Q2 2023 WesBanco Inc Earnings Call
Good morning, and welcome to the West Banco second quarter 'twenty twenty-three earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.
Please note this event is being recorded.
I would now like to turn the conference over to John I know senior Vice President Investor Relations. Please go ahead.
Thank you good morning, and welcome to.
West Bancorp, Inc. Second quarter 2023 earnings conference call.
We didn't call today are Todd Austin, President and Chief Executive Officer, Jeff Jackson, Senior Executive Vice President Chief operating Officer.
Dan Weiss Executive Vice President Chief Financial Officer.
Based call an archive of which will be available on our website for one year.
Forward looking information.
Cautionary statements about this information and reconciliations of non-GAAP measures are included in our <unk>.
Earnings related material issued yesterday afternoon as.
As well all of our other SEC filings and Investor materials.
These materials are available on the Investor Relations section of our website Banco Dot com.
All statements speak only as of July 26, 2023.
The West Bank undertakes no obligation to update them.
I would now like to turn the call over to Todd.
Todd.
Thank you John and good morning, everyone.
Today is a bittersweet moment for me it marks my last quarterly earnings call I'm Grateful to have worked closely with so many of our hard working and dedicated employees. During the past 10 years to help us become an evolving regional financial services institution.
I've also appreciated interacting with all of you as you have supported our transformation and growth as.
As I close my tenure as CEO West Banco is well positioned for ongoing success.
Wrong market positions diversified revenue generation capabilities and distinct long term advantages and.
I'm confident these will be the foundation for their growth and expansion through our incoming CEO , Jeff Jackson strategic vision and leadership.
West Bank, though is in very good hands with Jeff and the leadership team and I know you will enjoy working with him as much as I have over this past year.
Yep.
Thanks, Todd and good morning.
On behalf of West Bay go I would like to thank you for your leadership support and dedication.
Youre positive impact on this company cannot be emphasized enough.
As you and the team have laid a strong foundation for our long term success.
As I assumed the CEO role on August 1st I look forward to building on this impressive foundation to deliver continued growth and success for our customers communities shareholders and employees as well as working with you in your new role as Vice Chairman of our board of directors.
On today's call. We will review our results for the second quarter of 2023 and provide an update of our operations and current 2023 outlook key takeaways from the call today are.
Solid financial performance demonstrated by earnings and loan growth and stable deposits.
Maintaining strong capital levels and key credit quality measures, which have remained at low levels and favorable to our peer bank averages.
We remain focused on disciplined expense management, while making appropriate investments that ensure a safe and sound financial institution with attractive long term growth prospects.
We are pleased with our performance during the second quarter of 2023 as our results demonstrated the strength of our franchise and successful execution of our strategic initiatives, we delivered solid earnings and loan growth and focused on maintaining our net interest margin in deposits.
Earnings growth was supported by our strategic investments and associated year to date annualized loan growth of 8%.
For the quarter ending June 30th 2023 we reported pretax pre provision income growth of nine 2% year over year.
And net income available to common shareholders increased five 3% to $42 4 million with diluted earnings per share of 71 cents when excluding after tax merger and restructuring charges.
On a similar basis the strength of our financial performance. This past quarter was also exhibited by our return on average tangible equity of 13%.
And our capital position continues to provide financial and operational flexibility as demonstrated by our CET one ratio of 11%.
We reported total loan growth of 9% both year over year and quarter over quarter annualized which was across all markets and loan categories.
Further this growth was underpinned by our strategic loan production office and lender hiring initiatives.
It is important to highlight that we are achieving loan growth, while maintaining our high credit standards, which ensure a strong and sustainable institution.
Our key credit quality measures continued to remain at relatively low levels and favorable to all banks within assets between 10 and 25 billion.
Total loans past due as a percent of total loans were 21 basis points down.
Down nearly 50% from last year.
Nonperforming assets as a percentage of total assets declined to 19 basis points.
And criticized and classified loans as a percent of total loans or 1.68%.
Total commercial loan growth for the second quarter.
<unk>, 6% year over year, and 7% sequentially annualized.
Furthermore, commercial and industrial loans of $1 6 billion as of June 30th increased 10.2% annualized quarter over quarter.
Which begins to reflect the benefits of our strategic initiatives.
