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spk01: Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's second quarter earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation this morning, there will be a question and answer session. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. As a reminder, this call is being recorded. It is now my pleasure to introduce Mr. Joey Rayne, Director of Investor Relations at Trustmark. Mr. Rayne, the floor is yours, sir.
spk08: Mr. Good morning. I would like to remind everyone that a copy of our second quarter earnings release, as well as the slide presentation that will be discussed on our call this morning, is available on the investor relations section of our website at Trustmark.com. During the course of our call, Management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We would like to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties which are outlined in our earnings release and our other filings with the Securities and Exchange Commission. At this time, I would like to introduce Duane Dewey, President and CEO of Trustmark.
spk05: Thank you, Joey. Good morning, everyone. Thank you for joining us. With me this morning are Tom Owens, our Chief Financial Officer, Barry Harvey, our Chief Credit and Operations Officer, and Tom Chambers, our Chief Accounting Officer. Trustmark had a strong second quarter as reflected by significant loan growth, strong credit quality, and expansion in the net interest margin. For the second quarter, Trustmark reported net income of $34.3 million, or 56 cents per diluted share. Let's look at our financial highlights in a little more detail by turning to slide three. At June 30th, loans held for investments totaled $10.9 billion, an increase of $547.7 million from the prior quarter and $792 million from the previous year. Deposits totaled $14.8 million a decrease of $343.1 million linked quarter, and a $138.1 million increase from this time last year. Revenue in the second quarter totaled $165.9 million, a $12.5 million or 8.1 percent increase from the previous quarter. Net interest income totaled $115.6 million in the second quarter, an increase of $13.2 million, or 12.9% linked quarter. Non-interest income totaled $53.3 million and represented 32.1% of total revenue in the second quarter. Non-interest expense in the second quarter totaled $123.8 million, a 1.8% increase from the prior quarter. Credit quality remained solid this quarter as non-performing assets declined 3.7% from the prior quarter and recoveries exceeded charge-offs by 1.7 million. We continue to maintain strong capital levels with a Tier 1 ratio of 11.01% and a total risk-based capital ratio of 13.26%. the Board declared a quarterly cash dividend of 23 cents per share payable September 15 to shareholders of record September 1. During the second quarter, Trustmark repurchased $7.5 million for approximately 263,000 shares of common stock. As of June 30, Trustmark had $83.4 million remaining under its authority in its existing repurchase program. which expires 12-31-22. At this time, I'd like to ask Barry to provide color on loan growth and credit quality.
spk03: I'd be glad to, Dwayne. Thank you. Turning to slide four, loans held for investment, excluding PPP loans, totaled $10.9 billion as of June 30th, an increase, as Dwayne mentioned, of $548 million, link quarter, or 5.3%, and $792 million or 7.8% from the prior year. We're extremely excited about the Q2 loan growth that occurred in almost every category with the exception of public finance. We are now anticipating high single-digit loan growth for 2022. Our loan portfolio continues to be well diversified based upon both product type as well as geography. Looking at slide five, Trustmark's CRE portfolio is 62 percent existing, 37 percent construction land development, which is 92 percent vertical. Our construction land development portfolio is 78 percent construction. The bank's owner-occupied portfolio has a nice mix between real estate types as well as industries. Turning to slide six, The bank's commercial portfolio is well diversified, as you can see, across numerous industry segments with no single category exceeding 13 percent. Moving now to slide seven, our allowance for credit losses for loans held for investment was $2.7 million. The provisioning was primarily due to reserves related to loan growth and the nature and volume of the portfolio. offset by improvements in the macroeconomic forecast. At June 30, 2022, the allowance for credit losses on loans held for investment totaled $103.1 million. Looking at slide eight, we continue to post solid credit quality metrics. The allowance for credit losses represents 94.94 percent of loans held for investment. and 475% of non-performing loans, excluding those that are individually analyzed. In the second quarter, recoveries exceeded charge-offs by $1.7 million, non-accruals declined by 3.6% in the second quarter, and non-performing assets declined by 3.7% from the prior quarter.
