WesBanco Inc
NASDAQ:WSBC
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Good morning, and welcome to the WesBanco Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded.
I would now like to turn the conference over to John Iannone, Senior Vice President, Investor Relations. Please go ahead.
Thank you. Good morning, and welcome to WesBanco, Inc.’s second quarter 2023 earnings conference call. Leading the call today are Todd Clossin, President and Chief Executive Officer; Jeff Jackson, Senior Executive Vice President and Chief Operating Officer; and Dan Weiss, Executive Vice President and Chief Financial Officer.
Today’s call, an archive of which will be available on our website for one year, contains forward-looking information. Cautionary statements about this information and reconciliations of non-GAAP measures are included in our earnings related materials issued yesterday afternoon, as well as our other SEC filings and investor materials. These materials are available on the Investor Relations section of our website, wesbanco.com. All statements speak only as of July 26, 2023, and WesBanco 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 I close my tenure as CEO, WesBanco is well positioned for ongoing success with strong market positions, diversified revenue generation capabilities and distinct long-term advantages. I’m confident these will be the foundation for further growth and expansion through our incoming CEO, Jeff Jackson’s strategic vision and leadership. WesBanco is in very good hands with Jeff and the leadership team, and I know you’ll enjoy working with him as much as I have over this past year. Jeff?
Thanks, Todd, and good morning. On behalf of WesBanco, I would like to thank you for your leadership, support and dedication. Your 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 assume the CEO role on August 1, I’ll 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; maintained 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 and deposits. Earnings growth was supported by our strategic investments and associated year-to-date annualized loan growth of 8%.
For the quarter ending June 30, 2023, we reported pretax pre-provision income growth of 9.2% year-over-year, and net income available to common shareholders increased 5.3% to $42.4 million with diluted earnings per share of $0.71 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 a return on average tangible equity of 13%. And our capital position continues to provide financial and operational flexibility as demonstrated by our CET1 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 continue to remain at relatively low levels and favorable to all banks within assets between $10 billion and $25 billion.
Total loans past due as a percent of total loans were 21 basis points, 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 were 1.68%.
Total commercial loan growth for the second quarter increased 6% year-over-year and 7% sequentially annualized. Furthermore, commercial and industrial loans of $1.6 billion as of June 30 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 our robust and diverse markets.
During late June, we had the opportunity to perform a lift out of a seasoned team of five C&I lenders in Chattanooga. This is an appealing next step in our strategic growth in Tennessee, thanks to Chattanooga’s 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 17 was approximately $810 million, an 11% increase from the level at June 30, and our teams continue to find business opportunities to replenish that pipeline, which drove our second quarter loan growth.
Reflecting their continued maturation, our Cleveland, Indianapolis and National LPOs 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, albeit at potentially lower cost 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 30 deposit levels remaining flat to March 31, despite industry headwinds with minimal change to the percentage composition mix of our deposits.
Furthermore, our commercial lenders are finding additional avenues besides deposits to 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% in new commercial loan swap fees of $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 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 the 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 maintain stable deposits.
As presented in yesterday’s 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 of $0.71 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 30, 2023, 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.
Total assets of $17.4 billion at the end of the quarter included total portfolio loans of $11.1 billion and securities of $3.6 billion. 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 were able to achieve this growth despite continuing to increase spreads, 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 6 of the earnings presentation, our deposit levels reflect the granularity and relative stability of our deposit base as our average deposit size was approximately $27,000.
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 the strong efforts across our organization to improve deposit gathering and retention, combined with the addition of $60 million in new broker deposits, total deposits at June 30 were consistent with our March 31 levels.
There continues to be some shift in the mix of our deposits with noninterest-bearing demand deposits down 4.3% linked quarter. However, the percentage composition of our total demand deposits for the second quarter of 2023 is relatively consistent with the mix reported during the first quarter of 2023 as well as the prior year period. Total demand deposits continue to represent 59% of 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 3.18% decreased 18 basis points from the first quarter of 2023, primarily due to increasing deposit cost, deposit remix and higher cost wholesale borrowings. Total deposit funding costs, including noninterest-bearing deposits for the second quarter of 2023, increased 94 basis points 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 a 350 basis point increase in the federal funds rate from July of 2022 [ph] through May of 2023, 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 as the remainder, new growth from new customers.