As we have discussed previously we implemented a hiring strategy. The last couple of years to add top tier talent, primarily C&I lenders across a robust and diverse markets.
During late June we had the opportunity to perform a lift out of the seasoned team.
<unk> C&I lenders in Chattanooga.
This is an appealing next step in our strategic growth in Tennessee. Thanks.
Thanks to Chattanooga diverse and growing business landscape.
We are excited about this team and they are already contributing to our commercial pipeline.
Our commercial loan pipeline as of July 17th was a problem approximately a 810 million and.
An 11% increase from the level at June 30th.
And our teams continue to find business opportunities to replenish that pipeline, which drove our second quarter loan growth.
Reflecting their continued maturation or Cleveland in Indianapolis and National L. P. O's combined with our new team in Chattanooga are contributing approximately 17% to the commercial pipeline.
The growth opportunities of our loan production office and lender hiring initiatives will continue to improve as they gain additional traction.
In addition to our various liquidity sources, our loan to deposit ratio of 85, 4% also provides us with ample lending capacity to support our customers as they grow.
As we mentioned last quarter, we implemented several initiatives to help drive additional organic deposit growth.
Be it at potentially lower costs than peers located in major metro markets to ensure a strong and stable funding base.
Both our commercial and retail teams have and continue to make concerted efforts to help us maintain our current deposit levels.
Their strong efforts are demonstrated by June 30th deposit levels remaining flat to March 31st despite industry headwinds with minimal change to the percentage composition mix of our deposits.
Furthermore, our commercial lenders or finding additional avenues, besides deposits deepen the banking relationship with our business customers, including our new Treasury management services and commercial loan swaps, we have seen exceptional year over year growth of more than 300% and new commercial loan swap fees.
$4 3 million through the first six months of 2023, which is roughly the same amount we earned for all of 2022.
I expect continued strong performance during the second half of this year.
We have distinct growth strategies with a unique long term advantages.
Balanced distribution across economically diverse major markets and a strong customer service culture combined with a robust digital services.
We remain well capitalized with solid liquidity and a strong balance sheet with capacity to fund loan growth and focused on strengthening our diversified earnings streams for long term success with new capabilities and strategies.
I would now like to turn the call over to Dan Weiss, our CFO for an update on our second quarter financial results and our current outlook for 2023.
Dan.
Thanks, Jeff and good morning, our second quarter results demonstrated the strength of our franchise and successful execution of our strategic initiatives as we reported solid earnings and loan growth.
Strong capital levels and maintained stable deposits.
As presented in Yesterdays earnings release during the second quarter, we reported improved GAAP net income available to common shareholders of $42 3 million and earnings per diluted share, a 71 cents and $82 8 million and $1.38 per share respectively year to date.
Net income available to common shareholders, excluding after tax restructuring and merger related expenses for the six months ended June 32023 was $84 7 million or $1 43 per share as compared to $83 1 million or $1 36 per share in the prior year period.
Wow, that's a $17 4 billion at the end of the quarter include a total portfolio loans of $11 1 billion and securities of $3 6 million total portfolio loans grew 8% year to date annualized reflecting the strength of our markets and lending teams combined with our strategic lending initiatives.
We're able to achieve this growth despite continuing to increase spread resulting in commercial loan yields in the mid 7% range.
While we expect CRE loan payoffs to eventually return to more historical $90 million range. They continued to moderate during the second quarter totaling approximately $35 million.
C&I loan utilization at the end of the quarter declined 500 basis points year over year to 32%, which equates to roughly $50 million and lower line utilization compared to the prior year.
Residential mortgage originations, which were down 37% year over year totaled approximately 208 million for the second quarter with roughly 50% of the originations sold into the secondary market.
As can be seen on slide six of the earnings presentation, our deposit levels reflect the granularity and relative stability of our deposit base as our average deposit size was approximately $27000.
Total deposits, which declined year over year continue to be impacted by interest rate and inflationary pressures and rising costs across the economy combined with the federal reserve tightening actions to control inflation, which has resulted in industry wide deposit contraction.
However, due to our strong efforts across our organization to improve deposit gathering and retention combined with the addition of $60 million of new broker deposits total deposits at June 30 were consistent with our March 31st levels.
There continues to be some shift in the mix of our deposits with noninterest bearing demand deposits down four 3% linked quarter. However, the percentage composition of our total demand deposits for the second quarter of 'twenty three is relatively consistent with the mix reported during the first quarter of 'twenty three as well as the prior year.
