate associated with our strategic efficiency initiatives to $35 million to $40 million annually.
The 35 branch closings will occur during the early part of the third quarter and the early retirements and other personnel savings will be phased in over the course of the rest of 2023.
We incurred non routine costs of $6 2 million in the second quarter associated with these initiatives and we anticipate incurring an additional $10 million to $12 million over the remainder of the year.
Factoring in these initiatives as well as our annual merit cycle increases that were effective on July one.
We expect our quarterly adjusted noninterest expenses to decline in each of the third and fourth quarters.
Finally speaking to credit quality on slide nine our provision for the quarter was $15 million up slightly from the 10 million provision in the first quarter of this year, primarily as a result of the loan growth we saw in the quarter.
The $15 million was made up of a 25 million provision for funded loans, partially offset by a $10 million provision reversal on unfunded commitments.
This dynamic is attributable to the continued funding of lines as well as the slowing of new unfunded originations.
Net charge offs increased to $12 7 million in the second quarter or 16 basis points as a percent of average loans.
On an annualized basis.
The net charge offs were largely the result of a C&I credit that was identified as impaired and reserved for in a previous quarter.
In addition, nonperforming loans and nonperforming assets improved slightly compared to the first quarter declining $4 million and $6 million respectively.
We also continue to be comfortable with our classified and criticized asset levels as a percent of total loans at one 9% and two 7% respectively.
We are pleased with the overall stability of our credit quality and while there are always a handful of issues being worked on we've not seen indication of specific concentration or segment concerns.
In summary, our results reflects a number of positives this quarter and there is a lot of momentum as we look forward we.
We expect stabilization in our net interest margin.
Our fee businesses, continuing to perform well and we are executing on various fronts to improve our operating efficiency.
We also continue to have solid liquidity credit and capital metrics, providing a strong foundation for our ongoing business growth.
Operator, we would now like to open the call to questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Please limit yourself to one question and one follow up.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Catherine Mealor with <unk>. Please go ahead.
Thanks, Good morning.
Hey, good morning, gentlemen.
I wanted to start on the margin and.
I found your commentary on your the updated data is interesting, especially the loan beta that you're pointing to.
50% cumulative beta as we end the year and just curious as you think about the loan repricing that you see in the back half of the year I mean, we saw a pickup in loan beta this quarter and so as you see deposit cost and maybe.
Mix shift stabilize.
Youre pointing to is stabilizing margin, but is it is it possible to even see the margin starting to increase maybe next quarter's too too soon but as we're as we're exiting 'twenty three 'twenty four just given your outlook for how you see loan yields repricing.
Thanks, Katherine great questions.
First of all I will.
I'll say that what we are anticipating is one rate increase in the third quarter and then no more for the rest of 2024 or excuse me for the rest of 2023, and then nothing really until the middle part of 2024. So that's really the foundation for these assumptions.
To your question, Yes. We've included the slide again in our slide deck that shows the loan pricing characteristics and yes. Those loans continue to reprice that loan growth that we've got all of that is is fueling that loan yield to continue upward.
<unk>.
That being said, it's all about the deposits.
Ink prove as we go towards the end of the year.
Absolutely if deposits.
Behave properly.
The higher broker deposits.
That's exactly right.
I think what we saw in the second quarter was a bit unusual for the whole industry. If we were to see another quarter like that then.
That certainly wouldnt be the dynamic what we are what we are looking at based on some of the recent trends are slowing like I said of some of the migration out of noninterest bearing and <unk>.
Expecting some continued migration don't let me misstate that there as.
As well as some continued deposit runoff, but again is somewhat slowing of those trends and that's what's built into that stabilization comment.
Got it higher for longer is better higher for longer can be better growth.
Okay great.
And then.
On the noninterest bearing remax, what's your I mean, I know we.
We just have no idea, but what's your best guess.
Yes on where you think that bottom as you just look at you.
Your business mix and some of the trends youre seeing throughout the back maybe especially the back half of the quarter as that stabilizes.
Sure.
Yes, so what we are actually modeling right now and projecting is by the end of the year being down to the <unk> hundred 24% level.
Compared to the 26% level right now as a percent of total deposits.