For the second quarter of 2023, 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-owned life insurance increased $800,000 year-over-year due to higher debt benefits received during this quarter and mortgage banking income decreased $700,000 due to lower production volume. As Jeff mentioned, the key story within noninterest income is our 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 $0.2 million during the second quarter as compared to $1.1 million in the prior year period. Through the first half of 2023, we’ve already collected more swap fee income than we did for the entire year in 2022.
We continue to exhibit disciplined expense management while making appropriate long-term growth investments, especially our strategic loan production office and higher – and lender hiring initiatives. Excluding restructuring and merger-related expenses, noninterest expense for the three months ended June 30, 2023, totaled $96.4 million, within our previously disclosed quarterly run rate expectations.
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 intangible assets as of June 30, 2023, was 7.35% or if including held-to-maturity securities unrealized losses, 6.68%, as shown on Slide 7 of the earnings presentation.
Regarding 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, we continue to believe we’re well positioned for any operating environment.
Regarding our current outlook for the second half of 2023, we are now modeling Fed funds to peak at 5.75% with a 25 basis point increase 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 lag the industry due to the benefit of our legacy deposit base, but were 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 with 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 margins 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 price and interest rate 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. 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 are on pace through the first half of the year to double new commercial swap fee income over 2022.
While remaining diligent on discretionary cost 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 initiative 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 in check while recognizing midyear merit increases will impact this line item during the 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 CECL will be dependent upon changes to macroeconomic and qualitative factors as well as various critical metrics, including potential charge-offs, criticized and classified loan balances, delinquencies, changes in prepayment fees and future loan growth. And lastly, we currently anticipate our full year effective tax rate to be around 18%, subject to changes in tax regulations and taxable income levels.
Operator, we are now ready to take questions. Would you please review the instructions?
[Operator Instructions] 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. I hear you on the new hires and the contributions there. I just 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 thought on loan growth volumes going forward.
Sure, Russell. I think in a normal environment, we always look at mid-to-upper single-digit growth. 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 LPOs, 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 treasury fees. So I do see – expect to see an uptick in that type of business going forward, while we still have a very strong CRE pipeline as well, especially in our Maryland and Ohio markets.
Okay. Great. That’s very helpful. And then, Jeff, as you think about growth opportunities going forward, are there markets you are not in that you would consider extending this strategy to even later this year in 2024?
Yes, we’re always looking at opportunities. To me, the key factor is finding the right talent. So when I was obviously a banker and a Market President in Chattanooga many years ago, I knew this group. And I 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 on to the margin discussion. 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 [ph] non-IB contribution over the past few years. What is that updated guide kind of imply for where you think you may end the year there?
Yes. We’re looking at two interest rate hikes in our modeling. 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 our 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 color for our NIM going forward.
Yes. And I would just add that we saw in the second quarter that about $200 million or so in noninterest-bearing migrating to interest-bearing products. And as I mentioned in the prepared commentary, we’re kind of anticipating 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 were 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 you both for that. And then I guess just the last follow-up, please, on the loan deposit ratio targets. 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-90s as 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-90s, but are not afraid to go higher if we get the right deals at the right level of profitability.
[Operator Instructions] The next question is from Daniel Tamayo with Raymond James. Please go ahead. It appears Mr. Tamayo has disconnected. The next question is from Dave Bishop with Hovde Group. Please go ahead.
Hey, good morning gentlemen. I want to follow up on Russell’s question regarding loan growth. I think you mentioned you’re seeing some opportunities on the commercial real estate side, I think particularly in Ohio, Maryland. Just curious what pricing you’re seeing there and maybe what types of projects are you able to maybe grow that are standing out within those markets, what types of property types?
