Atlantic Union Bankshares Corp
NYSE:AUB
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Good day, and thank you for standing by. Welcome to the Atlantic Union Bankshares Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Bill Cimino, Senior Vice President, Investor Relations. Please go ahead.
Thank you, Michelle, and good morning, everyone. Atlantic Union Bankshares' President and CEO, John Asbury; and Executive Vice President and CFO, Rob Gorman, with me today. We also have other members of our executive management with us in the room on remotely for the question-and-answer period.
Please note that today's earnings release and the accompanying slide presentation we are going through on this webcast are available to download on our investor website, investors.atlanticunionbank.com.
During today's call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in the appendix to our slide presentation and our earnings release for the second quarter of 2022.
We will make forward-looking statements on today's call, which are not statements of historical fact and are subject to risks and uncertainties. There can be no assurance that actual performance will not differ materially from any future expectations or results expressed or implied by these forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statements. Please refer to our earnings release for the second quarter of 2022, and our other SEC filings for further discussion of the company's risk factors and other important information regarding our forward-looking statements, including factors that could cause actual results to differ from those expressed or implied in the forward-looking statement. All comments made during today's call are subject to that safe harbor statement. At the end of the call, we will take questions from the research analyst community.
I'll now turn the call over to John Asbury.
Thank you, Bill, and thanks to all for joining us today.
Atlantic Union Bankshares maintained its strong start to 2022 with a solid second quarter. We recorded upper single-digit loan growth, asset quality remained pristine, and we made a strategic investment in wealth manager Cary Street Partners by transferring our RIA business to them in exchange for a minority interest in Cary Street Partners. I have consistently stated that our operating philosophy of soundness, profitability and growth in that order of priority serve us well as we navigate the challenges of the ever-changing operating environment.
Further, as I said at our recent Investor Day, Atlantic Union has been, is and will continue to be a story of transformation, guided by a consistent but evolving strategy, and remains committed to delivering on our strategic objectives.
As compared to our comments during the last quarter, we have grown more cautious in our economic outlook given the implications of surprisingly high inflation, rapidly rising short-term interest rates and geopolitical uncertainties. It's clear to us that a fog of uncertainty is rolling in. Business leaders and consumers are growing more hesitant, and we're in for slowing economic growth, if not an actual recession.
Having said that, our markets remain strong, and we still don't see any near-term shift away from the positive trends of low unemployment and a benign credit environment. We believe that the Federal Reserve will continue to raise short-term rates doing whatever it takes to battle stubborn inflationary pressures. Since we remain fairly asset sensitive, multiple short-term rate hikes over the course of 2022 are a positive for our operating results, and our net interest margin should continue to expand.
Inflation remains a drag on the economy. Supply chain disruption has improved, but it's still a factor and business clients remain challenged to fill open positions. Despite all of this, we do think American businesses have proven their resiliency, and that all of this will be quite manageable, particularly in our footprint.
While the macroeconomic outlook is less favorable than it was during the last quarter, we feel better about Virginia's economic outlook than that of the nation overall. We think that is for good reason. May unemployment for Virginia came in at 3%, approaching pre-pandemic levels. And we await June data, which will be released tomorrow. As is usual, the most recently reported unemployment rate here is better than the 3.6% current national average.
Most of our credit exposure is in Virginia, which has a long track record of better than national performance during economic downturns. This is in part because Virginia has a set of diversified regional economies and in part due to the stabilizing influence of the U.S. government, which is generally viewed as contributing in some fashion to about 20% of our home states GDP. This tends to serve as an economic shock absorber.
Over the past two weeks, I've traveled extensively across our franchise, meeting with clients, business leaders and our teams. I can report that anecdotally, business leaders state their companies are doing well, but they are guarded in their outlook. Their major challenges are the same as what we've been hearing for some time, and that's the inability to fill open jobs, some degree of supply chain disruption and managing wage and price inflation. Most report some degree of pricing power to offset increased expenses in part or in whole. It's a mixed bag of how they think about making investment at this time is the way the need for investment against economic uncertainty.