Right.
Total demand deposits continue to represent 59% total deposits with noninterest bearing component, representing 33% down slightly this quarter, but consistent with the percentage range since the beginning of 2020 between 28% and 36% of total deposits.
The net interest margin in the second quarter of $3, one 8% decreased 18 basis points from the first quarter was 23, primarily due to increasing deposit costs deposit remix at higher cost wholesale borrowings.
Total deposit funding cost, including noninterest bearing deposits for the second quarter of 'twenty, three increased 94 basis points of year over year, and 38 basis points quarter over quarter to 103 basis points.
On a year over year basis, our total deposit beta was 27% as compared to 350 basis point increase in the federal funds rate from July to August 22 through May of 'twenty, three reflecting our ability to lag peers as it relates to deposit funding cost increase.
Our recent CD campaign has been successful in retaining more rate sensitive customers, increasing 76 million quarter over quarter with about half of the growth related to non maturity deposits migrating into the product a third from existing CD rollovers and the remainder new growth from new customers.
For the second quarter of 'twenty, three noninterest income of $31 8 million was up $4 9 million year over year, primarily due to higher commercial swap fees as well as net gains on other assets and net securities gains both of which reported losses in the prior year period.
Bank and life insurance increased $800000 year over year due to higher death benefits received during this quarter in mortgage banking income decreased 700000 due to lower production volume.
As Jeff mentioned, the key story within noninterest income is a renewed focus on commercial loan swaps, which are recorded in other income new swap fees totaled $2 $4 million, an increase of $1 6 million from the prior year period, while associated fair market value adjustments totaled <unk> 2 million during the second quarter as compared to one.
One 1 million in the prior year period.
Through the first half was 2023, we've already collected more swap fee income than we did for the entire year in 2022.
We continued to exhibit disciplined expense management, while making appropriate long term growth investments, especially our strategic loan production office and hire and lender hiring initiatives, excluding restructuring and merger related expenses noninterest expense for the three months ended June 32023 totaled 90.
$6 4 million within our previously disclosed quarterly run rate expectation noninterest expenses increased due to inflation.
Larger staffing levels and associated costs higher FDIC insurance from an increase in the minimum rate for all banks and higher equipment and software expense from our ATM fleet upgrade and general inflationary cost increases for existing service agreements.
Our capital position has remained solid as demonstrated by regulatory ratios that are above the applicable well capitalized standards, our tangible common equity to tangible assets as of June 30 of 2023 was 7.35% or if including held to maturity securities unrealized losses, 6.68% that's shown on slide.
Seven of the earnings presentation.
Guarding liquidity, we actively manage our liquidity risk to ensure adequate funds to meet changes in loan demand unexpected outflows in deposits and other borrowings as well as take advantage of market opportunities as they arise and as such continue we continue to believe we're well positioned for any operating environment.
Regarding our current outlook for the second half of 2023, we're now modeling fed funds to peak at 575% with a 25 basis point increase is expected to be announced this afternoon, along with a similar increase in September .
We continue to anticipate our deposit betas to be lower than peers, and generally lagged the industry due to the benefit of our legacy deposit base, but we're not immune to industry wide interest rate pressures. We also anticipate slightly higher wholesale borrowings to supplement the funding of loan growth as deposit levels are expected to be relatively.
Flat compared to the second quarter.
Reflecting the current operating environment and the higher funding costs and some deposit mix shift into higher yielding deposit products. We are modeling continued margin contraction during the third quarter at a similar pace to the second quarter's 18 basis points of contraction with margin flat to slightly down in the fourth quarter compared to the third quarter.
Residential mortgage originations should remain positive relative to industry trends due to our new loan production offices and hiring initiatives, but will also depend on home prices and interest rates stabilization as well as available housing inventory.
Our current pipeline is approximately $120 million down sequentially, but consistent with the prior year period sequential change.
Trust fees and securities brokerage revenue should continue to benefit modestly from organic growth and will be impacted by equity and fixed income market trends and electronic banking fees and service charges on deposits should remain in a similar range in the last few quarters as they are subject to overall consumer spending behaviors.
And we're on pace through the first half of the year to double new commercial swap fee income over 2022.