spk05: Thank you, Barry. Now turning to the liability side of the balance sheet, I'd like to ask Tom Owens to discuss our deposit base and net interest margin.
spk04: Thanks, Duane, and good morning, everyone. Looking at deposits on slide nine, deposits total $14.8 billion at June 30th, a $343 million decrease linked quarter, and a $138 million increase year-over-year. The linked quarter decrease was driven primarily by a decline of $200 million in public fund balances, with the remainder split somewhat proportionally between personal and non-personal balances. The year-over-year growth has been driven primarily by personal account activity, which accounts for about $421 million of growth, while public fund balances are off about $252 million. so the granularity of our deposit growth remains strong. Our cost of interest-bearing deposits was unchanged from the prior quarter at 11 basis points, and we continue to maintain a favorable deposit mix with 31 percent of balances in non-interest-bearing accounts and 64 percent of deposits in checking accounts. Turning to revenue on slide 10, net interest income, FTE, increased $13.2 million linked quarter, totaling $115.6 million, which resulted in a net interest margin of 290. That represented a linked quarter increase of 32 basis points. Higher loan yields contributed about $7.3 million of lift linked quarter, while higher average loan balances contributed about $2.2 million of increase. The securities portfolio contributed about $2.2 million of lift linked quarter, with about $1.3 million due to higher yields and about $900,000 due to higher average balances. Interest on excess Fed reserves contributed about $1.2 million of lift linked quarter, Net interest margin excluding PPP loans and said reserves was 3.06 percent, an increase of 18 basis points linked quarter. Turning to slide 11, the balance sheet remains well positioned for higher interest rates with substantial asset sensitivity driven by loan portfolio mix with 47 percent variable rate coupon, securities portfolio duration of 4.3 years, and cash and due balance of about $700 million. During the quarter, we deployed nearly $800 million of excess liquidity via loans held for investment growth of $548 million and securities portfolio growth of about $235 million as we sought to take advantage of substantial increase in market interest rates during the quarter. The deployment did not alter the mix of floating versus fixed rate levels, nor did it materially extend the duration of the securities portfolio. So the year one increase in net interest income to immediate interest rate shocks remains substantially asset sensitive at about 6 percent for a 100 basis point shock, about 11 percent for a 200 basis point shock, and about 17 percent for a 300 basis point shock, with the benefit in years two and beyond increasing as the balance sheet continues to reprice. Turning to slide 12, non-interest income for the second quarter totaled $53.3 million, an $862,000 linked quarter decrease, and a $3.2 million decrease year over year. The linked quarter and year over year changes are principally due to lower mortgage banking revenue, which was partially offset by increase in other line items. Service charges on deposit accounts increased $775,000 linked quarter and $2.6 million year over year. Insurance revenue totaled $13.7 million in the second quarter, a linked quarter decrease of $387,000, and a $1.5 million increase year over year. Wealth management revenue totaled $9.1 million in the second quarter, unchanged from the prior quarter, and a $200,000 increase year-over-year. For the quarter, non-interest income represented 32 percent of total revenue, continuing to demonstrate our well-diversified revenue stream. Now looking at slide 13, mortgage banking revenue totaled $8.1 million in the second quarter, a $1.7 million decrease linked quarter, and a $9.2 million decrease year-over-year. Mortgage loan production totaled $681 million in the second quarter, an increase of 25% linked quarter and 8% year-over-year. Retail production remained strong in the second quarter, representing 82% of volume, or about $560 million. Loans sold in the secondary market represented 51% of production, while loans held on balance sheet represented 49%. with the majority of loans going into the portfolio consisting of 15-year and hybrid-armed, while we've continued to sell rather than retain our conforming 30-year loan originations. Gain on sale margin declined by about 12 percent linked quarter from 223 basis points in the first quarter to 197 basis points in the second quarter. And now I'll ask Tom Chambers to cover non-interest expense and capital management.