My takeaway is that the -- overall, I see economic activity decelerating, but not stopping. While it's hard to return to a transcript for those reading these comments at a later date, I would describe our thoughts on the economic outlook is cautious in light of the mixed signals we're seeing.
In the end, the tight labor market, coupled with strong demand and consumption, still ample liquidity and the nature of our markets and clients leave us thinking we're facing more of an economic rough patch than an economic cliff.
To paint a clearer picture, I used to fly, and I was told that any landing you can walk away from is a good landing. I don't know if we're in for a soft landing or a hard landing, but I do believe it will be one that will all be walking away from.
Takeoffs are more fun than landing though, and Atlantic Union posted upper single-digit loan growth of just over 7% point-to-point for the quarter on an annualized basis, and finished the second quarter with approximately 9% annualized point-to-point loan growth year-to-date, excluding PPP. Our loan pipeline entering the third quarter is now the highest we've seen since before the pandemic and well balanced between C&I and commercial real estate.
Despite the uncertain environment, we continue to expect high single-digit loan growth for the year, given the strength of our current pipeline, our competitive positioning, market dynamics and fundamentals in the markets we serve. We recognize that all of this could change. But as we start Q3, loan growth momentum is strong, and at this time, we believe we have line of sight to high single-digit loan growth for the year.
We were encouraged to see C&I line utilization tick up at the end of the quarter to 33%, which while still well below our pre-pandemic levels, continued on this improving trend, topping the first quarter's 30%.
It's good to see this build, and our commitment levels grow. We have upside here as working capital needs increase among our clients. We also have a number of positive growth factors to report for the quarter. For example, this was our second best loan production quarter over the 2019 to 2022 time frame, eclipsed only by Q4 '21. About 40% of production came from new-to-bank clients and 60% from growth at our existing clients. This is a proof point that we are steadily chipping away at market share, and there is a long way to go there.
CRE payoffs slowed, and we're well off the peaks we saw in the second through fourth quarters of last year. Rising term rates have put a noticeable debt and refinance activity into the long-term institutional markets and developers report this may also reduce the fraud. We have seen that institutional investors making knockout offers they cannot refuse on CRE properties. We think CRE is still in good shape and quite healthy. And the cooling of payoff activity is good for our outstandings and makes continuing with bank financing an attractive option on stabilized properties.
Meanwhile, our installed base of construction commitments is providing a tailwind on loan growth as construction lending balances fund up and climb back toward more normalized levels. As we mentioned at our Investor Day, we do want to expand our efforts in SBA 7(a) lending and asset-based lending. We stood up our dedicated 7(a) program in June, which will help close a product gap between our larger competitors and us.
We're also continuing to work on standing up a complete asset-based lending, or ABL program, to close another key C&I product gap. We first mentioned interest in scaling our small ABL effort during our 2018 Investor Day, along with establishing an equipment finance division, which we have now successfully done. A scaled ABL effort would further differentiate us in the market from our local competitors. It would allow us to better compete against larger ones and open up new growth avenues.
Wholesale Banking Executive, David Ring and I both have backgrounds in asset-based lending. So we're especially focused on getting this right, and we're quite excited about it. Even with a more muted economic outlook, we continue to believe we have a long runway ahead of us to grow both organically and through takeaway from our larger competitors that dominate market share in our home state of Virginia, supplemented by our operations in Maryland and North Carolina, and our specialized lending capabilities in government contract finance, equipment finance and enhancements to capabilities like SBA 7(a) and hopefully soon, ABL.
Our asset quality continues to impress. And once again, the credit headline for the quarter was the absence of credit problems. Charge-offs net of recoveries for the quarter came in at approximately $939,000 worth three basis points annualized, a modest increase from the effectively zero base that we've seen over the past few quarters.
Quarter-after-quarter, these are levels I've never seen in my now 35-year career. At some point, credit losses will normalize, but given all the liquidity that remains in the system, low unemployment and still solid fundamentals in our markets and client base, we have yet to see any sign of a systemic inflection point.
The quota of our Chief Credit Officer, all as well for the meantime. This will have an end. We just don't know when. Having said that, we've always been and remain responsible underwriters even in the face of stiff competition. Soundness is and will continue to remain a higher priority than growth. But given our market opportunity, strategy and competitive position, we feel that soundness, profitability and growth are all still achievable.