While remaining diligent on discretionary costs and delivering positive operating leverage we will continue to make the appropriate growth oriented investments in support of long term sustainable revenue growth and shareholder return.
Our loan production office initiatives and efforts to attract and retain employees remain strategic priorities as demonstrated by our hiring of the C&I lending team in Chattanooga.
Our plan is to fund the majority of the hiring with internal efforts, including the adjustment of existing staffing levels reallocation of resources to more profitable business lines and efforts to improve efficiency. These all should help keep salaries and wages check while recognizing midyear merit increases will impact this line item.
Third quarter similar to past years.
Most other expenses should remain in similar ranges to the second quarter. Therefore based on what we know today, we believe our quarterly expense run rate will continue to be in the mid $90 million range.
The provision for credit losses under Cecil will be dependent upon changes to macroeconomic and qualitative factors as well as various politically metrics, including potential charge offs criticized and classified loan balances delinquencies changes in prepayment speed that future loan growth and lastly, we currently anticipate a full year effective tax rate to be around 18.
Percent subject to changes in tax regulations in taxable income levels.
Operator, we're now ready to take questions would you. Please review the instructions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you were using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question is from Russell Gunther with Stephens. Please go ahead.
Hey, good morning, guys.
Good morning, Russell Good morning Russell.
I wanted to kick things off with a loan growth question. Please.
Here you on on the new hires and the and the contribution there.
Trying to think about the order of magnitude for the back half of the year as.
They bring over their books, but also.
Your expectation for potentially some mix shift so.
Just sort of a general general thoughts on loan growth volumes going forward.
Sure Russell.
I think in a normal environment, we always look at mid to upper single digit growth.
No we have seen a tremendous pickup in our pipeline from the new hires.
Our pipeline continues to remain strong it's around $810 million with the L. P. O's almost 20% of that pipeline I think the other piece of that is the mix shift you're talking about is we've hired a lot of C&I lenders to really focus on bringing full relationships that also bring in deposits and other <unk>.
<unk> fees.
So I do see expect to see an uptick in that type of business going forward, while we still have a very strong Cree pipeline as well, especially in our Maryland, and Ohio markets.
Okay, Great that's very helpful.
And then just as you're thinking about growth opportunities going forward are there.
Markets you are not in that you would consider extending the strategy too.
You'll see that later this year in 2024.
Yes, we're always looking at opportunities to me is the key factor is finding the right talent. So when I was a obviously a banker and a market president Chattanooga many years ago I knew this group.
And I'll always competed against this group and so that was one of the reasons why we were able to hire them as I knew they were some of the best talent in Chattanooga.
From a commercial banking C&I perspective, and so we would also look to do that in other markets, where we find the right talent, we're filling in our current footprint.
Okay, great. Thank you and then just switching gears briefly to the margin discussion I appreciate the.
Updated outlook there just curious if you could share some of the assumptions there as it relates to deposit mix you mentioned, the 28% to 36 non IP contribution over the past few years. What are you. What is that updated guide kind of imply for where you think you may end the year there.
[laughter].
Yeah. We're we're looking at two interest rate hikes in our modeling and and if we put that in the model, we're expecting third quarter to be in kind of a similar range from a NIM compression that we had in the second quarter and then flattening out in the fourth quarter.
When we look at are basically shift from noninterest bearing to interest bearing deposits, we feel good about where our percentage of noninterest bearing deposits sit today at 33% that's within the range of our pre pandemic noninterest bearing deposit range. So we feel pretty good about that but once again it depends on what the fed does but that's kind of some.
Some color for our NIM going forward.
Yeah, and I would I would just add that we saw in the second quarter that you know about $200 million or so in noninterest bearing.
You know migrating to interest bearing products and.
Mentioned in the prepared commentary.
We're kind of anticipating that that rate to continue for each of the next two quarters. So when you think about.
Noninterest bearing deposits as a percentage of total deposits.
We're 35% at the end of the first quarter, 33% here in the second quarter and for modeling purposes at least we're modeling those to represent about 30%.
By the end of the year.
Okay great. Thank.
Thank you both for that and then I guess just the last follow up please.
The.
Loan deposit ratio target. So you guys mentioned increased use of borrowings in the short term.
Is there a bogey you think about wanting to keep that loan to deposit ratio at as you bring on that kind of mid to high single digit growth.