Depending on again kind of what happens in the back half of the year, we can see that possibly going even a little bit lower into the early part of 'twenty four but that's probably a little too early to call at this point.
Got it okay.
Blend together cadence and legacy Bancorp South.
Back in 2016, you were at about I think about 26%. So just a little bit below maybe pre COVID-19 levels on a combined basis, it feels like but not drastically lower.
That's based on some of the monthly trends in some of the recent activity and behavior that we're seeing that.
And that causes us to model it in that direction, Yeah, that's exactly right okay.
Okay, Okay great.
Then can you just give us a flavor for where new deposits are coming on today, maybe in your different product Cds and money markets.
Yes, most of the new deposits are from a home office CBD Omaha.
We're seeing a little bit.
On noninterest bearing and some customer wins that we picked up in a couple places most of the dollars are flowing out all of the interest bearing.
Sure.
Okay.
Okay.
To add to that.
Go ahead, Mike just add a little color to that.
Yes.
We are actively seeking the corporate deposits. We had indicated that there was some decline there we're seeing some nice wins and some seasonality in that that are legacy Cade folks. It is seen in the first couple of quarters.
I feel very good about where the pipelines are on the corporate side going forward.
And I would just say from that CD promotional rates those are to your point Kathryn five to five and a 400% as the pricing that we're seeing right now in many markets.
Probably in the three 5% level.
Okay, great. Thank you. Thank you. Thank you.
Thanks, Katherine I appreciate it.
Our next question comes from Michael Rose with Raymond James. Please go ahead.
Hey, good morning, everyone. Thanks for.
Good morning, Dan and thanks, everyone for taking my questions.
Just a follow up question on deposits I know the brokered deposits were down a little bit.
Linked quarter what are the.
The expectations for those balances as we move through the year I'm, just trying to get a sense for how much matures and was kind of taken on in that short term nature of that.
Yes.
The failures and not in March.
Yes, sure. So yes, it did come down a little bit we did.
Most of those are fairly short term 369 months type of.
Brokered Cds.
And broker deposit arrangements, we do anticipate at this point really probably maintaining that level.
At least in the foreseeable future just with the deposit outflows.
The industry.
It's probably likely that we will maintain those for a little bit longer than obviously.
Would have in the past.
Okay. That's helpful and then just kind of.
Backing up on Catherine's question, but in the guidance it sounds like maybe a little bit more pressure on the NIM in the third quarter.
Maybe a little bit more pressure on NII, but that should kind of stabilize the rebound in the fourth quarter and then you have a pretty big gap between the low beta deposit beta expectations, even though deposit betas rose from your prior expectations is that kind of just broadly speaking the way to read it Valerie.
I think if we elected the rest of the year, we think theres opportunity to stabilize the margin really throughout the last half of the year not just in the in the tailwind expected deposits behaving appropriately.
Yes.
I didn't hear those fire in the back Dan earlier side, maybe you guys got the cops after those depositors.
Okay.
Thanks, guys.
Just.
Switching gears, a little bit just wanted to kind of square the circle on.
The incremental cost savings from some of the expense initiatives I think.
You had mentioned that you'd expect deposit down kind of third and into fourth quarter. As a result of that you had kind of previously given a range of $2 90 to 300 million, but you have these extra cost savings obviously, you're doing some investing in the franchise as well is that still kind of a good range or would you potentially dip below kind of the 290.
Into the fourth quarter. Thanks.
Yes, <unk> got a couple of things going on in this quarter in <unk> number one being the.
The impact of annual salary changes, we do that effective July one so that sort of add to the third quarter run rate there, but we also see the savings that are coming in so.
I think the.
35% to $40 million that we're going to harvest out in the back half of this year Youll see all of that in the first quarter, So thats a $10 million a year.
It's $1 10 $1 quarter drop.
Off of the numbers that you see today youre back into the investing so you got the upside the only significant enough that I'm aware of today would be the salary changes.
<unk>.
Yes, that's exactly right and then on a GAAP basis, some of the onetime costs.
That is correct.
Alright perfect.
I'll step back thanks for taking my questions.
Thanks Martin.
Our next question comes from Madden.
The failure with <unk>.
Morgan Stanley . Please go ahead.
Hi, good morning.
Hey, good morning.
How is.