Turning to expenses. We saw a seasonal improvement quarter-over-quarter and salaries and benefits, as we said would be the case. Having said that, the war for talent continues to rage, and we are seeing larger competitors take significant actions regarding their minimum wages. This does impact us, particularly in our branch-based roles. The expense actions we have taken, combined with our asset sensitivity provide room to respond from the competitive dynamics while still meeting our financial targets.
We're currently evaluating our minimum wage in order to ensure we remain competitive. We do expect some incremental addition to the expense run rate as a result, but also will reaffirm our guidance for achieving our efficiency ratio target.
For purposes of clarity, the combined effect of our expense management actions, upper single-digit loan growth expectations, asset sensitivity and a rising rate environment, heavily transaction account leaded deposit base, and strong asset quality track record all give us confidence in our ability to generate positive operating leverage and differentiated financial performance while meeting our top-tier financial targets in the second half of 2022. With all the uncertainties and challenges acknowledged, we remain on an attractive top line and bottom line organic growth footing.
Looking ahead, as I laid out at our Investor Day, our strategic priorities at a high level are in order of priority: deliver organic growth, innovate and transform and strategic investments. We want to innovate and transform the way we operate to free us from legacy system constraints and stay on top of potentially disruptive trends.
As noted at Investor Day, we joined the U.S. DF consortium in May, and continue to build out our technology transformational roadmap. Our goal is to build a frictionless experience for our customers by integrating human interactions with digital capabilities.
Regarding strategic investments, we have commented before on our fintech partnerships and fintech fund investments. Strategic investment is not limited to fintech as evidenced by our quarter end investment in well-respected Richmond-based RIA Cary Street Partners. We accomplished this through the exchange of our RIA business for a minority stake in Cary Street Partners. Cary Street has made substantial investments in their back office capabilities such as compliance and technology. They have a broad product set and are simply better positioned than we are to scale the business rather than continue to invest in our approximately $1.5 billion AUM RIA.
We chose to join forces with a now $6 billion plus AUM that we know, that we trust and that we've enjoyed a great relationship with for a very long time. We see this as a quadruple win. It's good for our RIA clients. It's good for our RIA teams, good for Cary Street and good for us. We believe that Cary Street will grow the business and valuation faster than we could.
We'll avoid what would have been needed investment and expense, and we expect to be able to create some new relationships for our banking solutions to include trust services, private banking and mortgage. Rob will have more details on the financial impacts of that transaction in his section, including our $9.1 million pretax gain on the sale.
As we turn the page on the first half of 2022, our goal remains to achieve and maintain top-tier financial performance regardless of the operating environment. I remain confident in what the future holds for us and the potential we have to deliver long-term sustainable performance for our customers, communities, teammates and shareholders.
While our operating environment continues to change, what is not changing is the Atlantic Union Bankshares remains a uniquely valuable franchise. It's dense and compact, in great markets with a story unlike any other in our region. We are scalable in growing our capabilities, and we have the right markets and the right team to deliver high performance even in the most trying of times.
I'll now turn the call over to Rob to cover the financial results for the quarter. Rob?
Thanks, John, and good morning, everyone. Thank you for joining us today.
Now let's turn to the company's financial results for the second quarter. Please note that for the most part, my commentary will focus on Atlantic Union's second quarter results on a non-GAAP adjusted operating basis, which excludes the $9.1 million pretax gain or $8 million after tax from the sale of RIA business to Cary Street Partners in the quarter, and also pretax restructuring cost of $5.5 million or $4.4 million after tax in the first quarter related to the closure of 16 branches in the company's operations center in March.
In the second quarter, reported net income available to common shareholders was $59.3 million, and earnings per share -- per common share was $0.79, up approximately $18.5 million or $0.25 per common share from the first quarter.
Non-GAAP adjusted operating earnings available to common shareholders in the second quarter were $51.3 million, and adjusted operating earnings per common share was $0.69, which is up approximately $6.2 million or $0.09 per common share from the first quarter.