We target low ninety's, there's kind of an optimal level. We also have about $100 million in cash flow coming off our securities every quarter, which could also help fund loan growth, but for us sitting at 85%, we have plenty of powder to continue to push for loan growth and once again targeting low ninety's, but are not afraid to go higher.
If we get the right deals at the right level of profitability.
As a reminder, please limit your questions to one with a single follow up.
The next question is from Daniel Tamayo with Raymond James. Please go ahead.
Okay. It appears Mr. Tomato has disconnected. The next question is from Dave Bishop with Hobdy Group. Please go ahead.
Hey, good morning, gentlemen.
To follow up on Russell's.
Question regarding loan growth I think you mentioned.
We're seeing some opportunities on the commercial real estate side, I think particularly in Ohio.
Maryland, just curious what pricing you are seeing there and maybe what types of projects are you able to.
To maybe grow with that.
Our standing out within those markets.
All of our property types.
Sure were seeing a retail and also some multifamily coming through our pricing has been pretty good we shoot for 300 spread I'm not saying, we get that all the time, but that's kind of our targeted spread right. Now is 300 mm, but really seeing some good opportunities with some great guarantors and in keeping with our conservative.
Credit nature, we feel really good about the types of deals we're bringing on our books.
Yeah.
Yeah.
Got it.
But just the level of swap fees, obviously up nicely here did I hear on during the preamble that you expect a similar amount of swap fees in the second half of the year or did I misinterpret that.
Guidance, Yes. She did we made a big push at the end of last year to retrain all of our commercial lenders on swaps and adjusted our incentives and so we are targeting doubling what we did last year, which was around $4 million.
Okay, Great and then the.
The entrance and the team lift out of Chattanooga, just curious.
Any other markets in Tennessee that you might have to circle for for entrance in the near term.
We're still looking at filling out our national team you know we opened the L. P O about a year ago, and and we've got some opportunities there, but I would say, we're always looking at different markets and opportunities in Tennessee and in other states I'm. Once again, it's really based on where we find great talent that fits in with our credit culture and likes to do the type of business.
Is that we've always done over the last 153 years.
Got it appreciate the color.
Thanks.
The next question is from Daniel Tamayo with Raymond James. Please go ahead.
Hey, guys, sorry about that.
Morning, Daniel Good morning, good morning.
Uh huh.
So I apologize if I missed this while I was off but.
Wanted to kind of put a point on the expense guidance the mid nineties.
Or are you trying to say that there is a bit of a decline expected or kind of similar to what you you did in the second quarter with the 96 and a half.
We have some cost saves that were working on for the back half of the year and and once again, our new hires we've kind of done some performance management to help make them cost neutral as well so I would say, where we're working on some cost saves that will probably keep us in the mid nineties for the rest of the year, Dave any comments.
I agree I think certainly the the the headwinds heading into the back half of the year would be the midyear merit increases.
If you think about the salaried folks are received there increases in June our hourly in August . So we will see the full run rate for salary and most of the most of the hourly hit in the third quarter, but.
But to put to the point that Jeff made there. We certainly do have some cost savings initiatives that we've taken that up some of those actions have already been taken and hopefully we expect to see the rewards there in the back half of the year.
Okay.
And then you know we've talked a lot about the swap fees.
You know I think you said everything else pretty stable. So it feels like the overall run rate.
I guess absent maybe some unusual activity in Bali feels.
Relatively relatively good around that 31, and a half million, maybe maybe closer to $31 million range on a quarterly basis.
Yeah, I think I think that's a good I think that's a good jumping off point for third quarter.
For the most part expect the trends in the second quarter to continue into the third.
Okay.
Terrific all right well I appreciate you taking my questions.
The next question is from Karl Shepard with RBC capital markets. Please go ahead.
Hey, good morning, guys and congrats on the run you've left the bank in a good place for Jeff.
Good morning Corrado.
I guess just for my first question, Dan I wanted to drill down on the margin guidance a little bit more.
Does this September hike have much of an impact on your outlook for the fourth quarter are just now with the pacing of hate hikes kind of spaced out.
It seems like things will be pretty manageable with or without beyond next quarter.
Yeah, I would say it's.
The September hike is less impactful than the.
The hike that were expecting this afternoon.
To certainly to 2023 earnings.
You think about.
Our commercial loans.
About 70% of them are variable rate.