spk06: Thank you, Tom. Turning to slide 14, you will see a detail of our non-interest expenses broken out between adjusted, other, and total. Adjusted non-interest expense was $122.4 million in the second quarter, a one-quarter increase of $1.8 million, or 1.5 percent. Salary and employee benefits expense in the second quarter totaled $71.7 million, a $2.1 million increase from the prior quarter, mainly due to increased commissions and annual merit increases. Services and fees remained relatively flat one quarter and increased $2.8 million year over year, mainly from higher professional fees. As noted on slide 15, Trustmark remains well positioned from a capital perspective. During the second quarter, Trustmark repurchased $7.5 million or approximately 263,000 shares of Trustmark stock. Our share repurchase program may take place through open market or private transactions depending on market conditions and at management's discretion. Our capital ratios remain solid with a common Tier 1 ratio of 11.01 percent and a total risk-based capital ratio of 13.26 percent at June 30th. As Duane mentioned earlier, the Board declared a quarterly cash dividend of 23 cents per share Payable September 15th to shareholders of record on September 1st.
spk05: Dwight? Thank you, Tom. Turning to slide 16, let's review our outlook. From a balance sheet perspective, we're expecting loans held for investment to grow high single digits for the year. Our security balances are still targeted at 20 to 25 percent of earning assets subject to changes in market conditions. Personal and non-personal deposit balances are expected to remain stable for the year with a decline in public fund balances full year. We're expecting the net interest income excluding PPP loan interest and fees to grow in high teens for the year based on current market implied forward interest rates. Based on the current economic outlook, the total provision for credit losses including unfunded commitments is expected to be modest. Net charge-offs requiring additional reserving are expected to be nominal based upon the current outlook. From a non-interest income perspective, we expect service charges and bank card fees to continue rebounding from depressed levels. Mortgage banking revenue is expected to continue trending lower, driven by reduced volume and a lower gain-on-sale margin. Insurance revenue is expected to increase high single digits full year, with wealth management expected to increase mid-single digits. Adjusted non-interest expense, as previously defined, is expected to increase mid-single digits for the year. This reflects general inflationary pressures as well as pressure on wages, additions of new production associates, and the impact of commissions on our fee businesses. Additionally, we continue to invest in technology across our company to meet the needs of our customers. As these pressures persist, we remain intensely focused on expenses. As announced last quarter, we continue to optimize our branch network. Since 2016, we've had a net reduction of 31 offices across our system, including three to date in 2022, with an additional 18 scheduled to close this year. In April, we announced Fit2Grow, which is a comprehensive program of focus, innovation, and growth designed to enhance growth and efficiency while providing best-in-class customer service. Along with the branch consolidation noted above, we've implemented new state-of-the-art technology across the organization, as well as updated our digital capabilities in ATM and ITM networks. In the third and fourth quarters of 2022, we will be completing phase one of a core system conversion, and we'll also be transitioning loan processing system. Along with our efficiency initiatives, we are also adding growth strategies such as streamlining our community bank system to create better growth in the core banking businesses. We've also opened an Atlanta loan production office focusing on commercial real estate, residential real estate, corporate banking, and specialty banking. We have added seasoned professionals to our team to execute our strategy throughout the Southeast. Atlanta will also house a new equipment finance team focused on middle- to large-ticket equipment finance opportunities, which we believe is complementary to our customer base. This unit will commence operation in coming weeks. Finally, we also continue a disciplined approach to capital deployment with a preference for organic loan growth, potential M&A, and opportunistic share repurchases. We will continue to maintain a strong capital base to implement corporate priorities and initiatives. I trust this discussion of our second quarter financial results and outlook commentary has been helpful and insightful. At this time, we'd like to open the floor for questions.
spk01: Hey, thank you, sir. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If any time a question has been addressed and you'd like to withdraw your question, please press star, then two. Again, it is star, then one to ask a question. At this time, we'll just pause momentarily to assemble our roster. And our first question will come from Graham Dick of Piper Sandler. Please go ahead.