The non-GAAP adjusted operating return on tangible common equity was 16.5% in the second quarter, which was up from 12.7% in the first quarter. The non-GAAP adjusted operating return on assets was 1.1% in the second quarter, and that was versus 98 basis points reported in the prior quarter. And the non-GAAP adjusted operating efficiency ratio was 55.9% in the second quarter, an improvement from the 58.9% in the first quarter.
Turning to credit loss reserves. As of the end of the second quarter, the total allowance for credit losses was $113.2 million, which was comprised of the allowance for loan and lease losses of $104 million and a reserve for unfunded commitments of $9 million.
In the second quarter, the total allowance for credit losses increased approximately $2.6 million primarily due to net loan growth during the quarter and increased uncertainty in the macroeconomic outlook due to high inflation, tightening monetary policy and geopolitical risks.
The total allowance for credit losses as a percentage of total loans was 83 basis points at the end of June, up one basis point from the prior quarter. And as a reminder, our day one CECL reserve was 75 basis points of total loans.
The provision for credit losses of $3.6 million in the second quarter increased slightly from the prior quarter's $2.8 million provision, and a negative provision for credit losses of $27.4 million recorded in the second quarter of 2021 as the allowance for credit losses has normalized towards pre-pandemic CECL day one reserve levels. Net charge-offs remain muted at three basis points in the second quarter.
Now turning to the pretax pre-provision components of the income statement for the second quarter. Tax equivalent net interest income was $142.3 million, which was up approximately $8.1 million from the first quarter, and that was driven by higher interest income due to average loan growth from the prior quarter, increases in loan yields due to higher market interest rates and an additional day in the second quarter, which was partially offset by increases in deposit and borrowing costs.
The second quarter's tax equivalent net interest margin was 3.24%, which is a net increase of 20 basis points from the prior quarter due to an increase of 24 basis points in the yield on earning assets, partially offset by a four basis point increase in the cost of cost.
The increase in the second quarter's earning asset yield was driven by the 12 basis point impact of higher loan portfolio yields, an increase of six basis points due to higher security yields and the eight basis point benefit from a more favorable earning asset mix as excess liquidity continued to be deployed into higher-yielding loans during the quarter.
The loan portfolio yield increased to 3.67% in the second quarter, up from 3.49% in the first quarter due primarily to higher rates on variable rate loans, an increase in net accretion on purchase accounting adjustments, and that was partially offset by a decline in PPP accretion income as that program winds down.
Core loan yields, excluding PPP and purchase accounting loan accretion income increased by 20 basis points, which had a 14 basis point positive impact on second quarter margin. The increase in core loan yields is primarily due to the impact of rising short-term interest rates given the company's asset-sensitive balance sheet.
The four basis point increase in the second quarter's cost of funds was due primarily to the seven basis point increase in the cost of interest-bearing deposits driven by increases in interest, checking and money market deposit rates as well as from changes in the funding that's between quarters.
Noninterest income increased $8.1 million to $38.3 million, primarily due to the $9.1 million pretax gain from the sale of the RIA business during the second quarter. Factoring out that gain, adjusted operating noninterest income declined approximately $950,000 to $29.2 million in the second quarter from the prior quarter.
Driven by lower loan interest rate swap fee income of $1.3 million due to a decline in transactions and average swap fees, a reduction in unrealized gains on equity method investments was $1.1 million, and lower mortgage banking income of $917,000 resulting from a declining gain on sale margins. These noninterest income category declines are partially offset by seasonal increases in interchange fees of $458,000 and in service charges on deposit accounts of approximately $440,000.
Turning to noninterest expense. Reported noninterest expense decreased $6.5 million to $98.8 million for the second quarter from $105 million -- $105.3 million in the prior quarter. This was primarily driven by a decrease in restructuring expenses as the prior quarter included expenses of $5.5 million related to the company's consolidation of 16 branches that was completed in March.
In addition, salaries and benefits expense declined by $3 million during the second quarter, due primarily to seasonally lower payroll-related taxes and 401(k) contribution expenses. Partially offsetting these expense reductions was an increase of $590,000 in professional services expenses associated with strategic projects, an increase in FDIC fees of $281,000 in the quarter and seasonally higher marketing and advertising expenses of $339,000 as well as increased teammate-related expenses of approximately $350,000, which was primarily driven by teammate-related expenses associated with the reopening of our corporate offices in April.