And about 54% of that or about $3 billion.
Re prices every three months, so that 25 basis point hike if it if it occurs today with <unk>.
Certainly benefit about $3 billion in it.
And those variable rate loans.
Mostly in the fourth quarter not so much probably in the in the third quarter. So we'll see that benefit in there.
On the flip side on the funding side of course.
The wholesale borrowings we have about $1 3 billion.
Also for the most part are are pretty closely tied to you know to the rate hikes as well pretty short term in nature, a lotta, mostly one month advances a little bit for some termed out but so we'll see some some.
Cost increase as well on that side of it as well, but yeah. That's about that's about where we are don't expect the September hike to really impact.
23 results.
Much more than maybe a little bit of a boost in December .
Okay. That's helpful and then jumping back to the deposit topic. It sounds like Cds have kind of been the main driver of some of the initiatives, but any other trends to call out in terms of incentives for for your team and things like that are also helping support the more stable balances.
Well, we did for the first time. This year include deposits into the commercial incentives and so we are seeing a nice pipeline build there and we actually got several nice wins.
Over the last couple of weeks, so I think youre going to see our deposit gathering activities really pick up in the back half of the year.
Okay, Great and then just one last quick one for me I know, we've talked a lot about the swap income for this year.
As you look out we see a more stable rate environment should we expect that to be a headwind to swap income or do you think this is maybe a more sustainable run.
Iran with some of the changes you've made respecting that could be all episodic.
Yeah, I think it always depends on the economic conditions, but I believe it's going to be more stable I feel like we had a great opportunity at the end of last year, where we only we produce $4 million in swap income, but that was only driven by 14 commercial lenders. So once we have trained up are they essentially 100 commercial lenders we have a.
A lot of upside if we can just get each commercial lender to do one swap there's a great long sustainable upside to that product for us.
Yeah.
Okay, great. Thanks for all the help.
The next question is from Casey Whitman with Piper Sandler. Please go ahead.
Hey, good morning.
Casey good morning.
So it sounds like your margin is hopefully going to bottom out around 3% over the next few quarters and I know we've talked a lot about what's what the outlook is over the next couple of quarters can you maybe address how you're thinking about the margin for next year, you know, whether theres, a fed pause or maybe even cut set of opportunities for expansion.
Thank god for that 3% range or what sort of environment would you need for that.
Yeah, that's a that's a great question and one that's pretty difficult to answer given you.
You know your expectations or my expectations of when the fed how long that that fed pause is and when they start cutting.
Cutting rates.
I would tell you that at least today, we're projecting a fed cut in the second quarter.
And a number of cuts thereafter.
Yeah, leading through 2024.
But.
Day, our margin would be relatively at least what we model would be relatively flat.
Compared to the fourth quarter through that first rate hike and I think we begin to see a little bit of maybe lift in the back half of 'twenty. Four there are a ton of assumptions go into that.
I would qualify that with.
Don't quote me.
The second quarter of 24 on there.
Yeah understood understood and then switching gears you know we saw an M&A deal and get announced yesterday in Virginia. So just maybe remind us how sort of how you guys are thinking about M&A here and in other capital uses.
Sure I'll start with it based on our capital strategy, we put dividends first loan growth second than M&A and buybacks kind of third and fourth for US. We're always opportunistic if the right deal came along we would be open to doing a deal in our existing footprint or contiguous.
States are I.
I think our bank has always proven that you know some of our strategy is to build out loan production offices test the markets and then potentially look for an acquisition, but I would you know with the deal being announced yesterday I think that you know basically breaking the seal on the first deals we've kind of seen since the banking crisis earlier this year.
We will be opportunistic where it makes sense.
Alright, great. Thanks for taking my questions and Todd wishing wishing you well in your retirement, you'll be missed but he left us in good hands. So thank you.
Yeah.
The next question is from Catherine Mealor with K B W. Please go ahead.
Thanks, Good morning, Hey, good morning, Kathryn Good morning, Catherine.
Most of my questions were asked to answer I think you can still go back one last thing on the margin.
Now CD repricing, you Havent seen a big change in your CD growth, a little little bit up this quarter, but still.
It remains really low as a percentage of your overall deposit mix and so.
Two things as we think if we look at what are your CD rates are today I'm, assuming as those are maturing and repricing that.
Coming up a lot.