spk02: Hey, good morning. Morning. Just starting with loan growth. I wanted to get some color on why you think you in particular had such a good quarter and then also why you think things might slow down as implied by the full year guidance in the back half of the year. Is that like payoffs or you guys tightening underwriting standards or just something else I'm missing?
spk03: Hey, Graham, this is Barry. I'll work you through that process in our minds anyway. And we don't have a crystal ball, obviously, what's going to happen in the second half of the year from the economy standpoint, as well as what we may see in terms of a speed up and early payoffs on the CRE book. But the way we view it is, The mortgage growth that we saw in Q2 is not going to be sustainable for the second half of the year, so we would expect that to slow down from what we experienced in Q2. From a CRE perspective, we had a great growth this quarter, about $205 million. From that perspective, that production engine is on track and doing well. We possibly, because Q2 is a strong quarter for CRE, so is Q3, so we expect that trend to continue. In Q4, sometimes you do experience a higher level of unexpected payoffs just because of tax planning and other things that goes on, but here again, We don't necessarily anticipate that, but we don't know that it won't occur. Commercial owner-occupied financing, we're very pleased with the growth this quarter of $118 million. We expect that trend to continue throughout the year. Consumer loans grew $38 million. Extremely pleased to see that. That's been a struggle for all banks, and we've seen shrinkage in the past. Now we're actually... holding our own and growing a little bit. We expect to see that trend continue as well. But our view of the second half of the year is predominantly generated based upon the fact that we know the mortgage book is going to slow in terms of production that we hold on balance sheet, and then we're uncertain about what may occur in Q4 regarding some tax planning and things that occur as it relates to potential early payoffs on CRE. From a production standpoint, from an earnings perspective, We fully expect that things continue to grow in a meaningful way. It's going to be the slowdown on the mortgage side and the potential early payoffs that we may begin to experience again in Q4 that leads us to believe it might be a little slower in the second half of the year. We'd be very pleased if that does not occur.
spk02: Okay, thanks for that. And then also, I guess just on mortgage while we're talking about it, do you expect that that I guess, that proportion of what's held on balance sheet and then what's sold into the secondaries to kind of shift back towards the, I guess, the 70% sold in the secondary and 30% held on balance sheet? And then also, how might that affect fee revenues based on mortgage fee revenues, that line item of $8.8 million before the hedge ineffectiveness increases?
spk03: This is Barry. I'll start on the first part, and then Tom can speak to the second part. As it relates to what we expect to hold on balance sheet in the second half of the year, what we're portfolioing is going to be hybrid arms and 15-year paper predominantly. We do expect that we've had a pull forward as it relates to hybrid arms in terms of a lot of people moving quickly to try to get loans closed prior to rates continuing to rise and choosing the hybrid arm process as opposed to the fixed rate option just because there's a potential belief of either they're going to be in the property for a shorter period of time or there's the belief that there will be a cycle here and rates will go back down eventually and they don't want the longer-term fixed rate exposure for that reason. So we do expect to see that we do expect to slow down in the amount of hybrid arm production that we hold on balance sheet in the second half of the year. And then on the second part of your question, I'll let Tom address the fee income impact. Thank you, Barry, and good morning, Graham.
spk04: So as Barry said, I do think it's reasonable to assume that the percentage sold does rebound for the reasons that Barry articulated, as we said in our prepared comments. It was really MIX and the hybrid arms that caused the increase in retention in the second quarter. And so, if you look at some normalized percentage sold, if you look at extrapolating forward the compression that we've seen in the gain on sale margin, so 197 basis points in the second quarter, down from 223 in the first quarter, If you extrapolated that forward to say 170 basis points or so in the third quarter and you do the math on that, you wind up with quarter over quarter gain on sale, which if you look at slide 13, the gain on sale of loans net of about $6 million, I would anticipate that over the next couple of quarters that will probably be about the level that we'll see.