The effective tax rate for the second quarter decreased to 16.7% from 17.5% in the first quarter which is reflective of the impact of positive discrete items related to the sale of the RIA business. In 2022, for the full year, we expect the effective tax rate to continue to be in the 17% to 18% range.
Now turning to the balance sheet. Total assets were $19.7 billion at June 30, which was a decrease of $121 million or approximately 2.4% annualized from March 31 levels. The net reduction was due to a decline in the investment securities portfolio of approximately $207 million, primarily due to the impact of market interest rate increases on the market value of the available-for-sale securities portfolio partially offset by the net impact of the decline in cash and cash equivalents of $155 million, which was used to fund net loan growth of $196 million in the second quarter.
At period end loans held for investment were $13.7 billion, inclusive of $22 million in PPP loans, net of deferred fees, which was an increase of $196 million or 5.8% annualized from the prior quarter.
If you exclude the PPP loan impacts, loan balances in the second quarter increased 7.2% annualized driven by increases in commercial loan balances of $153 million or 5.4% on a linked-quarter basis annualized, and consumer loan balance growth of $89 million or 17% annualized from the prior quarter.
At the end of June, total deposits stood at $16.1 billion, which was a decrease of $356 million or approximately 8.7% annualized from the prior quarter. The decline in deposits was primarily driven by a public funds client that used available deposit funds to repay higher cost, longer-term debt obligations during the second quarter.
Other than this large outflow, deposit levels were relatively flat in the quarter. At June 30, low transaction -- low-cost transaction accounts continue to comprise 58% of total balances, which is in line with the first quarter levels.
From a shareholder stewardship and capital management perspective, we remain committed to managing our capital resources prudently as the deployment of capital for the enhancement of long-term shareholder value remains one of our highest priorities. At the end of the second quarter, Atlantic Union Bankshares and Atlantic Union Bank's regulatory capital ratios were well above well-capitalized levels.
The company's tangible common equity and tangible assets capital ratio declined from the prior quarter primarily due to unrealized losses on the AFS securities portfolio recorded in other comprehensive income due to market interest rate increases in the second quarter.
Also during the second quarter, the company paid a common stock dividend of $0.28 per share, consistent with the prior quarter, and also paid a quarterly dividend of $170.88 on each outstanding share of Series A preferred stock. In addition, the company repurchased approximately 649,000 shares for $23 million during the second quarter, and has approximately $52 million remaining on its current $100 million share repurchase authorization.
Looking forward, as noted at our Investor Day in May, we increased our top-tier financial metric targets to the following. Return on tangible common equity within a range of 16% to 18%, return on assets in the range of 1.3% to 1.5% and an efficiency ratio of 51% or lower. We continue to expect that the company will achieve these top-tier metrics in the second half of 2022, and over the medium term of 2023 and 2024 based on the following financial assumptions.
Upper single-digit loan growth on an annual basis, net interest margin expansion, excluding PPP fees in 2022 over the balance of 2022 and over the medium term, as a result of the company's asset-sensitive position and the assumption that the Federal Reserve Bank will increase the Fed funds rate to 3.5% by the end of 2022 before reducing it to 3% at the end of 2023.
As a result of loan growth and rising interest rates, FTE net interest income is expected to see double-digit growth in 2022, excluding PPP impacts, and high single-digit growth beyond 2022. We also expect that the company will generate meaningfully -- meaningful positive operating leverage in 2022 and beyond due to the high single-digit revenue growth outpacing expense growth of low to mid-single digits, which should drive double-digit earnings per share growth.
On the credit front, while we still don't see any systemic credit quality issues looking at the moment. We expect that the benign asset quality environment we see today will normalize over the next few years, ultimately resulting in an uptick in the net charge-off ratio to between 10 and 20 basis points. We're also calling that the allowance for credit losses for loan balances is projected to remain at current levels in the 80 to 85 basis point range.
So in summary, Atlantic Union delivered solid financial results in the second quarter of 2022 and continues to be well positioned to generate sustainable, profitable growth and to build long-term value for our shareholders.