Kind of trying to think about maybe what that pace looks like and where the CD rate, they're repricing to you.
And then also how you think about that as a percentage of the composition of it for all deposits as we move through next year.
Yeah, So I would say.
We certainly saw the $76 million increase in Cds here in the second quarter.
That's probably the largest increase in Cds, we've seen in a decade or more since we've been running down that portfolio for quite a while.
The Cds reprice. It so if we think about for a second that $76 million of growth.
About half of that would be related to non maturity.
Deposit customers migrating over to basically we have a seven month CD special at four 5%.
And then about a third of that would be the CD rollover that you know that you're referring to and then call. It. The last 15% is just new money.
So we're talking about a remix.
From in.
In some cases it can be noninterest bearing.
Or lower interest bearing moving up to four 5% and the rollover today. It's about 50 I would think about is on an average about 50 basis points repricing up to about four and a half for 450 basis points.
Okay.
Great.
And would you expect that.
You're right. It was at we Havent seen an increase in the CD book and so long would you would you expect to see that to continue as we move through the year.
Yeah. So we're modeling that to continue again kind of similar pace to what we saw here in the second quarter. So yes.
I want to make sure that we're taking care of those customers that are more rate sensitive that want to you want to.
Ah, okay with locking their money.
For some period of time and so yeah, we would expect that pace to continue at.
At least through the end of the year.
Okay that makes sense that's great. Thank you.
And then maybe one other thing on the loan side I think you mentioned new loans are coming in.
I think that's what you said earlier in the call I'm, just kind of thinking about how your within your margin guidance. How you were thinking about loan yields moving too.
I would think that if you know the fed increases rates, obviously are young our loan yields would follow that to some degree so I would.
We get two more increases then you're probably looking at eight eight handle on the rates.
Not saying all of them would be there, but we're looking around the average I mean, we have to continue to raise like everybody else does to following the fed.
Great.
Okay.
Everything else was on I think it's a great quarter and congrats Todd we will Miss you.
Thank you excuse me. The next question is from Manuel Nevadas with D. A Davidson. Please go ahead.
Hey, good morning.
How are you guys kind of had a lot of my questions have been answered, but just wanted to catch up on how you're thinking about borrowings versus wholesale borrowings versus kind of broker deposits.
Yeah.
Yeah. So today.
Today, we've got $200 billion in broker deposits.
That's it fed.
Fed funds plus about 40 basis points.
We've we've kind of taken the strategy or the thought that.
It's nice to kind of dive.
Dive into both sides to provides plenty of opt.
Opportunity to borrow both from the federal home loan bank as well as on the brokerage side, certainly FH LP borrowings are much easier and simpler.
Can you give a call and within hours have half the cash.
I would say we're not.
If we if we did any additional brokered it might be.
It would be dependent obviously on loan growth on deposit flows and things like that but for the most part we would be mostly relying on federal home loan bank borrowings.
And quite frankly, the rates are pretty pretty consistent it's just.
Matter of timing and how quickly and how easy it is to.
Together those.
And with the NIM commentary.
I guess it seems like it concludes cash staying a little bit elevated for something for at least the back half of this year.
Earnings pretty well too.
It does so if you think if you look back to the end of the year, we were running.
Cash around two 5% of total assets.
You're through kind of that period, the last I'll call. It four months, we've been running our holding cash at the holding a little more cash for you know for obvious reasons.
Just like really the rest of the industry.
But yeah, we plan to bring that back down to right around 3% I would say a total assets, that's where we're modeling for the remainder of the year, which is a healthy healthy range, but at the same time and to the point that you're that you just made.
To the extent you're borrowing from the federal home loan bank at fed funds, plus 15 or 25 basis points.
You're earning fed funds.
On the cash so there's really only about 25 15 to 25 basis points of cost to hold a little extra cash and we feel.
Over the last four months certainly it was well worth it.
Thank you I appreciate the comments.
This concludes our question and answer session I would like to turn the conference back over to Jeff Jackson for any closing remarks.
Thank you for joining us today during the second quarter, we generated solid earnings and loan growth maintained strong capital levels and held deposit stable.
Further we remain focused on disciplined expense management, while making appropriate investments that ensure a safe and sound financial institution with attractive long term growth prospects. We look forward to speaking with you in the near future at one of our upcoming investor events and have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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