Looking to get some more color on.
Just the level of conviction that NIM and NII should stabilize from here.
Can you talk about the rate of change that you saw during the quarter.
You just made a comment that.
Part of your guide was based on the more recent flows that youre seeing and many of your peers have also noted that June was better than April and May So I was wondering.
If that was something you saw as well.
Yes, that's exactly right.
April was the worst month of the quarter.
And we got better in June and Thats, why Youre seeing us model and have some confidence that we're we're stable.
And what do you think drove that was it was it just improving customer behavior or was it better management of liquidity or was it.
Just more conviction that the environment is improving so you were able to.
Price deposits appropriately manage liquidity more appropriately.
I think the customer behavior in April was all a result of the March madness, and the banking industry and that's what we were dealing with in April and things have calmed down so it's bill.
Got it.
Fine.
Yes go ahead.
A little bit more.
The outflows in the pipeline.
As we've gone through the quarter.
Got it alright perfect.
In terms of.
Just cash and level of liquidity I think last quarter, you had said $1 billion or so of cash.
As level that you're comfortable with I think you're around there with about $1 7 billion right. Now. So can you help us think through what the appropriate level of liquidity is and also.
The rationale behind.
A $1 2 billion of <unk> borrowings from this quarter.
Sure Yeah. So we brought down our cash levels about $3 5 billion.
About $3 5 billion this quarter and that was really because of the excess cash that we put on at the end of the first quarter and just.
Just like the stability that we mentioned on the deposit front and just really didn't see the need to maintain that excess liquidity on the levels that we have right now.
It's still probably a little higher than what I would.
Say at the historical norm and so over time that may dwindle down.
Maybe another $5 billion or so comfortable with that yes to a more normalized level, but we're comfortable where we are today.
And then yes, you are right, we actually did replace federal home loan bank borrowings with.
The term funding program borrowing about $3 5 billion there at a rate that was lower than the federal home loan bank borrowing and we can pay it back at any point in time. So it was a net improvement for us on margin.
Expense cost.
Got it so you just substituted thought of FHA will be with PTSD.
That's exactly right.
Perfect. Thank you.
And saved a little mini debates.
Yeah.
Thank you I appreciate it.
Our next question comes from Brandon King with Truest. Please go ahead.
Hey, good morning, Brian .
Yes, so I wanted to touch on loan growth, obviously slowed as the back half of the year, but could you give some more context behind what's driving slower loan growth.
With the stronger seasonality Arabia unexpected ready to.
Contributor in the back half of the year as well.
Right.
Last part again was strong.
Because residents strong contributor.
Yes, yes, yes, yes second quarter residential will drop back remember.
Third quarter will drop back from second quarter, we expect to see that the drop in the secondary market is improving a little bit there. So the stabilization in rates is helping in the secondary market. So thats, what youre seeing on our side we are.
But what's coming on the balance sheet as arm product.
Arm product hopefully, we'll be able to be moved into the secondary market more and more as the market picks up from a slowing back half of the year I think the industry as a whole and our process ourself as saying much less coming through the pipeline, but lots of people are in the room here Chris.
Bill I think youre exactly right, we've seen a really a credit tightening it within the industry a real focus on making sure that we have clients that we benefit from both sides of the balance sheet.
We're taking care of our clients, but at the same time we are.
We're very keenly focused on the deposit generation and what that looks like the second half of the year, but I think in general Youre, just seeing an overall credit tightening within the industry.
Sure.
And I would say I would add to that.
A little bit of.
Tightening on the spreads that comes as part of that et cetera by being able to.
To be a little more selective it allows us to do a little bit better on pricing.
Got it.
And just a follow up on that.
The industry is tightening in general.
Are there any is there any appetite to kind of take market share with.
Higher credit spreads and kind of being more opportunistic in this sort of environment.
So we've told our team absolutely to be out talking to the customers that <unk> been wanting to bank for a long time.
There is an opportunity to move over a customer that we've been wanting for a long time, we're absolutely open for business and perhaps some successes and doing better, but we're being selective.
Everything on the customers that have profits.
As well as a key component to the lending that we're doing today or we need a full relationship.
Yes.
And just lastly from me just given how the trend trends were better in the latter part of the quarter.