Sure. We’re seeing retail and also some multifamily coming through. Pricing has been pretty good. We shoot for a 300 spread. I’m not saying we get that all the time, but that’s kind of our targeted spread right now is 300, but really seeing some good opportunities with some great guarantors and keeping with our conservative credit nature. We feel really good about the types of deals we’re bringing on our books.
Got it. And the level of swap fees obviously up nicely here. Did I hear 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, you did. We made a big push at the end of last year to retrain all 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.
$4 million, okay, great. And then the entrance and the team lift out in the Chattanooga. Just curious, any other markets in Tennessee that you might have circle for entrants in the near term?
We’re still looking at filling out our Nashville team. We opened the LPO about a year ago, and we’ve got some opportunities there. But I would say we’re always looking at different markets and opportunities in Tennessee and other states. 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 that we’ve always done over the last 153 years.
Got it. I appreciate the color.
Thanks.
The next question is from Daniel Tamayo with Raymond James. Please go ahead.
Hey guys, sorry about that.
Good morning, Daniel.
Good morning.
Good morning. So I apologize if I missed this, while I was off, but just wanted to kind of put a point on the expense guidance, the mid-90s. Are you trying to say that there is a bit of a decline expected or kind of similar to what you did in the second quarter with the 96.5%?
We have some cost saves that we’re working on for the back half of the year. 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, we’re working on some cost saves that will probably keep us in the mid-90s for the rest of the year. Dan, do have any comments?
I agree. I think certainly, the headwinds heading into the back half of the year would be the mid-year merit increases. So if you think about the salary folks are received their, increases in June, hourly in August. So we’ll see the full run rate for the salary and most of the hourly hit in the third quarter. But to the point that Jeff made there, we certainly do have some cost savings initiatives that we’ve taken – that 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 we’ve talked a lot about the swap fees. I think you said everything else pretty stable. So it feels like the overall run rate I guess, absent maybe some unusual activity in BOLI feels relatively good around that $31.5 million, maybe closer to $31 million range on a quarterly basis.
Yes. I think that’s a good jumping off point for third quarter. It’s, 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 Todd, congrats on the run. You’ve left the bank in a good place for Jeff.
Good morning, Karl.
I guess just for my first question, Dan, I wanted to drill down on the margin guidance a little bit more. Does the September hike have much of an impact on your outlook for the fourth quarter? Or just now with the pacing of – hikes kind of spaced out? It seems like things will be pretty manageable with or without beyond next quarter.
Yes. I would say it’s – the September hike is less impactful than the hike that we’re expecting this afternoon to certainly the 2023 earnings. If 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 occurs today, would certainly benefit about $3 billion in those variable rate loans mostly in the fourth quarter, not so much probably in the third quarter. So we’ll see that benefit there.
On the flip side, on the funding side, of course, the wholesale borrowings we have about $1.3 billion. Those also, for the most part, are pretty closely tied to the rate hikes as well, pretty short term in nature. A lot of – mostly one month advances, a little bit or some terms out, but – so we’ll see some cost increase as well on that side as well. But yes, that’s about where we are. Don’t expect the September hike to really impact 2023 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 your team and things like that is 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 you’re 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 with some of the changes you made expecting that can be a little episodic?
Yes. 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 produced $4 million in swap income, but that was only driven by 14 commercial lenders. So once we have trained up are – essentially 100 commercial lenders, we have 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.
Okay, great. Thanks for all the help.
The next question is from Casey Whitman with Piper Sandler. Please go ahead.
Hey, good morning.
Good morning, Casey.
Good morning.
So it sounds like your margin is hopefully going to bottom at around 3% over the next few quarters. 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? Whether there’s a Fed pause or maybe even cuts are there opportunities for expansion you think off of that 3% range? Or what sort of environment would you need for that?
Yes, that’s a great question and one that’s pretty difficult to answer, given your expectations or my expectations of when the Fed, how long that Fed pause is and when they start 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 leading through 2024. But today, 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 then I think we begin to see a little bit of maybe lift in the back half of 2024. There are a ton of assumptions going into that, so I would qualify that with – don’t quote me in the second quarter of 2024 on there.