And with that, I'll turn it back over to Bill Cimino to open it up for questions.
Thank you, Bob. And Michelle, we're ready for our first caller, please.
And our first question is going to come from the line of Catherine Mealor with KBW. Your line is open. Please go ahead.
Hi Catherine.
Hi, good morning. I want to start with the sale of Dixon, Hubard. Rob, could you just help us walk through what the impact to the balance -- or excuse me, to the income statement will be with fees and then expenses? I think in your guidance, the lower fees, I'm assuming it's coming from that sale, but I would have expected a little bit of a decline in the expenses as well, which look like we're seeing. So just any kind of help us the moving parts there would be great.
Yes. Yes. There's a number of moving parts, Catherine, in the guidance that we published today in noninterest income and noninterest expense. But let me just talk about the RIA impact for a second. In terms of noninterest income, they are generating about -- they were generating about $2.3 million in noninterest income on a quarterly basis, which will be going away on a gross basis.
On the expense side, they had $1.8 million on a quarterly basis, which will also go away in the expense line rate. So in a net positive for a -- net pretax revenue, the RIAs were generated was about $0.5 million.
So replacing the $1.8 million decline expense on a quarterly run rate basis, declined noninterest income of $2.3 million, but add back $0.5 million in noninterest income because we'll be recording $0.5 million, presumably based on earnings of Cary Street Partners. We'll be getting our share of their earnings, which we currently over the next few quarters, I think it will be a push about $0.5 million. So net-net, bottom line pretax, we don't see any issue, but the line items will be adjusted more materially.
So again, take out $1.8 million of expenses and then take out a net $1.8 million on the noninterest income line. And that's really the adjustment, at least on a quarterly basis. In terms of --
Okay. That's -- yes, go ahead.
So yes, so beyond that, you saw we did publish noninterest income in the $105 million to $110 million range for this year. And again, that's the impact of the RIAs. So we've been running about $30 million a quarter, call it, $120 million annually. RIAs in the second half of the year, as I mentioned, with the gross $2.3 million, add back the earnings, the equity investment earnings that we're going to have back out $3.6 million for the second half of the year on the noninterest income run rate for the full year.
In addition, we're seeing headwinds on the assets under management and wealth management. So we're projecting that we will see a softening of fiduciary wealth management fees of about $1.5 million for the balance of this year, second half. Remember, we're also -- just implemented our new goal draft policies, put those in place, and that's about $3 million of negative on the second half of the year. It's about $1.5 million a quarter. But if you look at it on a full year's -- 2022 basis, about half a year, that would be $3 million.
In addition, you see mortgage income coming down due to lower gain on sale margins, but also projections for lower originations. And so we're adjusting downward approximately $1.5 million or about 700 a quarter for the next two quarters. So that gets you into the $105 million, $110 million range, probably on the higher end of that range.
So like I said, there's a lot of moving parts there, Catherine. But those are the main assumptions. And then on the expansion side --
Okay. Yes, go ahead. Go ahead.
Yes. Go ahead.
No. No, you're going to keep going on expenses, and I got one follow-up.
Go ahead, Catherine. Do you have a question on noninterest income side?
On the -- my follow-up to that. That is super helpful for the '22 guidance, but then for '23, it looks like you're guiding to mid-single-digit growth. So where is most of that growth coming from that we look into next year?
Yes. So -- yes. So if you look at the, yes, mid-single digits or so growth, noninterest income, that's basically coming across all the various elements of the various noninterest income categories, service charges, excluding overdrafts, we're going to have a headwind there on the full year basis. But we also -- growing interchange transactions, growing checking accounts, there will be additional service charge on deposits, treasury management fees are growing nicely. So we're growing that off a lower base, but all elements of the noninterest income categories are expected to grow.
Rob, I would add, if I may so interrupt capital markets fees coming out of wholesale banking, which are a number of different categories foreign exchange, which is up and running. We expect to be originating SBA 7(a) selling some of our four basis. We are seeing syndication income now from our origination in Asia team. We have smaller club deal syndications a competency that we've now organized and treasury management fees. I believe you indicated, and Dave Ring, I'm not sure what I'm missing there, but we do have a number of discrete initiatives, particularly on the wholesale capital market side.