How close was the June NIM.
Average quarter NIM.
I think we're probably not going to give specific guidance, but I think it was like I said April was the biggest deposit cost change that we saw on a percent basis, and then that trended down throughout the rest of the quarter.
And that's what gives us.
Some of that projection basis that we have going forward.
Okay. Thanks for taking my questions.
Thank you Brenda.
Our next question comes from Brody Preston with UBS. Please go ahead.
Hey, good morning, everyone.
Good morning, Larry I wanted.
I wanted to follow up on the loan beta commentary.
I was hoping maybe on the three to 12 month bucket that you guys given the deck you've got about 2 billion of loans that are repricing within the next three to 12 months.
I have a 576 loan yield.
I guess, where does where does the loan yield go when those re price and the current market.
So what we saw in the past quarter.
Was.
Renewed loans coming in.
Somewhere eight in a quarter ish range give or take a few basis points, depending on depth that type.
And so that's a meaningful bump from from what we see on there now thats going to have mix, depending on what the product is loans that are mortgages, obviously are lower than that.
But that's what we saw in the news.
Netherlands that came on in the second quarter.
Okay.
250 basis point.
Pick up or so.
On.
4% to 6% of the book by year end, I guess I'm, just trying to <unk>, the 50% cumulative beta step up with only one more rate hike.
It seems to indicate some significant repricing from for the book I guess, maybe beyond what's in the 3% to 12 month bucket. So I was just trying to square those comments.
Yes, it's higher for longer continues to allow us to reprice assets forward that if not reprice Joe yes.
And combined with the loan growth.
We've been able to see even though slowing that will still be a contributor too.
Well.
Okay.
And then on the noninterest bearing commentary.
I think April was the worst may in June both improved.
When you say improvement do you mean the rate of change improve did you mean the dollar is actually grew just because the average in the period and declines aren't too dissimilar theyre, both 11% to 12%.
So I was just trying to make sure I understood was at June was just down less than April was.
And from the rate of change, yes, it was down less than April was.
You said that rate of change improvement yes.
Got it okay and within the margin commentary how much I guess is there is there any dependence on I think you said the $1 8 billion of brokerage I was going to maybe stick around but that $1 2 billion of Bts P that you had on average.
I guess, how much is there any expectation for that to move lower.
Within that margin commentary.
And really that's going to depend on the rest of the balance sheet, we locked that in at rates in the second quarter that are going to be favorable as they go forward. We can maintain that for a little while and so just really kind of depending on where the rest of our balance sheet goes we'll use that as a variable factor.
And potentially grind it out.
Our quarterly average rates, however develops on that might be looking at quarter over quarter.
$3 5 billion.
And just over a 5% rate.
Okay.
Okay. So that full I guess, the full three 5 billion that I see it.
Quarter end is that all <unk>.
Yes, that's right.
Okay. Thank you for vast majority.
Alright, and then I just wanted to follow up with just two last questions just on the on the July one the merit based increases.
You referenced.
Can you give us a sense of what the I guess, what the dollar size amount of that is just so we can.
Make sure we're modeling the quarterly variations given all the moving parts from the cost savings in that.
Yes, its three $5 million to $4 million per quarter.
Okay. Okay.
Okay, and then the last one.
I was just trying to understand the nuances and the criticized and classified.
I think the accounting change shifted a decent amount on the residential mortgages from sub standard backed.
To pass maybe but the commercial.
Criticized classifieds went up by 17%, So I guess am I understanding the accounting change correctly, and then was there anything specific that drove.
The step up in the commercial criticized classified.
I'll take a stab this is Chris.
Step up in the commercials grade migration as we worked through credits normal customary kind of grade migration to change in the.
The methodology was to adopt the regulatory guidance around.
Mortgage credits from our substandard and special mention perspective, so that's why we move those numbers. So most of that those dollars went from <unk>.
To special mention.
And the <unk> bucket.
Got it. Thank you very much for taking the questions everyone I appreciate it.
Thanks Shannon.
Our next question comes from John Armstrong with RBC capital markets. Please go ahead.
Hey, Thanks, good morning, everyone.
Can you help us understand what's going on in insurance I know you mentioned it seems like it's a little bit of a hard market a little bit of new client acquisition, but.