spk05: And this is Dwayne. I'll just note real quick, you know, the mortgage business is moving back to a more normalized environment, whereby for a couple years we hadn't seen as much seasonality as we'll, I think, begin to see again moving into a more normal operating environment. So we do expect seasonal declines in the fourth quarter and possibly into the first quarter of next year as well.
spk02: Okay, great. I appreciate it. And then I guess if I could just get one more in here. On service charges, I know these are going to decline somewhat later this year due to your changes in NSF and overdraft structure, but they're still out pretty handily this quarter. Where do you think we need to think about this number going to on a net basis after you implement those changes later this year and then account for any additional activity? I mean, is this 10.2 million number, I mean, good run rate, or where do you think we see this head directionally, I guess?
spk05: The changes that we announced earlier in the year will really take effect moving into 2023. We don't really expect much in the way of change as far as 2022 goes. And once we move into the 2023 environment, we'll look at kind of where our volumes are and that sort of thing. In terms of overall percentages, Bram, I don't see a very real significant decline, maybe in the range of 5% to 10% at the most.
spk02: Okay, thanks, Dwayne. And then last one, sorry, guys, just on card fees. Was there anything non-recurring in there, or is that where we should see it go from here, different from that mid-8 million level run rate?
spk05: Nothing unusual in that category, Bram.
spk02: All right. Great. Thank you.
spk01: Next, we have Catherine Miller of KBW.
spk00: Thanks. Good morning.
spk01: Morning, Catherine.
spk00: I just wanted to talk about the expenses and the increased expenses a little bit are the guide for this year, which makes sense just given the inflationary pressures. But just kind of curious, if you can talk about some of the savings that you might see in Fit to Grow. And is there a chance, as you kind of work through some of those strategies, we actually might see some better savings or some lower expense growth if we move into 2023?
spk05: Well, I'll start. Tom and Tom can add to any of my comments. You know, we haven't quantified from a fit-to-grow standpoint and particularly the technology expenses and some of the things we're doing because we've got to get the system implemented and then really start to focus on the efficiencies gained via the new technology investments, the core conversion, the loan processing system conversion, et cetera, those things. And we will kind of start to quantify that moving into 2023. In terms of the branch consolidation, we did quantify that in the first quarter. Tom, that number is in the $3.5 million range, I think, from the overall branch consolidation. Two to three, $3.5 million. So that's in our numbers and our forecast as we move forward. The offset to some of that is truly general inflationary pressures that we're seeing in virtually all categories, which is travel and expenses. I think wage pressures are impacting us. The new associates added in our Atlanta office will be additive. here at the remainder of 2022 and start to generate revenue really more in the latter part of the fourth quarter into 2023. So that's, you know, kind of the rationale we went to to increase our guidance.
spk04: Tom or Tom? I guess the only thing I'd add, Catherine, again, with expense, with respect to branch network optimization, I think it's reasonable to expect that that's going to continue. You know, the 11 branches that we announced that will be consolidated this year, I think it's likely you're going to see, in terms of order of magnitude, continued consolidation at that pace over the next couple of years. You know, I think the guidance we gave was net realized savings of about $2 million from those consolidations. That's a run rate annual realized expense save, which I think has a bit of conservatism built into it. But you think about it, your run rate on that will kick in in 23. You'll realize some of that in 22. Your run rate on that will kick in in 23. And then if you sort of extrapolate that forward, so that's At least $2 million of benefit in 23 probably turns into $4 million of benefit in 24 and $6 million of benefit in 25 if you start to extrapolate out over a longer period of time.
spk00: Great. And then up to the margin, any updated thoughts on how you're thinking about deposit data over the cycle to see if that's being more aggressive? And then just more near term, was there any move in deposit costs maybe later in the quarter, maybe the month of June or as you're seeing in July so far?