Understood. Understood. And then switching gears, we saw an M&A deal get announced yesterday in Virginia. So just maybe remind us sort of how you guys are thinking about M&A here and other capital uses?
Sure. I’ll start with basically our capital strategy. We put dividends first, loan growth second, then 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. I think our bank has always proven that some of our strategy is to build out loan production offices, test the markets and then potentially look for an acquisition. But I would – with the deal being announced yesterday, I think that basically breaking the seal on the first deal we’ve kind of seen since the banking crisis earlier this year, we’ll be opportunistic where it makes sense.
All right. Great. Thanks for taking my questions, and Todd wishing you well on your retirement. You’ll be missed, but you’ve left us in good hands, so thank you.
The next question is from Catherine Mealor with KBW. Please go ahead.
Thanks. Good morning.
Hey, good morning Catherine.
Good morning, Catherine.
Most of my questions were asked and answer. I thought I just circle back one last thing on the margin. Just thinking about CD repricing. You haven’t seen a big change in your CD growth a little bit up this quarter, but still remains really low as a percentage of your overall deposit mix. And so kind of two things. As we think – as we look at where your CD rates are today, I’m assuming as those are maturing and repricing that coming up a lot. And so just kind of trying to think about maybe what that pace looks like and where the CD rates are repricing too? And then also how you think about that as a percentage of the composition of overall deposits as we move through next year?
Yes. 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. CDs re-price. 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 4.5%. And then about third of that would be the CD rollover 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 some cases, it could be noninterest-bearing or lower interest-bearing moving up to 4.5%. And the rollover today, it’s about 50 – I think about on an average about 50 basis points repricing up to about 4.5% or 450 basis points.
Okay. Great. And would you expect that – I mean you’re right, we haven’t seen an increase in the CD book and so long. And would you expect to see that to continue as we move through the year?
Yes. So we’re modeling that to continue, again, kind of a 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 – are okay with locking their money up for some period of time. And so yes, we would expect that pace to continue 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 were coming in, in the sevens [ph], I think, that’s what you said earlier in the call. Just kind of thinking about how your – within your margin guidance, where you’re thinking about loan yields moving to?
I would think that if the Fed increases rates, obviously, our own yields would follow that to some degree. So, I would – if we get two more increases, then you’re probably looking at eight handle on the rates. I’m 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.
Yes. Agreed.
All right. Everything else was asked the answered. It’s a great quarter. And congrats, Todd, we will miss you.
Thank you.
The next question is from Manuel Navas with D.A. Davidson. Please go ahead.
Hey, good morning. How are you guys kind of – a lot of my questions have been answered, but I just wanted to catch up on how are you thinking about borrowings versus wholesale borrowings versus kind of brokered deposits?
Yes. So today, we’ve got $200 million in broker deposits, and that’s at Fed funds plus about 40 basis points we’ve kind of taken the strategy or thought that it’s nice to kind of dive into both sides to provide plenty of opportunity to borrow both from the Federal Home Loan Bank as well as on the brokerage side. Certainly, FHLB borrowings are much easier and simpler and give a call within hours, have the cash. So, I would say we’re not – if we did any additional broker, it might be – it would be dependent obviously on loan growth and 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 consistent. It’s just a matter of timing and how quickly and how easy it is to gather those.
And with the NIM commentary, I guess it seems like it includes cash staying a little bit elevated for at least the back half of this year. It’s earning pretty well, too.
It does. So if you think – if you look back to the end of the year, we were running cash around 2.5% of total assets. Through kind of that period, the last, I’ll call it, four months; we’ve been running holding cash – holding a little more cash for obvious reasons and just like really the rest of the industry. But yes, we plan to bring that back down to right around 3%. I would say, total assets. That’s where we’re modeling for the remainder of the year, which is a healthy range. But at the same time, and to the point 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 basis points 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 deposits 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.