And up 14% year over year I'm, just looking for a little more color on that and what the outlook could be.
You just described.
The team's done a great job.
We've said before we like that business the team's done a great job of growing our book of business and retaining customers. So our retention was really good in the quarter, our new business was good in the quarter and you add on that hard insurance market. We're in.
Just like my home premium cars that went up in the quarter everybody is paying more for insurance a bit anecdotal, but I think we're starting to develop synergies with our commercial teams in the corporate bank.
Not a big move, but theres, just a lot of energy in that space as we work together.
Okay.
And the outlook for that I mean, it seems.
Because to me that that would be the driver right the new business not necessarily the hard market.
The team has done a great job, we continue to see our ability to grow that revenue stream and so the team's doing a great job of growing that we've added some producers to the team here in the last couple of quarters. They are beginning to hit their stride.
Some market.
Jim.
There is activity going on there that will help us grow that business.
Okay. Good.
Just a follow up credit question I don't know if its for maybe bill or Chris but.
How do you guys want us to build or how do you want us to think about the provision I mean things to look.
Pretty clean from a credit quality point of view, but.
So you want us to think about the provision and if there is anything else out there on credit that you're you're watching more closely.
Thank you Ryan I think we feel pretty good about credit, but you guys talk about provision.
Got it.
No.
Yeah, I'll kick it off.
Obviously, we have a model we followed our process.
<unk> comments were on point, we're not seeing systemic large impact on any vertical or line of business or collateral segment, it's still kind of a one.
One off.
Problem credits that were working through so from that perspective, we're not seeing any large lens.
Credit perspective.
Valerie.
Yes, I mean, I don't know what else to say other than I mean, John you've followed us for a long time and we will see.
We regularly review all of our credits anything that gets impaired we are early to impair.
Impair.
Some of those could get worse some of those could get better but the ones that get worse from a corporate standpoint, we're going to be kind of lumpy and we've talked about that in the past. We had one of those this last quarter Thats what drove most of the charge off some of that can continue but I don't see anything systemic I guess is a better way to answer that.
Yes that helps okay. Thanks I appreciate it.
Thank you John .
Our next question comes from Matt Olney with Stephens. Please go ahead.
Hey, Thanks, good morning, everybody.
Just want to clarify some of the commentary on the cost savings in terms of what's incremental.
From what we discussed on the April call I guess, the number of branch closures are the same but the early retirement and I think it is termed other target efficiencies that sounds of incremental any more commentary first I appreciate kind of what the incremental on the cost savings plan since the April call.
Yes.
It's people saw the voluntary retirement program that we offer now.
Still ongoing and so we're working through all that but we expect to see head count reduction that we expect to see some restructuring and some of the teams that we're doing to be more efficient and that will almost all of that is going to result in payroll cost reduction.
Okay great.
That and then I guess thinking more about capital I mean, we're seeing there your TCE ratio increase a little bit in <unk> I'm sure it's not.
Where do you want to see it but just remind us how we think about or how you think about capital and capital build in the back half for you in the next year.
Capital level is there what are you targeting what we could talk more about deployment opportunities.
Yes, again I don't have it in today's in Burma, or we have a specific target I think you are coming around to <unk>.
Buyback program I think we continue to have our buyback program in place I don't think we will execute on our buyback program in today's environment.
Today's levels, we're growing capital and we've got great earnings coming through the pipeline.
But we need to make sure that we're prepared for whatever comes our way from an economic standpoint.
Sure.
Okay.
And going back to the loan growth commentary.
You mentioned a significant part of the growth in <unk> was from residential mortgage and some of those arms and you thought maybe you could.
Potentially sell some of the back half of the year on your newer production if pricing improves.
Are you seeing that yet in the back half year, you're seeing an improved pricing or is that something you are just still waiting for.
Yeah, No I think we've seen what's in the pipeline has moved more to secondary market products from from on balance sheet products. So I think we feel like that that will slow in the third quarter just from whats in the pipeline that hasnt closed yet now.
Okay, and just to clarify the commentary about loan growth slowing the back half of the year getting to your mid single digit guidance how much of that is just.
Selling more of the mortgage production versus a slowdown of just more on the commercial side.
Yes.