spk04: So, Catherine, this is Tom. With respect to, let's just talk about the guidance in general for net interest income. As you know, that's based on market implied forward interest rates at the time that we do the forecast, and so what that reflects, Catherine, is the Fed hiking to a 3.5% Fed funds target rate by year end this year and maintaining that at least through the first two quarters of 23 before beginning to ease a bit in the second half of 23. With respect to the beta question, So, our interest-bearing deposit cost was unchanged, linked order at 11 basis points. What we have modeled is a cumulative beta to that peak Fed funds rate of 3.5 percent in the mid-40s, call it 45 percent. Now, it's got a bit of a lag to it, so interest-bearing, Interest-bearing deposit costs for the fourth quarter, we have modeled at about 60 basis points. That would represent a cumulative beta of about 20% through year-end this year. And then we have, you know, as the Fed sits there with the target rate at 3.5% in the first and second quarters of next year, we have deposits continuing to reprice up. so that by the time you get to that peak, we're in the neighborhood of 40 percent or so on our deposit beta, which means, you know, if you look at, say, the second quarter of next year as deposits continue to reprice, you're probably in the neighborhood of 140 basis points or so for a second quarter 23 interest-bearing deposit cost. On the loan side, we're modeling about a 50 percent beta in terms of loan yield. So for the fourth quarter of this year, that probably puts you in the neighborhood of 490 or so on loan yield. And then, you know, that reprices up just a little bit more through, say, the second quarter of next year to about 5% or so. Awesome.
spk00: Very, very helpful. Thanks.
spk05: Yep. Thank you, Catherine.
spk01: The next question we have will come from Joe Yanchunas. of Raymond Zaggs.
spk07: Good morning.
spk01: Good morning, Joe.
spk07: So, how should we think about some near or long-term targets for your Atlanta LPO or your new line of business there? And then, additionally, in relation to these new initiatives, I was hoping you could discuss your decision to build .
spk05: Okay. You kind of broke off there at the end of that question. Can you say that again, please?
spk07: Yeah, so I was hoping to get a better understanding of your decision to build versus buy, and then some near long-term targets for Atlanta and your new line of business.
spk05: Well, I'll start. Barry can jump in and add some commentary. Atlanta forecast is included in our guidance today for loan growth, so we haven't really factored into and we haven't extended out to 2023. Given the businesses that are represented in that office being commercial real estate, residential, corporate, and so on, the standard businesses that we've operated in, Those are incorporated and will be incorporated in our loan growth forecast as we move forward. But we're very optimistic. We have a very strong team. We've added great personnel in that market. We're very excited about what they bring to the table in terms of new customers, et cetera. In terms of the equipment finance business, again, we've not really started to forecast specific growth in that business unit. We do have the team hired and, again, are very excited. That's a complementary business, we think, to our customer base. It's very complementary to significant growth that's occurring. And so that team will be up and running over the next few weeks and will also then, as we move into 2023, begin to forecast specific growth in that line. And then the last part of the question, build versus grow organically, build organically versus acquire, we became, last year became very active in evaluating and looking at opportunities out in the marketplace and of what like available companies for sale, et cetera, became very educated. and just felt like we could not get comfortable or did not find the right fit for our organization in the equipment finance space, and quite honestly, became aware of folks that could help us build it organically, and therefore felt like that was a better option for us. It's a little bit slower in terms of growth, but at the end of the day, we can better control and get accustomed to the business.
spk03: Barry, anything to add there? In regards to the Atlanta LPO, the people being hired, Joe, are working in lines of businesses that we do every day, commercial lending, CRE lending, and home builder lending. And so, therefore, it's just an extension of what we're already doing in other markets. We would expect these associates that we're bringing on board So we're very pleased with the type of the quality and the talent that we're being able to attract. I think that's a function of, one, Trustmark's reputation, as well as some changes in the industry, allowing some associates to free up that we're very excited about getting on board. And Monica Day is heading up that group for us for institutional banking, doing a great job of recruiting good talent. These associates are going to also operate throughout the Southeast. So while they will have relationships in the Atlantic market, just like we do today, we're very active in that market, they'll also be pursuing opportunities throughout the Southeast.
spk07: Great. Thank you. And I have another question. So your asset sensitivity declined pretty immediately on a sequential basis. How happy are you with your current level there, and where should we expect that to trend in the back half of the year?