Yes. I don't think you're missing anything, John. We might -- we have a long history of working with clients and generating interest rate related fee income, and that seems to be doing much better than last year as well. This is good.
So Catherine, as we indicated at Investor Day, we've done, I think, a pretty good job of diversifying our set of value-added, fee-based opportunities. Many renewables, of course, around the wholesale banking space, and we'll see how that goes. But we're pretty encouraged based on where we are right now.
Yes. And I should say, Catherine, that growth rate is really based on the new base when -- you got to take out the full year impact of the RIAs and a bit more on the overdraft fees. So that growth -- in the end, it's kind of a push, if you look at 2022 this year versus next year, but next year's base is coming down further, and then we're growing from there.
Yes.
But basically, you pretty much flat growth on a point-to-point, year-to-year basis.
We've also avoided what would have otherwise been additional investment in expense coming in the RIA space. So this we think was an elegant solution.
Yes. Right. We should see an uptick in our earnings contribution from Cary Street Partners as they continue to grow next year. They continue to acquire RIAs, not only what we just did, but others, and we expect to see some decent growth coming out of that investment.
Okay. Great. That was all super helpful. And then moving over to the balance sheet and the margin. We saw a deposit -- you remember, is awesome as expected, the positive decline. And I know you mentioned in the slides that, that was really just from one public fund client. But can you just talk about your outlook for deposit growth? And then how that translates also into just kind of the size of the balance sheet with how you might manage your securities, but looks like we're kind of through the cash deployment, but really trying to figure out where you think the size of the securities book goes depending on how deposits flows as well. Thanks.
Yes. So yes -- so as we mentioned, quarter-to-quarter deposits were down due to that one fairly large outflow from a public funds depositor. So we're pretty much flat if you take that out of the equation. We're not looking for significant growth, maybe in the 2% to 3% in deposit growth. We still think there's some surplus deposits in both the consumer and commercial depositors, which you could see start to outflow.
We've seen some of that in -- a bit of that on the consumer side, less on the lower moderate income balance clients. So probably talking about 2% to 3%. We'll see where that goes. And with loan growth, we expect, as we said, upper single digits for the remainder of this year. We'll fund it with hopefully some of that deposit growth.
The other side of that is, as you know, we did build up our investment securities portfolio through the pandemic. We're typically would be running about 15% securities portfolio of total assets. We're now about 20%. We're actually using monthly cash flows that are coming out of that portfolio to fund loan growth.
And that's about $40 million a month or so. So that's being used as well. And then we do have other, obviously, wholesale liquidity sources, funding sources that we will use to shore up any need for funding from loan growth. So that's how we kind of think about it. We expect that the securities portfolio, we will continue to run that down to bring us back to more of a normalized 15% of assets over a period of time, which we're thinking that would be over the next six quarters or so.
And Catherine, as you know, the deposit outlook is somewhat difficult to forecast. It actually is holding up better than we expected, setting aside, again, the one public funds entity, which, as you know, is collateralized. So when that deposit went away that freed up securities collateral. So from a liquidity standpoint, it's not the same as losing a regular deposit. We had to deal with the always seasonal impact of -- April tax payments seem to have overcome that.
Interestingly, net consumer households have grown over the course of the quarter despite the fact that we've closed the quarter the retail branch network since the beginning of the pandemic, relending new commercial clients. So we'll see where it goes. But I think that on the whole, deposits will likely hold up better than we would have thought.
Very helpful. Thanks.
Yes. I'd say we're actually tracking a bit better than we thought since June. So we'll see if that holds that could be seasonal as well.
Yes. This surprising to me, just given the bite that inflation is having.
Yes.
Great. That's all I got. Thanks so much for all the help.
Thanks Catherine.
Thank you.
And thanks to everyone for joining us today. We wanted to take a minute to wish the -- our research analysts to transition to new roles, the best of luck in their new positions, and we will look forward to speaking with you all next quarter. Thanks, and have a great summer. Bye-bye.
This concludes today's conference call. Thank you for participating. You may disconnect. Everyone, have a great day.