Let's make sure. We're all things same thing. So we would continue to think that mortgage can grow through the back half of the year at a slower pace. So what we've seen over the last year as more of our mortgage production has come on balance sheet that has historically been the case for US we were 70% 65, 70% secondary.
Production shop, where we were selling things off into the secondary market when rates started to spiking up.
<unk> product became very popular.
Secondary market for arm was dysfunctional and still kind of is but it is improving and so now even though arm is still popular we're producing more arm product in the secondary market going out. So the things. We're closing now more of that as going out into the secondary market than it was before and that was an increasing trend as we went through the second quarter and to Dan's point that.
We'll likely see a little bit more in the third quarter, but that's not what's driving.
So that's where I'll show on ethanol, so that'll be a part of it obviously, but that's where I was going.
Yes.
The whole pipeline has just slowed down what we're seeing coming through the pipeline from first quarter to second quarter is different than what's in the pipeline today is different.
Okay.
Okay. Thanks for clarifying appreciate it.
Hey, thanks.
Our next question comes from.
Right.
Robot with Husky group. Please go ahead.
Hey, good morning, everyone. Thanks for the question wanted to first see if you have the number for the unfunded commitment change linked quarter I know you had the negative $10 million provision.
Related to that.
I don't have that number specifically other than it's it's down the other way as you might have that we can get back to you on it.
Okay. There was a whole lot of unfunded construction loans coming into the year and those loans are beginning to fund up with have been funding up throughout the first two quarters as a construction project finishes that moves into CRE and out of that comes out of the cab bucket, but it's also pulling off of the unfunded.
Okay.
And then wanted to make sure I understood you have a really strong consumer deposit base and I just wanted to make sure I understood that.
The comment around the decline primarily in corporate accounts activity could you guys talk a little bit more about what you saw on the corporate side and just what that change Matt for their cost of funds specifically on the corporate side.
Yes. So what you heard me say was we track ourselves off of our community Bank team and our corporate Bank community Bank team as I said has done fairly well deposits are actually up.
Year to date in the community bank the.
The corporate World those treasuries were looking for yield and so we're seeing more and more people look for dollars. Thank you want to talk about the yes.
There are a couple of dynamics that happened in the first part of the year first of all if you get taxes, obviously and you also get bonuses that get paid and we have seen that over the last 10 years come down in the corporate world is pretty seasonality. If there is some seasonality to it.
There is also as rates have risen the difference between paying 1% for deposit versus paying four 5% is really eye opening from the CFO perspective, and so we're getting a lot more push to move those out of the DDA and into the interest bearing accounts and in addition, as we saw in <unk>.
March with some of the issues there some of our clients also solve some security to secure positions.
Seeking FDIC insurance, our money market mutual funds that allowed us to move some of that loosen deposit sales to reduce some of those.
Larger depositors, we've seen some of that come back and some stabilization there and I am hopeful and as what we've seen historically see some of those corporate deposits rise in the second half of the year to offset some of that decline.
Okay. That's helpful.
And then just last quick one for me I know.
The OCI improved a little bit.
Linked quarter.
And you guys. It sounded like you havent been interested in doing anymore.
Restructuring of the securities portfolio.
Curious if that mindset changed at all and if you thought maybe.
It might be a use of capital here at some point in the back half.
I think it all depends on where rates go and what's happening I don't see us doing that today, but theres been stranger things have happened in the environment.
We always try to take a look at.
At the portfolio at changing interest rates and <unk>.
The best for the balance sheet. The team does a great job of tracking better monitoring of anesthesia.
Okay.
Okay, great appreciate the color.
Thank you very much.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Alright. Thank you all again for your time for joining US today I just want to repeat before broad themes for the quarter. The Valerie mentioned, a few minutes ago, including key business development successes stable credit quality acceleration in funding costs and progress toward improved operating efficiency in closing I'm excited about the future of guidance, but I believe we are.
Navigating this part of the cycle from a position of strength.
As evidenced by our quarter's results our balance sheet is in a great position from a liquidity standpoint, we will continue to focus on expanding our core deposit base, maintaining strong credit quality growing our fee businesses and taking advantage of the opportunities in front of us to improve operating efficiency. Thanks again for joining US today, we look forward to visiting with you soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.