spk04: Joe, that's a great question. This is Tom Owens. So it did increase meaningfully, you know, or decrease meaningfully. I'm sorry. You know, I think our, as I said in my prepared comments, you know, the growth in the loan portfolio and the growth in the securities portfolio, neither of those changed essentially the effective duration of either portfolio. So, when you think about it, it's really the deployment of the excess liquidity. So, in other words, you know, I think we ended the first quarter with excess reserves at the Fed of about $1.8 billion. We took those down about $1.2 billion between the loan growth, securities growth, and some decline in deposits. So I think we ended the second quarter at closer to $600 million. And so really when you do the numbers, what you find is that the decrease in the asset sensitivity is really attributable to that. With respect to your question regarding how happy are we about that and how should we think about that going forward, You know, we made a conscious decision to maintain what we called a competitive level of asset sensitivity versus the peer group. And as best we could tell, we were top quartile relative to the peer group in anticipation of interest rates rising, which they have, obviously, substantially this year, and that's what presented the opportunity for us to put that liquidity to work. You know, we were... meaningfully above peer asset sensitivity coming into the year. It'll be interesting to see how that shakes out for the second quarter as we compare ourselves to peers. But obviously, I think, you know, we in the broader industry, you know, we're going to be taking steps to try to manage our asset sensitivity closer to neutral, to continue to reduce our asset sensitivity over time, you know, You'd like to think that you could time it so that you catch the top in interest rates and you've basically gotten yourself back to neutral. There's a lot of work, obviously, that it takes to get there. But we've been deliberate. I think, you know, we took advantage of that very significant increase in rates in the second quarter that followed the significant increase in rates in the first quarter. I think we'll be deliberate here going forward. For example, I don't think, you know, given the deployment of liquidity in the second quarter, I don't think that we will continue increasing the securities portfolio meaningfully from here. We have worked on a lot of that excess liquidity and we'll have to evaluate how loan growth versus deposit growth, how that dynamic shakes out over the remainder of the year. It's possible, even likely perhaps, that you'll see us begin to engage in hedging activities in the way of derivatives, interest rate swaps, and or floors to begin to protect ourselves against the eventual easing, onset of an easing cycle by the Fed, although the timing on that remains obviously highly uncertain.
spk07: Very thorough answer. I appreciate it. And then I just had one last question for me. How should we think about the cadence of share repurchases for the balance of the year?
spk04: So, Joe, this is Tom. You know, as we came into the year, the guidance that we gave was that we'd probably be in a range of $20 million to $30 million for the year, which is, you know, a reduction really of about half from the pace that We deployed capital in 2021 and in 2020, and that really reflected the reduced earnings power that we had. You know, we were meaningfully asset sensitive, and as the mortgage refi boom sort of worked its way down and we were facing lower earnings power, That's really what was the driver of reducing the pace of deployment via share repurchase. I think it's fair to assume here for the third quarter and probably for the remainder of the year that we will stick to that range of 20 to 30 million, and I think it's probably fair to assume that we'll probably end up towards the higher end of that range. And I think we'll be reevaluating capital deployment opportunities as we go into 23. We have a strong preference for deploying capital via loan growth, and obviously acquisition opportunities are always a possibility as well. but to the extent that we continue to have the strong capital ratios that we do and our earnings power increases depending on what those opportunities are to deploy capital via loan growth or acquisition, we may well end up increasing the pace of deployment via repurchase as we go into 23. Understood.
spk07: Thank you very much. Thank you very much.
spk01: Well, sir, no further questions at this time. We'll go ahead and conclude our question and answer session. I would now like to turn the conference call back over to Mr. Duane Dewey for any closing remarks. Sir?
spk05: Yes, thank you for joining us for our second quarter call. We're very pleased and happy with the second quarter. We look forward to catching up and visiting with you again at the end of the third quarter. Have a great rest of the week.
spk01: Right, and we thank you, sir, and to the rest of the management team for your time also today. Again, we thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you, take care, and have a blessed day, everyone.
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